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- Jun 18, 2010
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- 378
John Hoefle
September 15, 2011
U.S. Treasury Secretary Tim Geithner will attend the meeting of the European Economic and Financial Affairs Council (Ecofin) in Wroclaw, Poland, on September 16 and 17.
At this meeting, according to an "exclusive" report by Reuters, "Geithner is likely to suggest to European finance ministers on Friday that they leverage their bailout fund along the lines of the U.S. TALF program, EU officials said." Added Reuters:
"Geithner will probably insist on the importance of leverage to have more funds to ringfence the big Europeans, Italy and Spain, and to find a solution for Greece," one EU official said.
"The leveraging of the EFSF — I think this is something that he will put on the table," the official said. "There could be some openness to the proposal."
The Reuters report was quickly picked up by others, including Dow Jones and the Wall Street Journal. As of this writing, it appears that Reuters is the sole source, but further details should emerge.
Geithner has been on the stump in recent days. At the CNBC/Institutional Investor "Delivering Alpha" conference on Wednesday, Sept. 14, Geithner cynically complained about the "political dysfunction" in governments. According to CNBC:
"You have this terribly damaging political dysfunction here and in Europe that leaves the world wondering whether the political system has the capacity to do the right thing," he said. "That is very damaging to confidence.... We have an interest in helping them through this, but this is their challenge and they have the economic and financial capacity to meet this challenge," Geithner said. "The people who think this is beyond their (ability) are mistaken."
Speaking on CBNC the same day, Geithner defended the Obama "jobs plan" to host Jim Cramer:
Tim Geithner, U.S. Secretary of Treasury: "Absolutely not. I think that there's no reason now for the Congress of the United States not to act to help strengthen growth in the near term. It's the conservative, prudent, responsible thing to do. You can think of it as protection against Europe."
Cramer: "Okay."
Geithner: "You can think of it as insurance against weaker growth going forward. And you got to think about the alternatives. If Congress or Washington is incapable of acting, then policy will be damaging to growth because what you'll have is a deeper, steeper contraction in fiscal support than is prudent for an economy at this early stage of the crisis given the shocks we face. You know, life is about choices. Life is about alternatives."
The theme of political dysfunction in Washington and in the capitals of Europe has been a favorite lately among the financial parasite class. The technocrats could manage things quite well if those pesky issues like national sovereignty, legality, and the general welfare could be kept from interfering.
The discussions about a need for a TARP/TALF-like bailout for Europe are growing in the U.S. Banking analyst Dick Bove told CNBC on Sept. 13 that a program similar to the TARP would be a big help to Europe. Said Bove:
"The banks stop the run, they now start to write off their assets down to realistic levels and they start to build cash. So as a result of that the American banking system now has $1.6 trillion in cash sitting at the Federal Reserve, just sitting fallow. As a result this was the most successful program the US government has been in since it bought Alaska."
Bove said that some government agency or central bank could help coordinate the European arrangement. Presumably he means some sort of imperial overlord function, given what he said next:
"So we do have a mechanism in place to determine whether these banks are meeting what is required. The fact of the matter is I could care less whether Greece goes under or whether some other country goes under. What I'm interested in is whether the banks that hold that debt have marked it properly and have enough equity and liquidity to handle the hit."
It is not surprising that a man who "could care less" about nations would be in favor of destroying those nations to save the banks.
The TALF
The Term Asset-Backed Securities Loan Facility, or TALF, began operation in March, 2009, for the express purpose of supporting the asset-backed securities markets. It was one of a string of an alphabet-soup of special Fed bailout facilities. Whereas most of the other facilities were created to provide liquidity to the financial system, the TALF was created to kickstart the market for asset-backed securities (ABS).
Under the TALF program, the Treasury agreed to provide up to $20 billion from the TARP (Troubled Asset Relief Fund) as backing for $200 billion in loans made by the Fed through the TALF. The scheme was to loan money to "investors" to buy ABSs in a range of classes. According to the Fed (in July 2010):
Under the TALF, which began operation in March 2009, the Federal Reserve Bank of New York extended loans to investors in highly rated asset-backed securities (ABS) and commercial mortgage-backed securities (CMBS). By encouraging issuance of ABS and CMBS, the TALF was designed to increase credit availability and support economic activity. Although the TALF extended $70 billion in loans, many TALF loans, which have initial maturities of three or five years, have been repaid early, in part because the interest rates on TALF loans were designed to be higher than market rates in the more normal conditions that have come to prevail in a number of securitization markets.
Any losses on the TALF program would first be absorbed by the accumulated excess of the TALF loan interest payments over the Federal Reserve's cost of funds and then by the TARP funds. To date, the TALF program has experienced no losses and all outstanding TALF loans are well collateralized. The Board continues to see it as highly likely that the accumulated excess interest spread will cover any loan losses that may occur without recourse to the dedicated TARP funds.
The TALF covered ABS issued on auto loans, student loans, credit-card loans, equipment loans, floorplan loans, insurance premium finance loans, loans guaranteed by the Small Business Administration, residential mortgage servicing advances, or commercial mortgage loans. (It is likely that the TALF played a significant role in papering over the bloodletting in the commercial mortgage market, and it is also worth noting that the amount of ABS backed by student loans are now greater than those backed by credit cards and autos.)
Under the TALF program, the loans are non-recourse. When an "investor" borrows money through the program to buy new ABS, the investor provides collateral. If the value of the collateral falls below the amount owed on the loan, the "investor" can decide not to repay, and let the Fed keep the collateral. So if, for example, the "investor" used the same securities he purchased as his collateral for the loan used to buy them, he could keep them if they turned out to be profitable, and dump them back on the Fed if they did not. So the Fed is essentially guaranteeing a profit.
One could see where that sort of deal could appeal to the banks buying European "sovereign" debt.
Leverage
Asset-backed securities are essentially derivatives, whose value is nominally derived from the values of the assets upon which they are based. However, as we have seen with the residential mortgage-backed securities market in the U.S., this is an area rife with fraud, even in its own terms. So the TALF is explicitly a program to protect the derivatives market, which makes it a fraud even if all the "rules of law" are followed, an assumption that is not warranted.
The original TALF was leveraged 10-to-1, with $20 billion in TARP funds backing up to $200 billion in potential TALF loans. If one applied that same leverage to the 440 billion euros in the European Financial Stability Facility (EFSF), one would get a potential 4.4 trillion euros in TALF-style loans. (The Fed, it should be noted, is leveraged 55-to-1, with $2.9 trillion in assets backed by $52 billion in capital.) Under this potential Euro TALF then, using the U.S. program as the model, the ECB might buy up to 4.4 trillion euros in European government bonds.
The ABS market is a way to create fictional money out of thin air. The idea is that a lender, such as a bank, can make loans then sell the loans to get the money to make new loans. For example, a credit-card bank will package its credit-card loans into pools, then create and sell securities based upon those pools. In theory, these credit-card-backed securities are backed by the credit-card repayments, but in reality they are unsecured debt issued by the bank. So the whole scheme is a fraud from the beginning, and before all sorts of other derivatives are created from, and piled atop, the credit-card ABS. And, as mentioned before, there are all sorts of criminal side games played in this fundamentally criminal market.
September 15, 2011
U.S. Treasury Secretary Tim Geithner will attend the meeting of the European Economic and Financial Affairs Council (Ecofin) in Wroclaw, Poland, on September 16 and 17.
At this meeting, according to an "exclusive" report by Reuters, "Geithner is likely to suggest to European finance ministers on Friday that they leverage their bailout fund along the lines of the U.S. TALF program, EU officials said." Added Reuters:
"Geithner will probably insist on the importance of leverage to have more funds to ringfence the big Europeans, Italy and Spain, and to find a solution for Greece," one EU official said.
"The leveraging of the EFSF — I think this is something that he will put on the table," the official said. "There could be some openness to the proposal."
The Reuters report was quickly picked up by others, including Dow Jones and the Wall Street Journal. As of this writing, it appears that Reuters is the sole source, but further details should emerge.
Geithner has been on the stump in recent days. At the CNBC/Institutional Investor "Delivering Alpha" conference on Wednesday, Sept. 14, Geithner cynically complained about the "political dysfunction" in governments. According to CNBC:
"You have this terribly damaging political dysfunction here and in Europe that leaves the world wondering whether the political system has the capacity to do the right thing," he said. "That is very damaging to confidence.... We have an interest in helping them through this, but this is their challenge and they have the economic and financial capacity to meet this challenge," Geithner said. "The people who think this is beyond their (ability) are mistaken."
Speaking on CBNC the same day, Geithner defended the Obama "jobs plan" to host Jim Cramer:
Tim Geithner, U.S. Secretary of Treasury: "Absolutely not. I think that there's no reason now for the Congress of the United States not to act to help strengthen growth in the near term. It's the conservative, prudent, responsible thing to do. You can think of it as protection against Europe."
Cramer: "Okay."
Geithner: "You can think of it as insurance against weaker growth going forward. And you got to think about the alternatives. If Congress or Washington is incapable of acting, then policy will be damaging to growth because what you'll have is a deeper, steeper contraction in fiscal support than is prudent for an economy at this early stage of the crisis given the shocks we face. You know, life is about choices. Life is about alternatives."
The theme of political dysfunction in Washington and in the capitals of Europe has been a favorite lately among the financial parasite class. The technocrats could manage things quite well if those pesky issues like national sovereignty, legality, and the general welfare could be kept from interfering.
The discussions about a need for a TARP/TALF-like bailout for Europe are growing in the U.S. Banking analyst Dick Bove told CNBC on Sept. 13 that a program similar to the TARP would be a big help to Europe. Said Bove:
"The banks stop the run, they now start to write off their assets down to realistic levels and they start to build cash. So as a result of that the American banking system now has $1.6 trillion in cash sitting at the Federal Reserve, just sitting fallow. As a result this was the most successful program the US government has been in since it bought Alaska."
Bove said that some government agency or central bank could help coordinate the European arrangement. Presumably he means some sort of imperial overlord function, given what he said next:
"So we do have a mechanism in place to determine whether these banks are meeting what is required. The fact of the matter is I could care less whether Greece goes under or whether some other country goes under. What I'm interested in is whether the banks that hold that debt have marked it properly and have enough equity and liquidity to handle the hit."
It is not surprising that a man who "could care less" about nations would be in favor of destroying those nations to save the banks.
The TALF
The Term Asset-Backed Securities Loan Facility, or TALF, began operation in March, 2009, for the express purpose of supporting the asset-backed securities markets. It was one of a string of an alphabet-soup of special Fed bailout facilities. Whereas most of the other facilities were created to provide liquidity to the financial system, the TALF was created to kickstart the market for asset-backed securities (ABS).
Under the TALF program, the Treasury agreed to provide up to $20 billion from the TARP (Troubled Asset Relief Fund) as backing for $200 billion in loans made by the Fed through the TALF. The scheme was to loan money to "investors" to buy ABSs in a range of classes. According to the Fed (in July 2010):
Under the TALF, which began operation in March 2009, the Federal Reserve Bank of New York extended loans to investors in highly rated asset-backed securities (ABS) and commercial mortgage-backed securities (CMBS). By encouraging issuance of ABS and CMBS, the TALF was designed to increase credit availability and support economic activity. Although the TALF extended $70 billion in loans, many TALF loans, which have initial maturities of three or five years, have been repaid early, in part because the interest rates on TALF loans were designed to be higher than market rates in the more normal conditions that have come to prevail in a number of securitization markets.
Any losses on the TALF program would first be absorbed by the accumulated excess of the TALF loan interest payments over the Federal Reserve's cost of funds and then by the TARP funds. To date, the TALF program has experienced no losses and all outstanding TALF loans are well collateralized. The Board continues to see it as highly likely that the accumulated excess interest spread will cover any loan losses that may occur without recourse to the dedicated TARP funds.
The TALF covered ABS issued on auto loans, student loans, credit-card loans, equipment loans, floorplan loans, insurance premium finance loans, loans guaranteed by the Small Business Administration, residential mortgage servicing advances, or commercial mortgage loans. (It is likely that the TALF played a significant role in papering over the bloodletting in the commercial mortgage market, and it is also worth noting that the amount of ABS backed by student loans are now greater than those backed by credit cards and autos.)
Under the TALF program, the loans are non-recourse. When an "investor" borrows money through the program to buy new ABS, the investor provides collateral. If the value of the collateral falls below the amount owed on the loan, the "investor" can decide not to repay, and let the Fed keep the collateral. So if, for example, the "investor" used the same securities he purchased as his collateral for the loan used to buy them, he could keep them if they turned out to be profitable, and dump them back on the Fed if they did not. So the Fed is essentially guaranteeing a profit.
One could see where that sort of deal could appeal to the banks buying European "sovereign" debt.
Leverage
Asset-backed securities are essentially derivatives, whose value is nominally derived from the values of the assets upon which they are based. However, as we have seen with the residential mortgage-backed securities market in the U.S., this is an area rife with fraud, even in its own terms. So the TALF is explicitly a program to protect the derivatives market, which makes it a fraud even if all the "rules of law" are followed, an assumption that is not warranted.
The original TALF was leveraged 10-to-1, with $20 billion in TARP funds backing up to $200 billion in potential TALF loans. If one applied that same leverage to the 440 billion euros in the European Financial Stability Facility (EFSF), one would get a potential 4.4 trillion euros in TALF-style loans. (The Fed, it should be noted, is leveraged 55-to-1, with $2.9 trillion in assets backed by $52 billion in capital.) Under this potential Euro TALF then, using the U.S. program as the model, the ECB might buy up to 4.4 trillion euros in European government bonds.
The ABS market is a way to create fictional money out of thin air. The idea is that a lender, such as a bank, can make loans then sell the loans to get the money to make new loans. For example, a credit-card bank will package its credit-card loans into pools, then create and sell securities based upon those pools. In theory, these credit-card-backed securities are backed by the credit-card repayments, but in reality they are unsecured debt issued by the bank. So the whole scheme is a fraud from the beginning, and before all sorts of other derivatives are created from, and piled atop, the credit-card ABS. And, as mentioned before, there are all sorts of criminal side games played in this fundamentally criminal market.
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