Thursday, March 26, 2009

Are Troubled Banks Chasing Their Losses?

Are Bank of America and Citigroup chasing their gambling losses in the mortgage derivative market by buying more risky derivatives with taxpayer-financed Troubled Asset Relief Program (TARP) funds?

That's what Jane Hamsher and finance expert Yves Smith have concluded. The banks are, in effect, acting like bleary-eyed, punch-drunk gambling addicts, chasing their losses while hoping their luck turns around.

Is this what Tim Geithner intended with his "public-private partnership" idea?

Based in part on yesterday's New York Post story ["Double Dippers"] and in part on Wall Street trader observations, Smith writes:
It certainly looks as if Citigroup and Bank of America are using TARP funds, not to lend, which was one of the primary goals of the program, but to scoop up secondary market dreck assets to game the public private investment partnership.
Citigroup, as mum as the glum gambler it is, has no comment. Bank of America's response?
"Our purchases in [mortgage-backed securities] increase liquidity in the mortgage market allowing people to buy a home," said BofA spokesman Scott Silvestri.
Both troubled banks are "speculating with taxpayer money," Smith concludes. "Welcome to yet more looting."

1 comment:

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