Getting rid of bad assets is not the solution banks want.
John Carney at Clusterstock points out:
The problem is not that balance sheets are somehow “clogged” with bad assets. If that were really the problem, everyone would immediately agree to this deal: Clusterstock will take all the bad assets. Every single one of them. Give us your subprime mortgages, your second liens, your bundles of autoloans and student loans and credit card debt. If the problem is that you need these off your balance sheets, we’re here to help.
We didn’t think so.
As our little offer shows, the problem is not that there are no buyers for these assets or that the assets are clogging balance sheets. The banks don’t just want to get rid of the bad assets–they want to get rid of them by exchanging them for far more money than anyone is willing to pay. And there’s only one entity around that can force people to pay more than they are willing for something–that’s the government.
We’ve made this point before but it bears repeating. Any proposal to buy bad assets from banks means that the government will give the banks cash for trash. The “bad bank” will have to overpay otherwise the banks won’t take the deal.
JP Morgan, for instance, will now accept loan applications only from its retail branches. This is the same firm that sold investors a triple-leveraged deal in Walt Noel’s operations and then pulled its own money out when it figured out the Ponzi going on but didn’t warn its clients. Its claim that it won’t deal with brokers because it can better serve its customers in house rigs just a bit hollow. Good mortgage brokers could shop 5-10 different lenders and come up with the lowest rate and their presence in the market place kept the banks competitive. If borrowers must now make separate applications at each bank, paying a separate fee at each, the only winner will be the fine people at institutions like JP Morgan. Fortunately, we know how honorable and trustworthy they’ve proved themselves to be, but do we know that about every lender?
Mad Monkey won’t like this: the reason the banks went belly up is that, unlike the dot.com era when they flipped their fecal inventions as soon as they could sell them, they held on to their phony baloney securitized mortgage “assets” figuring they’d be worth more down the road.
Perhaps the most troubling aspect of all this is that its clear that banks and regulators continue to hold on to exactly the same idea: these assets will appreciate, housing will go up, if we just hold them we’ll make money. The fact that this was the road to ruin apparently doesn’t cause any hesitancy to march down it all over again.