Auction, What Auction?

The money powers prey upon the nation in times of peace and conspire against it in times of adversity. It is more despotic than a monarchy, more insolent than autocracy, more selfish than bureaucracy. It denounces, as public enemies, all who question its methods or throw light upon its crimes. I have two great enemies, the Southern Army in front of me and the bankers in the rear. Of the two, the one at my rear is my greatest foe. - Abraham Lincoln

As I mentioned last month, we had what I considered very suspect results from the Treasury’s “Stress Test” of our nation’s 19 largest banks. I was concerned because this so called test used a statically manipulative “cash flow” methodology, to value the banks’ toxic assets. My concern was that they were about to participate in an auction, that would expose the true market value of these very assets. Well… not to worry. The auction of toxic assets has apparently been postponed indefinitely. But wait…wasn’t that the magic bullet? Wasn’t that the way we were told that the banks would finally shed these toxic assets from their balance sheets and get back to business of lending? Haven’t we been told by our government all along, that we needed to cough up TRILLIONS of dollars in debt to pay for all these bailouts, to avoid another Great Depression? Weren’t we all under the impression that the sole source of all our problems economically was rooted in these “toxic assets” and the gross over leveraging they represented?  Hmm…

The really funny part is why the toxic asset auction was canceled …and you are just going to love this. Last month the 10 largest banks hired a firm by the name of the Clearing House Association. No, not the magazine subscription firm that shows up at your door with big oversize checks. However the Clearing House Association does show up routinely in Congress with big oversize checks, in a process we call lobbying. This time they were hired specifically to sell the idea that these banks should be allowed to bid on their own toxic assets at the PPIP (Public-Private Investment Program) auction. Yes, you read that correctly, and they probably used our bailout funds to finance this lobbying effort. Now normally the collective set of lap poodles we call our US Congress would sit up and bark as directed, whenever a request is made accompanied by large oversize checks. After all, the political malfeasance that allowed us all to get in this much trouble was certainly bought and paid for long ago. [See the Community Reinvestment Act and the Gramm Leach Bliley Act as un-indicted co-conspirators in this economic debacle.] But this time they managed to find enough political will to just say “NO”! And what was the collect response from our troubled banks? They told the Treasury that they refused to play then, and took their ball and went home. This of course has left the FDIC, the Treasury and Mr. Geithner looking like fools. So in typical political fashion, the FDIC and the Treasury issued statements that these banks really didn’t need to participate in the auction since they had collective been able to raise a paltry $100B in private funds since the stress test. I guess they figure that we as a population are so mathematically challenged, that we wouldn’t notice that $100B doesn’t begin to cover the even $1T of the several trillion dollars pledged to shore up the banking system. But if according to some new lap poodle math it does, then shouldn’t we be asking these representatives to explain, why then do they still need all these trillions of dollars?

In conclusion, mortgage rates are still low. But they are only low because of the $1.2T Federal Reserve mortgage program currently in place. Sooner or later, there will be a day of reckoning and these rates will be gone for many years to come. Don’t miss out. Call me, or call any other mortgage banker. Just don’t miss out on this opportunity to recoup some of these bailouts we will all be paying for the rest of our lives.

Dan Smith can be reached at 303-674-0201, or visit him on the web at www.ColoradoHomeLoans.com!