put-backs

You gonna fuck on me?! -- Mr. Leslie Chow

Boy, it's weird out there in financeland, and no doubt we ain't seen nothing yet. Bloomberg reported the other day something that's still a headscratcher. PIMCO, Blackrock and the NY Fed allied together to begin a process of trying to get Bank of America to repurchase(put-backs) some of the garbage mortgages they sold, so that BofA, not PIMCO, Blackrock, or NY Fed, would be stuck with losses, and folks BofA nor the rest of the big banks can take too many losses without the house of cards that has been built in the last two years comes a tumblin, sucking more money out you, the taxpayer's pocket. Yves Smith points out the process itself would take years, but this needs close watching, as it sure looks peculiar.

First and foremost peculiar is the involvement of the NY Fed trying to make one of its weakest wards take losses. Now, you might ask what the NY Fed is doing with a bunch of bad mortgage securities, well they got them from the Bear Sterns and AIG, which is part of the garbage and losses the Treasury never accounts when they put out their latest piece of propaganda on how the bank bailouts haven't cost tax payers any money. The WSJ succinctly describes this peculiar situation in the following way,

Why is the New York Fed suddenly joining a revolt against the banking system it has worked for two years to shore up? Why is Bank of America a target? Did Pimco and BlackRock gain an advantage in their valuation of the mortgage-backed securities because they are advisers to the New York Fed?

And what kind of discussions did the two companies and regional Fed bank have before going after Bank of America? The answer: none, according to people close to the Fed.

Ho-ho-ho! The piece concludes,

Yet for an American public leery of the ties between government and Wall Street, the new front in the battle over bad mortgages raises a valid question: Just whose interests are the parties involved in the case fighting for?

On Monday, regulators move to run banks they regulated on Friday. Investors sue banks that own them. The government has a policy to prop up a systemically important industry, and then one of its arms drives a hard bargain with one of its weaker links.

Wall Street is much closer to the Jersey Shore than it seems.

Remember, PIMCO came out a few months ago saying some of the bad debt out there needed to be destroyed, and this would seem PIMCO's first shot at trying to define what's good and what's bad money, and they've taken on the most unseemly allies. In a related piece, the Post has an article stating Fannie and Freddie are going to need at least another 200 billion dollars, again money the Treasury never points to when it says the bailouts worked.

Finally, the Irish are deciding what's good and bad money, and they might finally make the bond-holders take some hits. Over the next few years, it's going to be a big fight to decide what's good and what's bad money, and make no mistake, in the immortal words of Mr. Chow, it's all about who is gonna be fucked on.