Banks Plan To Bid Up Each Other's Toxic Assets With Taxpayer Money

We told you this was coming.

FT has learned that the major US banks, Citigroup (C), Goldman Sachs (GS), Morgan Stanley (MS) and JP Morgan (JPM) are all interested in buying toxic assets from one another, using the massive leverage provided by Tim Geithner’s public private investment partnership.

This was a possibility folks saw coming from the first day, and amazingly, Sheila Bair has said she’s open to this kind of money laundering.

And let’s be honest, that’s exactly what it is. Banks buying assets from each other to inflate their books has nothing to do with “price discovery” or any such nonsense. It’s all about using taxpayer money to create bids that are higher than what the market currently prices those assets at. And if it turns out those bids were too high and the cash flows never materialise then, oh well, it’s the taxpayer left holding the bag.

When told about the plans by FT, ranking Republican Spencer Bachus promised to introduce legislation preventing this. That may be easier said than done, however, given the banks’ ability to invest in various third parties, possibly having the same effect.

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