5 Ways To Scam The New Bailout

This week, Tim Geithner launched the details of the new public-private partnership to save the banks. The basic idea, as you know, is that outside investors will be offered leverage to buy up so-called toxic assets.

In other words, the government is printing up a lot of cash money for private investors to get rich on.

As a service to you, dear reader, we thought we’d list all the ways that you can scam the government and taxpayers for your own profit.

  1. Overpay for trash assets, after getting a secret agreement from the bank that the bank will make it worth their while. The hedge funds immediately write the assets down, destroying their equity and the taxpayer. Then they sell them back for peanuts to the banks, but the bank pays the hedge fund a “fee” that would compensate for the lost equity. (It wouldn’t be explicit, of course. But given the amount of money that flows back and forth between the big banks and hedge funds, it won’t be hard to hide.)  The hedge fund profits. The bank profits and the taxpayer is scammed.
  2. Make hundreds of long-shot bets, structuring each individual asset purchase as a separate entity. Most of these entities will lose money, but so what?  You can just write them off and keep the money from the winners.
  3. Set up an investment firm to buy your trash assets from you and fund the firm’s equity with crap assets. This investment firm, which you control, will then intentionally overpay for your remaining tax assets with borrowed taxpayer money. It’s legal money laundering!
  4. Front run the government. If you’re a bank, buy toxic assets now on the secondary market and sell them once the plan ramps up. Some banks are already doing this now.
  5. Use the program to hedge your bond exposure. If you’re PIMCO or Blackrock, and you have big bond exposure to the banks, you participate merely for the purpose of propping up your borrowers with other people’s money.

Joe Weisenthal
Mar. 28, 2009

Source: The Business Insider

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