Guaranteed Box of Crap, Part NINE

I’ve used this quote (Tommy Boy) before, and I’ll use it again – every time we stamp a Government guarantee on crappy assets:
“Because they know all they sold ya was a guaranteed piece of shit. That’s all it is, isn’t it? Hey, if you want me to take a dump in a box and mark it guaranteed, I will. I’ve got spare time.”
Today’s occasion?  >The Wall Street Journal explanation of the Credit Union takeover.
First, let’s hope around the article and pull out some direct quotes:
1)
“Friday’s moves include the seizure of three wholesale credit unions, plus an unusual plan by government officials to manage $50 billion of troubled assets inherited from failed institutions. To help fund the rescue, the National Credit Union Administration plans to issue $30 billion to $35 billion in government-guaranteed bonds, backed by the shaky mortgage-related assets.
Officials said the plan won’t cost taxpayers any money.”
2) 
“Losses on the mortgage-backed securities held by the five seized credit unions are expected by regulators to total about $15 billion. Wiping out the capital of the failed institutions will cover a chunk of those losses. But the remaining $7 billion to $9.2 billion eventually will be passed along to the nation’s 7,445 federally insured credit unions in the form of future assessments.”
3)
 “Together they had about $50 billion in shaky mortgage-backed securities on their books, according to Larry Fazio, NCUA’s deputy executive director. 
Based on current market values, those securities are worth roughly half of their face value, representing a potential loss of $25 billion”
So, to summarize:  We have  $50B in bad assets, which are currently worth roughly $25B, which will be stamped “GUARANTEED” by the government and sold for $30-$35B.   Since it seems that this time the Powers That Be actually realize up front that there will be losses (though they are careful to note: not to taxpayers, and not to buyers of the “guaranteed” paper), this may be the best use of “guaranteed box full of crap” thus far.  Who will eat the losses?   The remaining credit unions – you can think of this as a kind of FDIC for credit unions – their regulator will assess fees as a way to recoup the losses that will eventually be taken.  Magically, these losses are delayed/spread out via the “guarantee,”  allowing the pain to be taken over a longer period of time.
Maybe this one will actually work!
-KD

Kid Dynamite is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to Amazon.com. If you click on my Amazon.com links and buy anything, even something other than the product advertised, I earn a small commission, yet you don't pay any extra. Thank you for your support.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

blog comments powered by Disqus
Kiddynamitesworld Blog