The Stash

And The Banks Prepare To Game The Geithner Plan...

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Funny. At our first editorial meeting after Geithner announced the details of his bank plan, I mentioned how a source had joked it was such a good deal the banks might want to bid on the toxic assets themselves. Well, this is apparently no longer a joke. Via Pat Garofolo, the FT reports that the big banks are mulling over precisely that:

US banks that have received government aid, including Citigroup, Goldman Sachs, Morgan Stanley and JPMorgan Chase, are considering buying toxic assets to be sold by rivals under the Treasury’s $1,000bn (680bn) plan to revive the financial system. ...

This week, John Mack, Morgan Stanley’s chief executive, told staff the bank was considering how to become “one of the firms that can buy these assets and package them where your clients will have access to them”.

The motivation, as the piece points out, could be to bid up the prices of one another's toxic assets, so no one has to take a big loss when selling them. Seems like an indescribably bad idea--both substantively and politically--but it sounds like Treasury may allow it. (Though maybe not. The signals were a little mixed in the FT piece.)

Update: Also, don't miss this New York Post story from late March, via Naked Capitalism, on how the banks have been buying up toxic securities in anticipation of price increases. That's right--they're now speculating on the same assets the Geithner plan is supposed to remove from their books...

Update II: Felix Salmon has more on the problem with banks selling to one another.

--Noam Scheiber

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