Bernanke should be fired by the president!

[Tulpen]

Bernanke should be fired by the president for allowing dealers to swap toxic mortgage backed securities for US Treasuries.

http://www.rgemonitor.com/blog/roubini/249924

To me this is treason.

[Slimprofits]

Re: Bernanke should be fired by the president!

I think this letter written by Andy Beal was placed as a full-page ad in the WSJ the other day.

via Space Cynics:

To: Mr. Ben Bernanke Please DON”T PUT GARBAGE in the FEDERAL RESERVE

“Dear Mr. Bernanke:

I was afraid that if simply wrote you this letter you might never see it. I thought this message was important and worthy of effort to attract your attention.

I am sure that you are hearing from the Wall Street crowd about how stupid the marketplace is because the market won’t buy all the great loans that Wall Street has produced and how stupid or illiquid the market is because AAA RMBS are being offered at 60 cents on the dollar with no takers. First mortgage synidcated bank loans are offered for 70 cents on the dollar and Wall Street simply cannot believe buyers aren’t standing in line to buy.

Consider for a moment that many corporate bonds are trading at premiums above par value. How can this be? If the market is so stupid and there is no liquidity, who is buying those good corporate bonds at 105 cents on the dollar??

Many AAA mortgage bonds are actually extremely high risk because of little-considered nuances in the hundreds of pages of trust indentures and servicing agreements. In addition to widely understood mortgage default and other concerns, these contracts permit the loan servicers to advance payments on behalf of defaulted homeowners for years and years and years at interest rates of 12% and more. These “servicer advancements” put funds back into the trust to be paid out to junior security holders. The “servicer advances” are subsequently repaid FIRST from foreclosed home sales. Therefore, foreclosed home sales may result in little or no proceeds, or even a liability, to the AAAs. This mechanism effectively transfers funds that really should belong to the AAA securities to junior securities. Servicers that own junior securities are incredibly motivated to drag their feet resolving defaulted loans, which results in great loss to the AAA holders. This is not a misprint: Defaulted first mortgage home loans may become a net liability, not an asset, to some of the AAAs. This is still not widely understood.

Simlarly, “first mortgage syndicated bank loans” issued since about 2004 are routinely garbage and not traditional first mortgages on anything determinable at all. Many, if not most, of these loans permit the borrowers to sell the collateral, keep the money, and reinvest in almost anything they want to, including stock, junk bonds, defaulted loans, or perhaps ice cream cones. MAny, if not most, of these syndicated bank loans also permit UNLIMITED amounts of additional swap debt that is either senior to or of equal priority with the syndicated loan. These provisions are also no widely understood and are sometimes even disguised in the loan documents.

Falling prices for these type assets reflect people finally reading the hundreds of pages of fine print, not a problem with the marketplace. Prices should continue to fall as people wake up to the true nature of these assets. Mant “last out” AAA RMBS are still overvalued at 60% of par. Many first mortgage syndicated bank loans are overvalued at 70% of par. Smart buyers won’t touch any of this garbage at any price remotely close to what it originally sold for.
The Fed may be walking on very slippery ground. My fear is that the Fed has little more undersanding of the stench of the garbage than many of the current owners who bought all these debt instruments issued about 2004.

Is the US Government taking some of this garbage on its balance sheet as collateral for Federal Reserve loans? The AAA rating means absolutely nothing. Garbage is garbage even in a fancy wrapper that the ratings agencies love.

I do not pretend to know how the Fed is collateralizing loans. Perhaps I am naive in underestimating the insightfulness of the Feb, but many intelligent people were caught up in complacent decisions involving these assets. I know nothing more than what I read in the media about collateral for these Fed loans, but it sure sounds troubling.

Sincerely,

Andy Beal
6000 Legacy Drive
Dallas, Texas 75024

[Tulpen]

Re: Bernanke should be fired by the president!

If Bernanke made the US Government taking garbage on its balance sheet as collateral for Federal Reserve loans it is a clear act of treason to me.

Opinions?

[blazespinnaker]

Re: Bernanke should be fired by the president!

Actually, I think it's a pretty bright idea.

Hank and Ben are doing a pretty good job.

Hopefully once all the smoke clears, however, we won't ever have to resort to this type of thing again.

That being said, they are definitely thinking on their feet.

[Jim Nickerson]

Re: Bernanke should be fired by the president!

I think both + Greasespam should be hung, stoned with rocks, drawn and quartered, tar and feathered, incinerated along with any DNA that exists in their offspring and then blasted out of the galaxy.

[blazespinnaker]

Re: Bernanke should be fired by the president!

I think a lot of people are misplacing the blame.

The problem here wasn't the fed, the problem here was the shadow banking system.

The fed tried to go hands off, clearly that approach wasn't so hot.

[Tulpen]

Re: Bernanke should be fired by the president!

The problem here wasn't the fed, the problem here was the shadow banking system.

After taking the toxic debt as collateral the problem is the fed!

[Jim Nickerson]

Re: Bernanke should be fired by the president!

I think a lot of people are misplacing the blame.

The problem here wasn't the fed, the problem here was the shadow banking system.

The fed tried to go hands off, clearly that approach wasn't so hot.

So it seems, I surmise, your opinion is that no one should be actually held responsible for the inaction to stop or even ameliorate all that went on.

Let's play a game. You fellows be the banks. All you other dipsticks, you are the people who are trying to earn enough to eat, have a shelter over your head, maybe educate your kids in the community college, and, of course, pay the cell phone bill and go to the mall to buy videos and games, etc. ad infinitum bullshit. The goal is for the banks to own everything and no holds barred, no rules, no morals apply. Given those latter limitations if anything should go wrong for you "bankers," then I (FOMC, Treasury, Bush, Congress) will do whatever is necessary to guarantee that you still win this game. All right! let's get out there and play ball!

[tree]

Re: Bernanke should be fired by the president!

Jim (honey!),

Put that nail scissors down!

Man, they are going to have to get out of town. You know they have to. Greenspan, Stein, Cramer, Cheney, Bush, et al. (I'll leave out Bernanke off this list for now.)

I figure they've got their bulging accounts with swiss francs in Switzerland and the sweet little chalets already paid for. It's just a matter of warming up the Lear jet and going, leaving the rest of us monkeys to battle for scraps.

With any luck they will break their brittle limbs skiing.

It's either that or public executions in Central Park while we gals sit around knitting. (I suppose you fellows can be giving yourselves haircuts with fingernail scissors.)

[World Traveler]

Re: Bernanke should be fired by the president!

Jim,

That's a pretty good, simple summary of what is going on. Joe6Pack, manufacturing companies, retail businesses, etc. (i.e. everyone but the banks) is told to accept personal or corporate responsibility for their errors and suffer the consequences.

In the FIRE economy, only the banks get a free pass and get bailed out.

WT