The Obama administration is close to deciding on a plan to purchase bad—or non-performing and illiquid—assets from banks ... The so-called "bad bank" plan, would address the key problem of how to price the assets by using a model-pricing mechanism.
Thurgy: Jebus H. I'm at a loss for words here. The bad/non-performing and illiquid assets are already being marked-to-model, or marked-to-fantasy pricing. Precisely why the banks keep these in off-balance sheet (Tier 3 assets). If they had to mark even a small amount of this stuff to market they'd be insolvent..Oh wait, scratch that. By definition a model is inherently wrong.
The model would take account of the government's ability to hold onto assets, even to maturity, and pay for the them with cheap funding. Result: the government might end up paying more than current market prices for the securities.
Thurgy: We've already heard about 'hold to maturity' from the TARP and Bear Stearns. And they convinced congress this would work. Secondly it will prove to be a blunder of extraordinary magnitude to assume the US will always have access to cheap funding. We're already paying over $500B in interest per year...the US is basically a jumbo sub-prime borrower with an adjustable rate mortgage. Lastly, it is a certainty the government will end up paying more than current market prices for these securities. They are already marked to model and the government is also going to use a model for valuing these assets. Considering the government has been wrong every step of the way, I don't expect them to come close to a reasonable valuation on these toxic assets.
Where is the accountability?
If the average tax payer invested his own dollar by buying banks when Paulson promised us way back then that the fundamentals of our economy remain strong and the banking industry is well capitalized, can they get TARP? It is a toxic asset after all. Or when Bernanke promised that sub prime will not spill over into the economy. Or when every CEO was on the tube promising they were well capitalized days before an imploding. When people were "spreading rumors" there was a witch hunt for the evil wrong-doers trying to bring down the stock prices of the bank. It is completely legit to get on the TV and lie about your financial status as long as it is to restore confidence, but don't talk smack about anyone or the SEC will get you. This level of fraud being perpetuated makes Madoff scheme look like a joke.
Wall Street Journal:
According to a securities filing last week, Merrill's overall compensation and benefit expenses were down by 5.7%, to $15 billion in the year ended Dec. 26, from $15.9 billion a year earlier. The average Merrill employee got $247,423 in compensation and benefits in 2008, down just slightly from 2007.
By contrast, Bank of America employees got $75,577 in average compensation and benefits in 2008, down from $89,420 in 2007.
People at Merrill were loving life. Levering up, and spreading their wealth internally. Then they blew up and we are footing the bill for all of this. Once again I'm at a loss for words but fortunately Adam, of the Daily Options Report, shares his thoughts on Merrill in 'Lunatic Fringe'. This pretty much sums up my thoughts exactly and I'm sure most people would agree. Rather than re-post it here you can just read it there.
