recently wrote about the New York Post article documenting Citigroup and Bank of America’s recent purchase of Alt-A and ARM mortgage backed securities in anticipation of the public/private partnerships bidding to buy similar assets from such banks:

“This raises serious questions about how the banks are using TARP funds. Instead of stimulating the economy by making new loans, B of A and Citi seem to be spending money to buy up old loans. That’s probably a bet  that the Geithner plan will create renewed demand for MBS.”

Mike Whitney at Global Research assumes the worst – that the banks are betting they will get a higher price when the Geithner plan is implemented:

“Thus begins the next taxpayer-subsidized feeding frenzy featuring all the usual suspects. The race is on to vacuum up as much toxic mortgage paper as possible so it can be dumped on Uncle Sam at a hefty profit. Nice. These are the same miscreants the Obama administration is so dead-set on rescuing. It’s crazy to try to help people who use the cover of a financial crisis to fatten their own bottom line. It’s better to let them sink from their own bad bets.

How is it that industry rep Geithner couldn’t see that his latest round of corporate welfare would create incentives for the bank scoundrels to game the system again? Naturally, if the government goes into the business of buying crap-loans from teetering financial institutions, the speculators and snake oil salesmen will follow. And so they have. Citi and B of A are just the first to respond to Geithner’s pigwhistle. Next will be the hedgies and the Private Equity porkers, all nuzzling up to the Treasury’s burgeoning feedbin hoping to sink their teeth into whatever tasty nuggets bob to the top of the trough.”

Regardless of their deeper motivations, there is another, simpler message in the bank’s recent actions to buy these assets – The banks simply believe them to be cheap.  What is the take away for the PIMCO’s, Blackrocks’s and the others bellying up to the Treasury’s free money feedbin? The banks are telling them they will have to pay more than what the banks just paid…likely a price closer to the price the banks are carrying similar assets on their books.  Are they worth what the banks will be asking for them because they have special cheap financing from the government on a non-recourse basis?  One might say “yes” due to the special financing. But wait not so fast!  The banks have special financing too.  What if the banks bought a few extra of these type of assets just so they could sell those (and only those) back to the partnerships?  This does nothing really for the bank’s balance sheets, but … it would provide some example transactions that Geithner and company could point to so that the program could be called a success.