March 22, 2011 02:39 AM UTC

US Treasury To net $10B + On TARP Sale

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• by: MADCO

WASHINGTON (AFP) – The US Treasury Department on Monday said it would start selling-off mortgage-backed securities worth an estimated $142 billion, in an effort to close another chapter of the financial crisis.

… secured by state-backed mortgage giants Fannie Mae and Freddie Mac, were bought as part of the 2008-2009 financial sector bailout.

http://news.yahoo.com/s/afp/20…

The  Treasury is predicting $15-20 billion of profit, though private analysts are predicting $10B is more realistic.

It’s all in the timing.

If the Treasury goes slowly and avoids flooding the market, then $20B is realistic.  If they rush, as some lawmakers are urging the net will be smaller.  

The argument for rushing is being made along party lines.  Though the TARP was largely an R creation, it is the R’s who are now urging speed in selling off assets. It’s math, but simple math.

Meanwhile, back in 08 and again in 09-10 I argued more than once here on CoPols that the bank failure was neither an underwriting crisis nor a result of subprime default rates.  And it wasn’t just hte banks being mean.  It was liquidity crisis, which the banks brought on themselves.

This is more evidence that it was the leveraging strategy of the banks and other investors and speculators in the secondary mortgage market.

A market that some observers, those lacking data, want to claim failed because of FNMA and FHLMC.  Fannie and Freddie had a role, though it was minor,  and now that the secondary market is back on it’s feet, eliminating FNMA and FHLM will have little impact on the primary (retail) mortgage market for the typical consumer.

But the banking reform of last year did not go far enough to reign in the leveraging ability of the secondary market players.  Hundreds of years of data is  clear – a market based system works great for goods and services and works horribly for financial assets.

If we didn’t have fractional reserve banking, nor a liquid global capital market, nor a leveraged economy, nor private property rights I wouldn’t care if the banking industry blew itself up once in awhile.  (30’s, 80’s, 00’s). But because we do have all those things, and a banking led recession is painful for everyone, I do care.

We need to amend the financial regulation to limit the leveraging ability of banks and speculators, to limit the investment banking activity of depository institutions (FDIC insured, aka reimposition of Glass Steagall) and we need to give Elizabeth Warren whatever she wants for the CFPA.

And we need to keep those without data out of the discussion.