Are Banks Already Gaming The Geithner Plan?
If you really know what’s going on with how Geithner’s plan is structured and how the banks can take advantage of it, then this is the type of behavior is incredibly suspect because it appears as if they’re gambling with the TARP money when they should be lending it instead.
As Treasury Secretary Tim Geithner orchestrated a plan to help the nationâ€™s largest banks purge themselves of toxic mortgage assets, Citigroup and Bank of America have been aggressively scooping up those same securities in the secondary market, sources told The Post.
Both Citi and BofA each have received $45 billion in federal rescue cash meant to help prop up the economy and jumpstart the housing market.
But the banksâ€™ purchase of so-called AAA-rated mortgage-backed securities, including some that use alt-A and option ARM as collateral, is raising eyebrows among even the most seasoned traders. Alt-A and option ARM loans have widely been seen as the next mortgage type to see increases in defaults.
One Wall Street trader told The Post that whatâ€™s been most puzzling about the purchases is how aggressive both banks have been in their buying, sometimes paying higher prices than competing bidders are willing to pay.
I’ll have to find out more about this, but right now it just doesn’t look kosher. Not when they accepted bailout money. Because, as I mentioned above, that money should be going towards lending, not buying. Or, if nothing else, the banks should keep the money in the vault so they don’t overleverage themselves again.
More as it develops…