PrintMarch 5, 2009
The Toxic Mortgage Hoax
Hardly a day goes by without a story about toxic mortgages being published. You would never know from the stories that an asset cannot be toxic, unless "toxic" is given a whole new meaning. If you hold a stock that is down 50%, (and who doesn't?) it doesn't make the company toxic. It is still worth whatever the market says it is worth. That you paid more then its current value, has no impact on the value of the stock. Selling it will not change your net worth.
Toxic mortgages are still valuable. Removing them from a bank's balance sheet has no effect on the bank's financial health. Of course, if you can label losing mortgages toxic, it may be easier to sucker Congress into paying more than their market value to prop up your balance sheet. If I'm close to bankruptcy and I sell my '91 Chevy for $300, it does me no good. If you pay me $30,000 for it, I can pay off my debts and have money left over. Another bankruptcy averted.
All the talk of "good bank/ bad bank' is predicated on a lie. Does no one in Congress or their staffs or all the people working for the US Treasury have a clue? I guarantee you the unpunished CEOs in the industry understand and are holding their breath so as not to upset the scam.
It is bad enough to bail out these pirates at all, but the geniuses in Treasury have no idea what's going on. From all public evidence, neither does the "uniquely qualified" head genius.
