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Geithner's Toxic Debt Plan So Good, Citi and BofA Can't Wait to Get Started

Posted Mar 27, 2009 12:24pm EDT by Aaron Task in Investing, Banking
Related: BAC, C, GS, JPM, XLF, FAS, SKF
A "funny" thing is happening just as Treasury Secretary Tim Geithner seems to have finally found a scheme to deal with banks' toxic debt: Some big banks are aggressively bidding for toxic debt in the open market.

Specifically "Citigroup and Bank of America have been aggressively scooping up those same securities in the secondary market," Mark DeCambre of The NY Post reported earlier this week.

Friday, DeCambre joined Henry and me to discuss the story in the accompanying video.

The banks contend they are helping to bring liquidity to the "frozen" mortgage-backed-securities market, as per their "marching orders" under the TARP program, DeCambre notes.

Furthermore, the banks' buying of toxic assets may be on behalf of clients rather than for their internal accounts.

A less generous interpretation is that Citi and BofA (among others, no doubt) are attempting to "front run" Geithner's program, which presumably will result in banks being able to unload these assets at prices above the current "depressed" market levels - leaving taxpayers on the hook for future losses.

Furthermore, having put their franchises - if not the entire global economy - in jeopardy by gorging on MBS securities the first time around, do Citi, BofA and other TARP recipients have any business jumping back into that (still) toxic pool?

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