"Billions of Toxic Assets? Trillions? Um... We Really Don't Know"
"We have no idea how much crap is out there," said Elizabeth Warren. Sort of.
I'm willing to point out that $1.5 trillion might be a bit of a lowball but what do I know? Here's the part where the Treasury starts begging for more Congressional handouts and the LOLz do not ensue.
"No one has a good handle how much is out there," Warren said. "Here we are 10 months into this crisis...and we can't tell you what the dollar value is."
Estimates are that "somewhere between $600 billion and $1.5 trillion in toxic assets (is) spread across the balance sheets of the small and the large banks," Warren said, adding: "That's a lot."
In its report, the panel said the Treasury needs to either assure that a robust program is available for handling toxic assets as they go into default or else consider a different strategy for restarting markets for the assets.
The critical report comes as the Treasury prepares to launch a significantly scaled-down version of its toxic asset program, a series of public-private investment funds to purchase toxic mortgage securities with $30 billion in government subsidies.
Last October, the entire $700 billion U.S. bailout program was aimed at buying up the toxic assets that threatened to bring down the financial system. But due to the plan's complexity and with market confidence rapidly deteriorating, then-Treasury Secretary Henry Paulson quickly shifted gears to use the money for direct capital injections into banks.
Since then, Paulson's successor, Timothy Geithner, announced plans to entice private investors to buy "legacy" securities and whole loans from banks. But accounting forbearance that allowed banks to avoid recognizing losses on these assets combined with large institutions' ability to raise capital after regulator "stress tests" in May reduced investor angst over toxic assets.
Let's decode this in terms that are a tad easier to understand, shall we, kids?
- Paulson set Geithner up (see also: bumbling fall guy)
- Banks have it far worse than anyone cares to admit, even (or especially) the top TARP cops
- Bailout Nation will eventually bankrupt itself trying to toss buckets of water from the deck of the Titanic (hopefully I will be happily napping against the chicken pen in my Nicaraguan backyard when that happens)
Oh, and we're screwed. But you already knew that.
Quick, where's FASB with the magic accounting wand to bury these bodies?!