Tuesday, November 25, 2008

TARP Levered Loans to Buy Junk Assets


Treasury Chief Hank Paulson and Fed Chair Ben Bernake aren't tapped out. The Bush team offered another $800 billion in Corporafornication, raising total interventions to $5 trillion. Treasury's Paulson levered $20 billion of TARP money into a $200 billion Federal Reserve Loan. That $200 billion will buy back securitized consumer debt, student loans, credit card debt and car loans.

Paulson left the door open for future expansion in size and scope. He presaged that commercial mortgage backed securities (CMBS) could be included.

The Carlyle Group would love to buy back affiliate CMBS debt for pennies on the dollar. Treasury slipped $153 million to Carlyle's Boston Private Financial Holdings. Apparently, the high net worth marketplace needs access to loans using taxpayer money.

Carlyle's infrastructure division would love some of that $500-700 billion looming stimulus package. In this venture, the private equity underwriter (PEU) is happy to take a government guaranteed 15% annual return, roughly half of their historical yearly profit percentage of 30%. What other divisions look to make money hand over fist from taxpayer dollars?

President elect Obama indicated a substantial stimulus package to be on the way. The Bush team decimated the federal ability to provide services directly. That means quick action must be contracted. A lobbyist frenzy occurs in Washington for the right to help "create or save" 2.5 million jobs. Note the addition of "or save" in Obama's speech today. Expectation sandbagging has begun.

The problem that got us here? Greed, leverage and federal incompetence. All are still in play, just at slightly reduced levels.

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