Banks making huge profits from toxic assets

StopBankGreed

In yet another bank bail-out horror story, it turns out that what the government really did for the financial giants when it unveiled the Public-Private Investment Program (PPIP) in March as a way to help them unload their toxic mortgage securities was put up a sign that read, "Free money, come and get it."

The program, which was supposed to help banks dispose of the bad loans, instead made them so marketable that banks bought more of the toxic assets which, in turn, exposes them even more to the stalled housing market.

Reports that came out this week show, once again, that for finance capitalists the lure of immediate profits, particularly when they are there for the grabbing at taxpayer expense, will trump everything, even their own long-term financial health. For the banks the PPIP has ended up as nothing more than another money-making opportunity.

Bloomberg figures released this week show that Bank of America, Citigroup, Morgan Stanley and Goldman Sachs, rather than getting rid of their bad loans, actually purchased $2.74 billion more of them. The increase in this type of debt held by the four companies rose 13 percent for the second quarter.

Under the PPIP asset managers were supposed to raise money from investors and, with additional capital and loans from taxpayers, buy as much as $1 trillion in toxic assets from banks, freeing them up to lend money.

"It's absolutely ridiculous that banks, which were expected to reduce their holdings of such volatile mortgage securities bought them before the government program was running in order to make more profits from the bail-out," said Michael Schlachter, managing director of Wilshire Associates, a Santa Monica, Calif. Investment-consulting firm. "Some of them created this mess," he said, "and they are making a killing undoing it."

Eric Petroff, director of research at Wurts & Associates, a Seattle-based investment-advisory firm, was quoted by Bloomberg: "Any time the government says, ‘We're going to buy something in the securities market,' they're putting out a sign that says, ‘Free money, come and get it.'"

The apparent greed that motivates finance capitalists to jump at any opportunity to rake in immediate profits regardless of long term consequences is worrying many, even in the business community. They feel the banks are exposing themselves, once again, to the very losses that the taxpayer backed bail-out was supposed to prevent.

Joshua Rosner, a managing director at the New York based Graham Fisher & Co., which advises regulators and institutional investors, warned that the prices of these securities may drop again, hurting both the banks themselves and, of course, investors.

He said the financial institutions are engaging in "speculative trade, which is not what a taxpayer should want from firms that have only recently come out of critical care."

 

 

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  • John is right on in his analysis. I wrote a piece for Political Affairs in March (at the time Geithner announced the PPIP) that predicted this was exactly what would happen and it was exactly what the program was designed to do. This is consistent with a nearly 30-year long process whereby crises are exploited as an opportunity to transfer public money into private hands (mainly giant financial firms) as part of a brutal class warfare waged against working people under the banner of neo-liberalism. The PPIP was simply the latest and largest such grab and marks an intensification of capitalist exploitation. Nice work.

    Posted by Jim Genova, 01/06/2010 9:06am (5 years ago)

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