If the story had been dated April 1st rather than the 2nd, I would have assumed it was a prank. The Financial Times has just posted an article on its website headlined “Bailed-Out Banks Eye Toxic Asset Buys.” In it the London paper reports that major U.S. financial institutions that received bailout funds and capital infusions from the federal government are giving serious thought to buying up toxic assets from one another under the “Public Private Investment Partnership” scheme proposed by Treasury Secretary Timothy Geithner last week.
Yes, that’s right: the banks we’ve been told desperately need to rid themselves of those mortgage-backed securities are thinking about buying more of them. There are only two possible explanations for this. Either the banks have been bamboozling the federal government and U.S. taxpayers from the start about the supposed burden of these holdings. Or the Geithner plan is such a lavish giveaway to major investors that the banks believe they can potentially make a killing simply by reshuffling their portfolios.
The FT mentions that Goldman Sachs and Morgan Stanley are among the banks looking at toxic asset purchases. That’s not surprising, since Goldman, for example, is in good enough shape that it reportedly wants to buy out the $10 billion holding that the feds acquired in the firm last year. Yet also mentioned is Citigroup, an out-and-out basket case. If Citi thinks it can find a way to participate, you know this is the deal of the century.
This bizarre development further highlights the profound disparity between the way the Obama Administration is treating the banks and the troubled auto industry. If Detroit were getting the same kid-glove treatment as Wall Street, General Motors and Chrysler would be receiving big federal subsidies to buy each other’s unsold vehicles.
Instead, the head of GM was forced out by the feds, and the company is now being edged toward some form of bankruptcy, which would undoubtedly result in the decimation of what remains of contract protections for UAW members. Meanwhile, Vikram Pandit remains the chief executive of Citi and Kenneth Lewis continues to run Bank of America as Treasury goes through endless contortions to avoid the obvious conclusion that at least some of the large banks are insolvent and should be taken over and reorganized. One wonders how much longer the Obamans will cling to the dubious notion that only the bankers who caused the current mess can clean it up—and should be allowed to do so using what amounts to a blank check from the taxpayers.