Toxic Assets Plans: Opportunity or Landmine?

The skepticism in the blogosphere and media over BuySide participation in the Treasuries toxic asset plan runs deep, and today's announcement (which clarifies participation in legacy securities) is being taken as a sign nobody wants in - but Treasury has been working behind the scenes to reach out to smaller money management shops, and have relaxed the standards needed to participate. This will eventually include far more than five firms, as was widely reported by people who really don't know what the hell they are talking about:

While the Treasury initially said it will approve up to five asset managers for the securities program, the department on Monday suggested an openness to considering a larger number of managers for the program.

In a March 23 release, the Treasury noted that fund managers will be pre-qualified based on certain criteria, including an ability to raise capital and demonstrated experience investing in the eligible asset classes and a minimum threshold of eligible assets under management.

In Monday's documents, however, the Treasury made clear that firms that don't meet all of the criteria won't necessarily disqualify a proposal. The Treasury added that it is particularly interested in program participation by small, minority and women-owned businesses. WSJ

Several of NYC's more solvent commercial real estate concerns are busy drafting documentation and getting set to participate - Treasury has been in touch with them for weeks. And while the state of commercial real estate is not good by any means, last week's secondary for Kimco Realty (KIM-NYSE) shows there is money on the sidelines willing to recapitalize the balance sheets of companies considered distressed, and you have to wonder if the bears pressing their bets, and betting on headline risk, are playing with fire.

The short squeezes from time to time have been nasty, but the most ardent bears seem unwilling to concede any ground despite the fact their favorite proxy Proshares Ultrashort Real Estate ETF (SRS-NYSE) has had the tar kicked out of it year-to-date.
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Bears talking smack, but SRS trading near YTD lows
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And other people are lining up to take advantage of the fire sales going on in toxic asset land:

The U.S. Treasury’s toxic assets clean-up plan is the greatest market opportunity since the savings & loan crisis, says veteran investor Bill Bartmann.

He should know: Bartmann made a fortune snapping up distressed loans from the wreckage of failed savings banks some 18 years ago.

“The current crisis is creating a whole new playing field and, with that, a whole new opportunity,” Bartmann said in an interview. “It’s going to be a bigger opportunity this time than last crisis.”.....Now, Treasury’s plan to help private fund managers purchase securities and loans from struggling banks has inspired the Tulsa, Oklahoma, businessman to dust off his Rolodex, assemble his partners and raise a $1 billion (670 million pounds) fund from wealthy investors and hedge funds.

Bartmann, who is 60, said his fund would purchase consumer loans from struggling banks through the public-private investment partnership. With a matching co-investment from Treasury and as much as six-to-one leverage through FDIC-backed bonds, Bartmann could purchase up to $14 billion in loans. Reuters

Michael Mayo’s bearish call on the banks is getting traction today, but if the bears cannot keep a lid of REIT and financial equities later this week it could get interesting....earnings season or not.

The bears are pretty cocky, but we are finally making some headway is cleaning up the mess. And it is a bloody battleground out there, particularly in publicly-traded REIT’s and banks with large credit card operations.
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Still, fans of Treasury are few and far between....William Black shredded Geithner and Summers on Bill Moyer’s show last week, and was in NYC today to speak with Aaron Task on the stress tests being conducted by regulators....and as far as the toxic asset plan:

Black says the stress test must also be viewed in the context of Geithner’s toxic debt plan, which he calls “an enormous taxpayer subsidy for people who caused the problem.” The fact bank stocks have been rising since Geithner unveiled his plan is “bad news for taxpayers,” he says. “It’s the subsidy of all history.”

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One of Paulson’s UnderSecretary’s chimes in on the PPIP and the stress tests - and defends their performance under “the Hammer” apparently Phil Swagel, by his own admission, missed the housing bust when he worked at Treasury:

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Treasury Extends Application Deadline for Toxic-Asset Plan
WSJ

Veteran of S&L crisis sees gold in toxic assets
Reuters

Treasury Department Provides Updated Guidance on Legacy Securities Public-Private Investment Program
U.S. Treasury Press Room

PPIP Weighs on Financials
WSJ
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The content contained represent the opinions of 1440 Wall Street. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author. Position KIM, SRS

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