Sunday, March 8, 2009

Restocking Bad Tylenol on Taxpayer's Dime

What if Tylenol restarted their production lines without finding the cause of cyanide tampering? How many suffering customers would pony up to buy the pain killer? Very few. The Wall Street Journal reported debt securitization would soon restart.

Starting March 17, large investors -- including hedge funds and private-equity firms -- can obtain cheap credit from the Fed and use the money to buy newly issued securities backed by such loans."

Uncle Sam will spend taxpayer money to spark the engine. Who benefits? The WSJ reported:

The TALF effectively turns the Fed into a generous prime brokerage. The central bank lends money for up to three years to investment firms to buy bonds backed by assets like auto or credit-card loans. The Fed needs to lure investors back into the market for these asset-backed securities, or ABS, where new issuance has almost disappeared."

Hedge funds, private equity and sovereign wealth funds are the benefactors of taxpayer largesse. They get cheap credit and guarantees for stepping back into the water.

This same group is slated to be the savior for failing banks, via Treasury sponsored public-private partnerships. Private equity underwriters (PEU's) can garner cheap loans and financial guarantees for buying old toxic assets.

Amerca's shadow banking system rode the greed and leverage engine hard for years. It produced vaporware financial products. When push came to shove, part of the shadow system fled to the safe harbor of commercial banking. Now the rest of the dark boys are slated as Supermen.

The question of the week is who got $50+ billion in counterparty unwinding from AIG, mostly under the Bush administration. Did the shadow boys make out again? What to do with all that green?

Middle Eastern sovereign wealth funds are still fat from your $4 a gallon gas money. The UAE spent $4 billion in two days to buy more war toys.

PEU's, guns and money...Dad, get me out of this.

Update 4-12-11:  TALF benefited the wife of Morgan Stanley CEO John Mack and the widow of Morgan's former investment banking head.  Rolling Stone states the Fed handed out a trillion dollars to banks and hedge funds, almost interest-free.