Let the (Rigged) Games Begin! Reports of Citigroup, BoA Preparing to Ripoff the Taxpayer

This is one hell of a story. The New York Post is reporting:

As Treasury Secretary Tim Geithner orchestrated a plan to help the nation's largest banks purge themselves of toxic mortgage assets, Citigroup and Bank of America have been aggressively scooping up those same securities in the secondary market, sources told The Post.

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.

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.

The secondary market represents a key cog in the mortgage market, and serves as a platform where mortgage originators can offload mortgages in bulk that have been converted into bonds.

Yields on such securities can be as high as 22 percent, one trader noted.

Big huge hat tip to Naked Capitalism. They have really been digging and analyzing on the entire financial bail out and this one is a gem. They are listed in our middle column of must read sites for this reason.


It certainly looks as if Citigroup and Bank of America are using TARP funds, not to lend, which was one of the primary goals of the program, but to scoop up secondary market dreck assets to game the public private investment partnership.

And it fleeces the taxpayer a second way: the public has spent enough money on both banks so that in an economic sense, they ought to have been natinoalized. Yet for reasons that are largely ideological and cosmetic (the banks' debt would need to be consolidated were they owned 100% by Uncle Sam), they remain private. So not only are they seeking to extract far more than was intended even with the already generous subsidies embodied in this program, but this activity is also speculating with taxpayer money.

Oh yeah and can we expect anything different from both Citigroup and BoA? Both of these companies need to go where all predatory lenders go to die....let's retire these corporate symbols and move on. Bail out burnt out is not the description, it's more legal corporate theft that we're all fed up with.

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Citi and BofA got nothing to lose.

They have determined that they will be bailout regardless so, if true, why not take more risks - they got nothing to lose and everything to gain at our expense.


If anyone needed yet another reason to regulate and break up these gargantuan firms, this is it. They are built for ponzi schemes in their current configuration and no regulation. IMO, we can never attain a sustainable form of capitalism with this financial structure.

Do you wonder doubt that this will be on Geithner's new regulatory agenda? Afterall, he's just an apparatchik in our kleptocracy.


As an update to my earlier comment, during Tim Geithner's appearance before the House Financial Services Committee this morning, the subject of naked credit default swaps came up. Check out this enlightening video of the brief exchange between Rep. Joe Donnelley (D-IN) and Secy. Geithner (h/t Jane Hamsher).

If anyone has any doubts as to the lethal potential of naked cds's, check out this short film about the demise of Bear Stearns.

To not heavily regulate, if not outright ban, naked credit default swaps would be criminally negligent.

This is making me more angry.

BofA and Citi are trying to drive up the price of these toxic assets ahead of PPIF debut. This could help them profit from over-inflated prices when they sell to private investors.

So now they are using the bailout money to buy more toxic assets instead of lending. It is time to kill these zombies.

They are gambling with tax

They are gambling with tax payers fund. They have nothing to lose. If they lose, they will be bailed out anyway. If they win big, then they hope to get of this mess and pay the handsome rewards to the traders who bet this right, and label this as "retaining the talents" that create the shareholder vlaue