Are Banks Already Gaming The Geithner Plan?

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.

From NY Post:

As Treasury Secretary Tim Geithner orchestrated a plan to help the nation’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 banks’ 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 what’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…

  • TerenceC

    What is the matter with your site?

  • Zach

    Here’s a decent explanation of what’s probably going on here.

  • Justin Gardner

    We switched over a new server late last night and had some hiccups.

    But what have you seen that’s wonky?

  • TerenceC

    I’ll write a comment – nothing too offensive:) – and 6 times in the last week it didn’t even show up. In addition, several times after using the “re-Captcha” key I get an output of database errors – I didn’t log them – but I’m doing that now so if I see it again I’ll email the script to you.

  • Justin Gardner

    The site has been really wonky the past week. Database issues all over the place. But we did move to a better server now, so fingers crossed it’ll get better.

  • rob

    The term you are looking for is “doubling down”, but using the house’s money.