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A Big Surprise: Troubled Assets Garner Rewards

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American taxpayers are already poised to make unexpected billions from rescuing the nation’s banks. Now, they could reap another sizable profit from a government program devised to purge troubled real estate assets from the financial system.

The Obama administration made the so-called Public-Private Investment Program a centerpiece of its plan to help unlock the frozen credit markets in the spring of 2009, when a lack of buyers for complex mortgage securities threatened the health of the nation’s banks and put a drag on lending.

Under the program, the government provided matching funds and ultracheap loans to investment firms like AllianceBernstein and Oaktree Capital that agreed to buy mortgage securities from banks and other financial institutions.

Taxpayers stood to share in any of the profits, though the prospects of such a windfall were seen as secondary to the goal of unclogging the markets.

Nine months into the program, the eight investment funds chosen by the Treasury Department have generated an estimated return of about 15.5 percent for taxpayers, according to an analysis of their results through the end of June by Linus Wilson, an assistant professor of finance at the University of Louisiana, Lafayette.

Two of the investment funds — one operated by an Angelo, Gordon-GE Capital consortium and another by BlackRock — have gotten off to even stronger starts, posting returns of more than 20 percent.

That translates into a paper profit of roughly $657 million for taxpayers. Some Wall Street analysts project that taxpayers could earn as much as $6.2 billion on these investments over the next nine years, from an investment of about $22 billion.

To be sure, the funds’ standout performance can be attributed to a rally in the mortgage bond market that began late last year and may be hard to repeat.

Still, it is a remarkable turnabout. When the administration announced the Public-Private Investment Program, critics lambasted it as yet another giveaway to private equity firms and other Wall Street money managers — a program so ill-conceived that one prominent economist, the Nobel laureate Joseph Stiglitz, characterized it at the time as a “robbery of the American people.”

Excellent and the possibility of earning $6.2bn covers how many months interest on the US national debt?

Edited by interestrateripoff
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So the Fed prints trillions and some it finds its way into asset prices making them this small profit. Except that it is not profit because they printed the money. They should have simply kept the money they printed and declared that as profit.

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None of this means anything because the government is pretty much the only one buying.

Imagine you have a suitcase full of cash and one morning you go to a local market in a developing country. You go on a wild buying spree, loading up your truck with carpets, clothes, pots and pans, the works. It doesn't take the local merchants long to figure out that you're loaded, so they start to up their prices and the things you are buying get more and more expensive as the day wears on. Now at the end of the day you look at what's in the truck and to work out what each item is worth you simply multiply it by the price you paid for the last one you bought, so the carpets that you bought for £10 in the morning and £200 in the evening are all valued at £200 each. When you sit down and work it all out you discover, golly, you are sitting on a huge profit! So the next day you come back to the market and decide to start selling your goods at the price you last paid for them.

Guess what happens next?

None of these supposed taxpayer "profits" mean anything until they come to sell the assets back into private hands. The fact that they are not doing this tells you they know what would happen if they tried it.

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  • 415 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?

      • down 5% +
      • down 2.5%
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      • up 5%

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