Brock Lorber

More About: Philosophy: Fascism

Junk Cars and Recycled Paper

Through a stunning trick of accounting, toxic assets (hereinafter known as 'legacy assets') will be pulled off bank books, leveraged even more, and returned to their books with a cash payoff from you.  Meanwhile, the White House takes center stage as Detroit's managing partner.

TARP II – Revenge of the Quant
Last Monday, while distracting you with AIG bonuses, Treasury Secretary Tim Geithner unveiled the Public-Private Investment Pool (PPIP).  Unlike the last time he unveiled it, this time he apparently means it.

The plan will take legacy assets off the books of banks and put them up for bid to selected investors, who will actually only pay 7.15% of the winning bid with you covering the balance. 

As a quick review, legacy assets are loans that were sliced, diced, and securitized until they were so unrecognizable that they could be stamped with a AAA rating and held as “assets”.  When the AAA rating was discovered as horse-hockey, legacy assets were deeply discounted, until it became clear that government intervention introduced so much regime uncertainty that the “assets” became “toxic”. 

Under PPIP, a legacy asset that currently trades for 36 cents on the dollar will be purchased from the bank for 63.6 cents; a private investor will put up 4.5 cents, and you (the taxpayer) put up 59 cents.  Anytime someone makes a payment on a loan in the asset, you and the investor split it 50:50.  If someone fails to make a payment, however, you get 100% of that non-payment.

(Side note: you don't actually get half the payment, the US Treasury does.  That money will be treated as “found” and go to increase the baseline of future government programs.  You just get to pay all the costs.)

If leveraging these legacy assets at 6-1 seems like a good idea, then you'll love this.  The selected investors will likely be TARP beneficiaries so, in actuality, you are paying 100% of the bid price.

So, rather than accept or value their legacy assets at 36 cents on the dollar, the banks will put the assets up for PPIP auction, and bid for them using TARP money.  With no skin in the game and everything to gain, they will win the auction, put the assets back on their books (now at a basis of .36 instead of 1) and your 59 cents in their reserves.  The bank will claim a 36-cent loss on sale of assets and, thankfully, Geithner is warning against taxing any PPIP profits.

Detroit Doublespeak
“Change” is the buzzword at the 1600 Pennsylvania Ave corporate headquarters of GM and Chrysler.  The managing partners are not happy with reports from their field offices in Detroit and are refusing to provide more bailout money, although they will provide working capital.

“Let me be clear.  The United States government has no interest in running GM.  We have no intention of running GM,” Obama said in a speech outlining his dissatisfaction of the way GM was being run.  A senior administration official to FOX News, “calling in the loans would not be a productive exercise for the American taxpayer since the companies don't have the money [to repay the loans] and it would simply put the companies into uncontrolled Chapter 11.”
While it may come as a surprise that Chapter 11 bankruptcy is uncontrolled, the official explained it's a matter of who controls.  “Bankruptcy is not the goal,” although there may be a “role for a court supervised process to effect the restructuring...different from Chapter 11.”

The White House is giving Chrysler 30 days to form a partnership with Fiat (giggity) in which Fiat cannot take a higher stake than the White House initially, and in no case more than 49% until all government loans are repaid in full.  As a sign-on bonus, the White House is offering $6 billion of your money.

Over the weekend GM Chairman and CEO, Rick Wagoner, stepped down, presumably in lieu of becoming Resident #1 at the North Dakota Workers' Paradise.  He will be replaced with President and COO, Fritz Henderson, whose qualifications include a 5.91 ERA pitching for the University of Michigan, $2,500 in donations to Party campaign funds, and $4,500 in donations to the General Motors PAC.

GM also has 30 days to do...something different...that, once approved by the White House will not be controlled by the White House.  Although the “or else” has not been spelled out, you can bet that it will not be cheap for you to fund (possibly even more expensive than the $16.6 billion GM requested in February).

Trash for Cash
With no end in sight for wealth transfers from the productive to the unproductive, President Obama also announced a deal sweetener for you, the taxpayer.  Push, drag, or drive it in, you can get cash (from yourself) for that clunker, allowing you to take on another car payment and experience the thrill of drive-off depreciation all over again! 

Don't worry about losing that job, it's the tent event of the century (you can park that new car right next to your tent)!

I would suggest waiting for the new models to come out.  I hear the Biden Edition Pontiacs will come with standard tire plugs and coke trays.

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