Easy Picken's

After reading, hearing and watching all the furor over the new TALF, the feeling is not as bright as yesterdays' upswing in the market. The only people for the new program are the very same people who told us:

1) The original market interventions by the Fed, including the TARP, were necessary and would work. So far, the Fed has increased its balance sheet almost $2 Trillion, mostly by exchanging good US Treasury Bonds with toxic assets from the banks.
2) The Maiden Lane operations (I, II, and III) initiated to cover losses of CDO's by Bear Stearns, then AIG, were promised, as late as January of this year by Ben Bernanke, to give taxpayers a profit. Maiden Lane has so far lost over $40 Billion, and counting.
3) The bailout of Fannie Mae and Freddie Mac were supposed to increase mortgage lending. So far, the only result is a loss of $100 Billion to each.
4) The bailout of AIG directly would give the taxpayers a profit ($200 Billion loss, so far). To date, it has amounted to a pass through so companies already receiving bailout monies could get more. Now, many sources are reporting the losses could go as high as a few Trillion.
5) $25 Billion to the US automakers was, we were told, to allow them to retool and start making cars of the future. No cars of the future yet, but now they are getting $17 Billion more, with proposals to extend that to maybe $60 Billion.
6) $300 Billion in guarantees of "toxic" assets for CitiGroup would calm the markets. In exchange, the government received warrants for shares in Citi, that they value at $20 per share. Citi currently trades at $3 and change.
7) A sustained ZIRP (Zero Interest Rate Policy), or almost ZIRP, from the Fed was supposed to ease lending to bring housing prices back up. Since lowering rates, housing values have fallen further and faster.
8) Ben Bernanke has predicted several times over the past two years that his initiatives would cause an upturn in GDP in a few quarters. He now predicts the GDP will rise in the second half of this year. More than 2 million jobs have been lost since his first prediction.

The new TALF, if not policed, will only provide a backdoor for the banks that are most bankrupt to dump their toxic, level 3 assets on the taxpayers.

The proposal requires 5% from the private investor, and the government will loan them another 5% to meet a 10% down down payment. Let's say Citi has an SIV that they claim is worth 80% of its original $1 Billion value. No private investor will pay 25% for this SIV. Now, through an intermediary, Citi is able to put in a bid for the 80%. They pay $40 Million, the government pays $40 Million. That covers the 10% down payment. Now that SIV is off of Citi's books, and onto the FDIC's, Treasury's or Fed's books.

If it loses all of its value (which in the case of SIV's is highly likely), Citi (or its intermediary), instead of being out $800,000 million more, is now only out $40 Million. They effectively just transferred the remainder of the loss to the taxpayers via the Fed, Treasury and FDIC. Any amount they are able to get on the open market, should a cash flow actually be sustainable from the SIV, will lessen the loss. The point is, they currently cannot sell it for anywhere near what they have in it. Too many of the people that predicted the crisis was contained two years ago, are the same people now saying the SIV is worth what Citi says it's worth.

For more on this, please see;
Karl Denninger
Mish
Reuters: Stiglitz

I can only hope and pray there are safeguards to keep what I described from happening. The idea that they are hiring hedge funds as subcontractors to conduct all of this does not bode well, for me.

For a very good read, may I suggest Matt Taibbi's article "The Big Takeover" in Rolling Stone.