The looting continues

Remember that money we gave to Citi and Bank of America so that they could start lending again? Turns out, instead of lending, they are using it to buy up more toxic assets, so they can reap the benefits of the Obama/Geithner auction (giveaway) plan I mentioned on Tuesday.

From the NY Post (@ Naked Capitalism):

As Treasury Secretary Tim Geithner orchestrated a plan to help the nation’s largest banks purge themselves of toxic mortgage assets, Citigroupand 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.

… While some observers concur that the buying helps revive a frozen market, others argue the banks are gambling away taxpayer funds instead of lending.

Simply amazing if true. This is the danger of giving these banks money without proper control (aka nationalization). The hope was that private actors can make better market driven decisions to get us out of this mess. However, it seems the truth is that whoever’s in charge is just trying to make a quick buck, the consequences be damned. And unfortunately, that’s exactly what got us into this mess in the first place. 

It’s foolish naiveté to think that Wall Street will regulate itself or operate for the common good. It’s even more foolish to think the people who created a mess are the ones who should fix it.

2 Comments

  1. Ian

    Yeah, we can’t give them money without the stipulation that they use it how we want. This whole thing sucks.

  2. Chris

    Yes.. and it seems to me, if our money is being used this way, all it’s doing is temporarily inflating the market for these bad mortgages. This won’t actually clear the banks of these garbage loans.