Geithners plan
All of this makes me so sick… who the heck is making all of the money that is lost? or who is making money on what government is giving away?
According to The Wall Street Journal, delinquencies on commercial mortgages are soaring. The delinquency rate on $700 billion in securitized commercial real estate loans has more than doubled in just the past six months. At 1.8 percent, it’s still low on an absolute basis. But it’s the direction that counts, and analysts are now expecting delinquency rates to rival those seen in the early 1990s commercial real estate collapse.
So what does that say about the value of CMBS — Commercial Mortgage Backed Securities? The value of those securities SHOULD plunge. Yet industry lobbyists claim that it’s not crappy fundamentals driving their value down, it’s liquidity — and that they shouldn’t have to take big mark downs as a result.
Geithner Plan Structured as a Blatant
Wall Street Giveaway …
Let me ask you a question: Suppose you wanted to buy something that has an even chance of being worth nothing or $200 a year down the road. You might be willing to pay $100 for it, because you have a 50/50 chance of doubling your money.
Now say the government came along and said: “We’re going to give you 92 bucks to buy this asset, and if you “win,” we’ll only take 50 percent of your profit. If you lose, we’ll eat almost all of the costs.”
Not a bad bargain, eh? You might even say it’s a great one. And since you have so little money at stake (8 percent of the purchase price), you might even be willing to pay an inflated price for the asset — say, $150. In that case, you’d have to put up just $12, while the government would give you $12 in equity and a $126 guaranteed loan.
In a “win” scenario (where the asset goes to $200), you pay back the government’s $126 loan and you split the $74 profit 50-50. Congratulations! You just made $37 on a $12 investment. Your partner, the government, who took on $138 in risk, also made $37 — but received a much smaller percentage return.
In a “lose” scenario, you take a $12 hit. But the government gets stuck with a loss of $138.
And to boot you can use TARP money for your down payment to buy other situations, but not your own, which others can buy!
