Although some observers are concerned by the prospect of TALF investors achieving relatively high returns, I think that concern is misplaced....The prospect of relatively high expected risk-adjusted returns is precisely what gives investors an incentive to participate in the program. As investors begin to take advantage of the attractive TALF terms, spreads on ABS securities contracts, and rates of return go down, and most importantly, the costs of funds for the issuers of the underlying securities falls. Investors’ actions to seek attractive returns lead to lower borrowing costs for households and businesses....Does the possibility of attractive returns for TALF investors mean that the Federal Reserve is taking on large credit risks? I think the answer is a clear “no,” principally because the returns earned by investors primarily are due to the absence of sufficient private balance sheet capacity rather than underlying credit risk [Oh really Bill, 20% of leveraged companies going tits up this year is indicative of what exactly, swine flu in HY land??]Luckily for capitalism, Bill paints himself into a corner, with regards to CMBS and TALF, which as evidenced by a dramatic reversal (widening), the CRE market has gotten very uncomfortable as a result of the upcoming S&P slew of downgrades. In the statement below, Bill, being disingenuous again, extols the virtues of the AAA rating, and differentiates from those bad, stupid rating agencies and their CDO work, and those great, wonderful rating agencies and their ABS work.
[t]he underlying securities are AAA-rated, which means that losses on the underlying loans have to be unusually large to move that high up in the capital structure. And although some of the rating agency models have not held up well in the crisis, the consumer ABS models have proven to be reasonably robust. In other words, a AAA-rating still means quite a bit in this market. [OH DOES IT NOW BILL?] This is in contrast to the collateralized debt obligation or CDO market , where AAA-rated securities often used subprime and Alt-A mortgage loans as their raw ingredient.[OH YES? AND JUST WHY IS IT IN CONTRAST?]Essentially, at this point the second TALF is readjusted again, to include sub-AAA securities (which is the only thing that can save CMBS now, faced with exclusionary S&P downgrades, to enjoy any benefits from this resecuritization initiative), Dudley's propaganda flies out of the window, and Zero Hedge will be the first to remind him, his SIFMA audience, and our readers of his hypocrisy. Also, Bill, be very careful in praising the rating agencies - ZH has a list of who says what about them, in advance preparation of a Congressional (or Senate) populist hearing. Saying positive things will definitely not land you a place in Barney Frank's witchhunt book.
Earlier Barney started war on Mark To Market. Now he is expanding to two fronts, crossing the Volga river deep into republican territory. Just want to pointed out that the whole two-front thing did not work out too well for Germany.
“Being accused of having blocked legislation to prohibit irresponsible lending to low-income people from 1995 to 2006 is flattering in a bizarre way,” Frank noted. "Apparently those Republicans parroting these right-wing talking points believe that I had some heretofore undisclosed power over first Newt Gingrich and then Tom DeLay, which allowed me to keep them from passing legislation they wanted to pass. If that had been true, I would have used that power to block the impeachment of Bill Clinton in the House, the war in Iraq, large tax cuts for the very wealthy, the intrusion into the sad case of Terri Schiavo, and appropriations bills that badly underfunded important social priorities.While the market is on a roll and seems poised to break to break a 20% upswing in one week, partisan wrangling of this kind usually leads to very adverse consequences in the form of bear markets, crushed economy, broker taxpayer and heated Chelsea arguments.
Cuomo has been examining executive pay at banks that received money from the U.S. Treasury’s Troubled Asset Relief Program. Merrill and Charlotte, North Carolina-based Bank of America have received about $45 billion. Bank of America bought Merrill on Jan. 1. The letter is the latest salvo in Cuomo’s battle with Lewis over the individualized bonus data. In the letter, Cuomo and Frank say Merrill’s $3.6 billion in bonuses and Bank of America’s $3.3 billion should be made public.“Taxpayers who are footing the bill obviously demand accountability and want to know who received these funds and why,” the letter said.
It is not clear just how Bank Of America would suffer "grave and irreparable harm" if the Merrill employees were identified (which they already have been by numerous media outlets) or what their bonuses were (Cuomo and Frank just need to call (or issue a subpoena to) any self-respecting headhunter to get the exact number to the 3rd decimal place, as all these individuals are currently peddling their services to whatever bank would want the public scrutiny associated with hiring them), seeing how this was a one-time event as the likelihood of $30 million + bonuses in the next 5 years is 0 to negative, and is just BofA's most recent attempt at "strawmanning." Of course, the information of when Lewis et al knew about what bonuses would be (given their size) and keeping in mind Merrill's atrocious performance (i.e. were bonuses determined before or after) does have the capacity to cause some quite grave harm to Lewis' Wall Street career.
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