Treasury to seek out money managers for bailout help

Bailout trickle-down: BlackRock Inc., Pimco and Legg Mason’s Western Asset Management unit served as informal advisors to the Treasury on the $700-billion financial-system rescue plan and now are offering to manage some of the assets the government will buy from banks, Bloomberg News reports, citing people familiar with the matter.

The Treasury will choose five to 10 money managers to help it buy and manage troubled mortgage debt, officials reiterated today, according to Bloomberg.

More from the story:

The Treasury's first attempt to hold an auction to buy troubled assets from financial firms will take at least four weeks to set up. Managers will be evaluated based on the cost and scope of services they offer. The Treasury is still working out a conflict-of-interest policy and details for guidelines on compensation.

BlackRock, Pimco and Western Asset all are veteran bond-fund managers. BlackRock is in New York, Pimco is in Newport Beach and Western Asset is in Pasadena. Spokesmen for the companies declined to comment.

What everyone’s waiting to see, of course, is the pricing scheme Treasury and its advisors set up for loan purchases. How much is this mortgage dreck really worth if, like Uncle Sam, you’re planning to hold it for years rather than days?

Separately, the Treasury today hired State Street Corp. and Barclays PLC to manage a previously announced $10-billion program to buy mortgage-backed securities of Fannie Mae and Freddie Mac -- an attempt to lend support to that market and bring down mortgage rates.

Thankfully, there’s no shortage of out-of-work Wall Streeters available for hire as the Treasury morphs into a giant hedge fund.

Comments

[Bust Trusts]

Why can't Halliburton and Blackwater help funnel some of those hundreds of billions to Paulsen's cronies on Wall Street? They did such a great job reconstructing New Orleans after Katrina! Isn't capitalism in the Cheyney administration all about helping out your buddies with taxpayer handouts?

[Maggie Knowles]

Favoured private equity and insiders who swap US dollars for equity in the banking system will presumably be aware of the survivor bias being engineered on their behalf. Sovereign wealth funds, investment funds and private equity investors ripped off in the first round of recapitalisation may be willing to come back in once it is clear to them that the next round will benefit from official favouritism. Warren Buffett’s timely stake in Goldman Sachs is clearly linked to his confidence the Paulson Plan will benefit them disproportionately.

A factor which is probably critical but has received little discussion is that literally thousands of Bush administration apparatchiks will need jobs come January, and a fair selection of GOP House and Senate legislators and their aides too. What better way to enahance their CVs in their final months in power than to distribute $700 billion or so in pre-Christmas largesse to the most remunerative employers in the world? And what better way to ensure the corporate largesse is returned to the GOP to win back the White House and Congress in 2012 as the recession fuels public anger?

And then there is a huge arbitrage opportunity as well so that everyone makes money for years to come. According to the conference call, the pricing on offer from the Treasury will be a bit below Level 3 pricing. The toxic assets will be repackaged and resold with a new AAA wrapper, possibly priced well below what the Treasury paid, assuring a huge profit on both immediate liquidation by the banks and ultimate maturity by investors. The Fed gets its cash and Treasuries back; the banks make huge profits; the foreigners and off-shore tax avoiders get disguised ownership of the American financial system; the taxpayer gets ripped off. What’s not to love?
~~~~~~~~~~~~~~London Banker, http://londonbanker.blogspot.com/

[pegpond]

Obama worked as a Lawyer for Acorn, Acorn forced banks to give risky loans to uncreditworthy people with no money down, ie no vested interest. People with no real vested interest buy property increasing the price of real estate creating the housing bubble, and while artifially inflating the value of real estate which also increased your property tax. The republicans fought over and over for more regulation and oversight, but Andrew Mozillo, Countrywide/ Raines & Johnson of Fannie Mae along with their Counterparts and reciepients of the largest campaign contributions who are supposed to work for you the people not Fannie Mae, Barney Frank, Chris Dodd, in fact all the Democratic Memebers of Congress voted against it. So Fannie sells these worthless mortgages to the Stock market and now we have a Crisis. The bad loans that should not have been made are being forclosed on and those foreclosures have now driven down the value of your property. Who wins Jim Johnson/Franklin Raines who made millions from Fannie Mae & The recipients of campaign contribushions , Dodd , Obama, Frank, Angelo Mozilo owner of Countrywide who did his bailout by selling his stock before things really got bad THEY SHOULD ALL BE IN PRISON. Who are the losers, You the American Taxpayer who has to pay for the Bailout that the Dems not only rushed to push through, (Jeez they wanted to help a Lame Duck Republican President) Quickly .We can blame it on Wall Street Greed like any one who buys an investment they bought it in droves because they were led to believe it was sound. And now your Retirement Fund your 401K is not worth S***, So when you open your earnings report and go to vote in Nov. remember who got you into this mess.

[Robert]

Bush-Cheney-Paulson-Bernanke PLAN: "Punish Innocent Taxpayers, Reward guilty theives"!

When Secretary of the Treasury Henry Paulson testified before the Senate Banking Committee 3 weeks ago, he said he was shocked to learn when assuming office in June 2006 that no federal agency regulated mortgage lending. Rather this was an area left to the states.

What Paulson did not say was that when the states attempted to intervene, they were blocked by the Treasury Department’s Office of the Comptroller of the Currency. In a February 14 article in the Washington Post written before he resigned, New York attorney general and governor Eliot Spitzer wrote:

"In 2003, during the height of the predatory lending crisis, the OCC invoked a clause from the 1863 National Bank Act to issue formal opinions preempting all state predatory lending laws, thereby rendering them inoperative. The OCC also promulgated new rules that prevented states from enforcing any of their own consumer protection laws against national banks. The federal government's actions were so egregious and so unprecedented that all 50 state attorneys general, and all 50 state banking superintendents, actively fought the new rules. But the unanimous opposition of the 50 states did not deter, or even slow, the Bush administration in its goal of protecting the banks. In fact, when my office opened an investigation of possible discrimination in mortgage lending by a number of banks, the OCC filed a federal lawsuit to stop the investigation."

Why did the Bush administration do this? The only possible answer is that it had every intention of producing the housing bubble, one that had the effect of not only inflating the cost of homes and real estate but also pumping billions of dollars of borrowed cash into the economy through mortgage and home equity loans.

The bubble enriched huge numbers of executives, managers, and shareholders throughout the financial and real estate industries, and provided jobs to millions of people. The bubble also brought back foreign capital to U.S. markets that had been scared away by the dot.com bust of 2000-2001.

Everyone seemed to benefit, but it was those at the top who skimmed the greatest profits. And for an economy that had already given away millions of its best manufacturing jobs through NAFTA, Most-Favored-Nation trading policies with China, World Trade Organization agreements, etc., the bubble acted as a kind of substitute economic engine.

It also resulted in tax revenues that allowed the Bush administration to implement its 2001 and 2003 tax cuts for the rich and provide funding for the Afghanistan and Iraq wars. Of course these tax revenues were not enough, as the national debt soared to over $9 trillion during the Bush years as well.

[James Monachino]

Freddie & Fannie Resurrection

The Bailout ($$$ Trillion plus) is running wild. The danger is we have an administration who is writing the checks knowing that they won't be around to justify all the additional next generation taxes they are creating in the form of interest and principle payout.

One last hurrah for the Darwinian Capitalism, survival of the fittest - - Only the strongest and most influential corporations will dine for free at the taxpayers table. This is self selection in a manner that rewards privilege and resource.

How can this be? Upon selection, let's examine the new team of Wallstreet retreads Treasury Secretary Paulson will chose to work with.

It will be interesting to see the teams that are chosen and what past role they had in creating the original problem we are trying to solve. In additional, none of them work cheap. Their skills are worth millions of dollars in compensation so taxpayers pay again. No new regulation, rules, limits, or compensation caps, business as usual one more time.

Another Way ---

Since the American tax payer has all ready bailed out Freddie and Fannie I would like to suggest that Secretary of Treasurer Paulson work through these two agencies.

A handful of executives got excessive compensation bonuses but the rest of the organization did not. For decades these organizations did what they were charactered to do. Adjust the mandate, monitor the compensation, and regulate their leverage and let them propose some programs.

Recommendation: Freddie and Fannie submit a joint draft detailing how they would mop up the targeted toxic mortgages along with additional suggests on how to stabilize the real estate market by Thanksgiving.

Why? Having worked with these two agencies in various capacities, I can tell you most of the employees don't have a rip and tear mentality often found on the Wallstreet.

In Addition:
* They have a corporate infrastructure in place to handle the size that will be necessary.
* They have the ability to drill down to the loan level and help stabilize the underlining problem of price erosion of real estate properties.
* They have the ability to quickly launch a series of new origination products that can mop up the toxic mortgages.
* They are a known an accepted International Organizations.
* Untied States Tax payer is the primary owner of these two GSA's and deserve to benefit of any profit, if there is one.

Finally, Regulation, Oversight, and Compensation controls can be monitored and adjusted to reflect fair value for all employees and participates.

Obviously there is more, but this project can work and within the confines of the existing financial platforms.

James Monachino