Thursday, June 4, 2009

"They Probably Won't Be Making a Lot of New Loans"

From comes further news that the abusive PPIP program so detested by Econblog Review may be unraveling, in Dudley’s TALF Comments Add Signs of a PPIP Stall:

The Federal Reserve may not start lending against residential mortgage-backed securities under its Term Asset-Backed Securities Loan Facility, Federal Reserve Bank of New York President William Dudley indicated. . .

His comments add to signs that Treasury Secretary Timothy Geithner’s Public-Private Investment Program to boost debt prices and rid banks of devalued assets to expand lending is stalling, after helping to spark a rally in stocks and bonds. The Federal Deposit Insurance Corp. yesterday delayed a test sale of bad loans held by U.S. banks that had been billed as a tryout for its role. . .

“We still need more” than the capital that banks have raised to revive commercial-mortgage lending, Russ Appel, a managing director at Praedium Group LLC, a New York-based real- estate-investment firm, said during the conference. “Until they start clearing the old loans, they probably won’t be making a lot of new loans.”

After the apparent demise of the PPIP-FDIC program for loans, banks will probably try to mainly off-load commercial mortgages that investors would be “fools” to take on, because the debt would be more troubled than it seems, said Barry Sternlicht, chief executive officer of Starwood Capital Group Global, LLC, a real-estate investor in Greenwich, Connecticut.

“The only things they’re going to try to sell is stuff you probably shouldn’t buy,” Sternlicht said, speaking on the same panel as Appel.

DoctoRx here. Mr. Appel got it both right and wrong. Yes, they probably won't make a lot of new loans. That much he got right. What he got very wrong was that his business prospers when new loans are made. Whether they are good loans doesn't matter to him. The last thing this country needs is new investment in commercial real estate!

The article goes on to prove the point made at EBR over and over. The point is that the entirety of the machinations have been a giant pump 'n dump scheme to push security prices up:

The TALF and PPIP plans contributed to a rally among many types of home-loan bonds. Typical prices for the most-senior prime-jumbo securities jumped to about 83 cents on the dollar on May 14, from about 63 cents March 19, before steadying, according to Barclays Capital. Similar bonds backed by Alt-A loans with a few years of fixed rates rose to 45 cents, from 35 cents, according to the bank’s reports.

Case closed, in my humble opinion.

Please stay away from Big Finance as much as possible for the next economic cycle; and consider making a political statement by doing your banking with the good guys, the small community banks that have been penalized by the authorities, who overtly favor the continued formation of a financial oligarchy.

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