It's Official - The PPIP is a Back-Door Bank Bailout on the Backs of Taxpayers

AIG is a laundering operation for the Treasury to funnel money to foreign banks, over $100B so far.

Now this:

Here's what the FDIC is thinking now:

1) Commercial and construction loans will be first in the auction process. The recent analysis that was floating around here indicated that many large banks haven't even begun to mark these assets down. Literally. Lots of them are reporting their assets in these categories as worth par or very close to it.

2) Virtually all of the selling will be from the big banks... more than their respective market share would indicate.

3) Hope you're sitting down for this one: TARP funds will be used to replace any writedowns that will arise from the difference between current marks and the auction price.

So it is official (or soon shall be): the taxpayer will be the bagholder for all toxic assets on the major banks' balance sheets. The notion that destroyed capital (via credit writedowns) can be replaced by borrowed money (TARP funds) also means that the largest banks will be much more levered than before this whole sorry process began.

Imagine the following auction scenario. A pool was marked at $.98, it sells for $.50 at auction. TARP funds $.48 of the unpaid principal balance to make up the capital hit. The private buyer puts up 1/12th of the auction price (FDIC 6:1 leverage, Treasury 50% of capital). So in other words, the private buyer has put up about 2% of the UPB and the bank took a previously disclosed 2% writeoff. Ultimately in this scenario, the taxpayer is taking on something like 96% of the risk.

This is a direct transfer of wealth from the taxpayer to the folks holding on to the lower parts of the capital structure in major banks. It will make the AIG stealth bailout/scam look like a freakin' parking violation.