Evidence of Criminal Activity
2009-03-22
Posted by: badanov
Read this description of what will likely happen when toxic debt gets redeemed:
Apologies, but I thought your post was so important I wanted to clean up a little math and amplify your point.
Again, apologies
I am SAC Capital. I get to be one of the bidders on bank assets covered by the program
Citi holds $100mm of face-value securities, carried at $80mm.
The market bid on these securities is $30mm. Say with perfect foresight the value of all cash flows is $50mm.
I bid Citi $75mm. I put up $2.25mm or 3%, Treasury funds the rest.
I then buy $10mm in CDS directly from Citi [or another participant(BOA, GS, etc)] on the bonds for a premium of $1mm.
In the fullness of time, we get the final outcome, the bonds are worth $50mm
SAC loses $2.25mm of principal, but gets $9mm net in CDS proceeds, so recovers $6.75mm on a $2.25mm investment. Profit is $4.5mm
Citi writes down $5mm from the initial sale of the securities, and a $9mm CDS loss. Total loss, $14mm (against a potential $30mm loss without the program)
U.S. Treasury loses $22.75mm
Great program.
Its just a scheme to transfer losses from the bank to the taxpayer with an egregious payout to a middleman (SAC) to effectively money launder the transaction.
You've also transmuted a $30mm economic loss into a $36.75mm economic loss because of the laundering. So its incredibly inefficient.
How did fraud and money laundering become the national economic policy of the US?
One would have to be a criminal to participate in this.
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