Wednesday, March 25, 2009
All you need to know about Geithners "Cash for Trash"
On a day when Moody's drops the credit rating on Bank of America's credit rating, most people would be surprised to find Bank of America and Citigroup, among others, out in the market buying toxic assets.
Both Citi and BofA each have received $45 billion in federal rescue cash meant to help prop up the economy and jumpstart the housing market.If I were a suspicious sort, I would wonder just how much they expect Mr Geithner to overpay for their "Misunderstood Assets"? Unless they have already settled on a number.
But the banks' purchase of so-called AAA-rated mortgage-backed securities, including some that use alt-A and option ARM as collateral, is raising eyebrows among even the most seasoned traders. Alt-A and option ARM loans have widely been seen as the next mortgage type to see increases in defaults.
One Wall Street trader told The Post that what's been most puzzling about the purchases is how aggressive both banks have been in their buying, sometimes paying higher prices than competing bidders are willing to pay.
Recently, securities rated AAA have changed hands for roughly 30 cents on the dollar, and most of the buyers have been hedge funds acting opportunistically on a bet that prices will rise over time. However, sources said Citi and BofA have trumped those bids.
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