The Federal Deposit Insurance Corporation Wednesday postponed indefinitely its "Legacy Loan Program" to back the sale of banks' bad assets to private investors. (This was to be a gift to private investors and banks—the banks would be able to get top dollar for toxic waste assets; the private investors would get virtually guaranteed profits—all on account of backing by regular taxpayers). In a statement, FDIC chief Sheila Bair said, "Banks have been able to raise capital without having to sell bad assets through the LLP, which reflects renewed investor confidence in our banking system. As a consequence, banks and their supervisors will take additional time to assess the magnitude and timing of troubled assets sales as part of our larger efforts to strengthen the banking sector."
The New York Times' recently-infamous Edmund Andrews did the story justice, tying recent events including the rigged "stress tests" and the easing of "mark-to-market" accounting to illustrate the critics' contention that things are being swept under the rug:
Andrews' story covers a lot of ground and gets it right. But dolly back a little. Some of the critics of this cancellation might just be folks who would have benefited from an LLP deal. The investment managers take fees whenever money changes hands or changes form. Fewer deals—even bad deals—
by reducing volume. I wonder if this is one of the reasons PIMCO's Bill Gross is advising everyone to
. He's a billionaire, and will likely grab a big chunk of the remaining government-backed asset sales, which will mainly involve mortgage debt. But the LLP postponement might have cost him. Might he be bashing the buck just to send a message to Tim Geithner? (Idle expectoration, I know. Still, everyone ought to read Gross's schpeil, if only to marvel at a guy who can quote Balzac & Fitzgerald and then still opine that the creation of fewer billionaires might spell hardship for ordinary Americans. Priceless!)
More on the matter at
, where the consensus is that this is a solvency problem, not a liquidity problem.
