Tag: TARP

  • Finally It’s Official

    Few weeks back I talked about The Geithner Put and raised my concerns about the plan. So finally, it’s official now that The U.S. Treasury’s plan to purge toxic assets from banks’ balance sheets is vulnerable to fraud and abuse and needs tough rules against conflict of interest, the government’s bailout watchdog said on Tuesday. Neil Barofsky, the special inspector general for the $700 billion Troubled Asset Relief Program (TARP), said in a report that subsidies for public-private investment partnerships (PPIP) to buy assets could expose taxpayers to higher losses without corresponding increases in the potential for profit.

    He goes on to say (not all in order, only what I considered key I posted here)-

    Aspects of PPIP make it inherently vulnerable to fraud, waste and abuse, including significant issues relating to conflicts of interest facing fund managers, collusion between participants and vulnerabilities to money laundering,” said Barofky’s second quarterly report since he took office in December.

    It warned of higher risks associated with investing in toxic securities, and said taxpayers could suffer bigger losses if public-private investment funds were allowed to finance securities purchases by borrowing from the Fed’s Term Asset-Backed Securities Loan Facility.

    The taxpayers’ subsidies could dilute private investors’ financial commitments, or “‘skin in the game’ and therefore reduce their incentive to conduct appropriate due diligence,” the report said.

    The report said Treasury had committed $590.4 billion of the $700 billion through March 31, but when additional Fed financing commitments and asset guarantees are added in, taxpayers could be responsible for up to $2.977 trillion in total TARP costs

    Hopefully this does bring stricter rules or scrutiny into play. You may want to read my earlier post where I laid my thoughts in simple way.

    And by the way if you would like to know how The Wall Street has influenced government machinery, pls read the quiet coup by Simon Johnson, former chief of International Monetary Fund. It’s a roughly 10-11 page long read, so make sure you grab a cup of coffee and read it. A must read.

    Have fun and profitable Trading, OP

  • Harley (HOG) Misses, JP Morgan (JPM) Beats

    Harley-Davidson Inc (HOG) said quarterly earnings fell 37 percent, pulled down by costs from its recession-triggered restructuring and a tax change in its home state of Wisconsin but still expecting to meet full-year shipment forecast;  “mildly encouraged” that the rate at which sales declined in the United States, its biggest market, slowed during the quarter.

    The company reported first-quarter net income of $117.3 million, or 50 cents a share, down from $187.6 million, or 79 cents a share, a year earlier. Analysts, on average, expected the company to report a profit of 52 cents a share on sales of $1.30 billion, according to Reuters Estimates

    Well, even though it missed, doesn it matter? no, its shares rose 6.2 percent in premarket trading on Thursday.  My bearish trade is going to nose dive, but thankfully those are May’09 options, so I still have time to convert those into possibly bullish spread or play intra day to reduce loss exposure. This is going to be 2nd consecutive losing trade after CSX.

    On the other hand JP Morgan (JPM) reported better-than-expected first-quarter profit as improved investment banking performance offset increased losses from credit cards and other consumer debt. Most are saying AIG Pay-outs and Mark-to-Market has no major impacts. You may wanna read an interesting article from NY Times for an additional perspective. And oh btw, where is the competition? Isn’t this good time to get rid of regulatory strings; so why shouldn’t I refund TARP funds and make more money?

    Have fun, profitable trading, OP