“One man’s junk is another man’s treasure.” I’m sure you’ve heard that saying before but what the fed is doing, to me, is unbelievable and borders, in my opinion, on insanity.

Today, a lot of financial sponsors, some are called asset management firms, have formed real estate investment trusts over the last few months to tackle a $680 billion mountain of outstanding CMBS with $205 billion coming due by the end of 2012, according to New York commercial mortgage data provider Trepp LLC. Overall, the supply of mortgage debt held by banks, insurance firms and specialty mortgage companies in the U.S. totals roughly $3.2 trillion. Angelo Gordon & Co., Apollo Management LP, Blackstone Group, Colony Capital and Starwood Capital Group, have taken an even more daring leap, launching IPO market gambles to reap potentially lucrative returns from the purchase of commercial and residential mortgage-backed securities and real estate loans. Now, what fool is going to invest in these?

Several investment firms registered initial public offerings with the Securities and Exchange Commission under the REIT structure in last month. The idea hinges on using IPO proceeds and government-backed debt to finance investments across a broad spectrum of commercial and residential mortgage-backed securities and loans because, as many of these REITs prospectus’ read:"The next five years will be one of the most attractive real estate investment periods in the past 50 years."
Morgan Stanley also expressed confidence in the industry's market surge, just a few days ago, in a report, noting REIT stocks had an "explosive 34% rally" since early July. Additionally, the investment bank said it was raising its 2010 valuation targets for REITs by roughly 15% "on the basis of moderating sector headwinds" as investors shifted their focus from liquidity concerns among the investment trusts to acquisition-driven growth and even some non-mortgage REITs have moved to invest in the legacy debt opportunity. Ah, excuse me but legacy debt opportunity? You mean we should buy future debt? Ah … talk about rolling the dice?

HCP Inc., a health care REIT, acquired a $720 million chunk of mortgage debt held by JPMorgan for HCR ManorCare, a portfolio company of Washington private-equity firm Carlyle Group. Ah, excuse me again but the last time I noticed the Health care in America was being seriously challenged and ah, your buying its mortgage debt? Hmmmm … why?

In other words, these groups are similar to vulture funds, which is a private equity or hedge fund that invests in debt issued by an entity that is considered to be very weak or dying. The name is a metaphor comparing these investors to vultures patiently circling, waiting to pick over the remains of a rapidly weakening company. Most of these are mortgage REITs, in other words REITs that deal in investment and ownership of property mortgages. These REITs loan money for mortgages to owners of real estate, or purchase existing mortgages or mortgage-backed securities and then get the interest.

The new mortgage trusts are seeking to use financing from the government's TALF and PPIP programs to support their purchases of CMBS and related debt as some IPO filings have indicated. Ah-hah I knew there was a reason. Uncertainty and valuation issues, however, continue to hang over the mortgage debt market like dark clouds but of course if the government is “guaranteeing” it … hmmm … this sounds familiar to me.

The Term Asset-Backed Securities Loan Facility (TALF) is the name of a program created by the Federal Reserve, in 2008. The facility will support the issuance of ABS collateralized by student loans, car loans and credit card loans, and loans guaranteed by the Small Business Administration. Under the TALF, the Fed. Reserve Bank of N.Y. will lend up to $1 trillion (originally $200 billion) on a non-recourse basis to holders of certain AAA-rated ABS backed by newly and recently originated consumer and small business loans. As TALF money does not originate from the Treasury the program does not require congressional approval to disburse funds. Hmmm, very interesting but didn’t this just occur? I mean student loans and car loans and credit card loans are the security? Is this a circle we’re going around in again? I mean are these REITs playing us, the taxpayers again? These freakin’ toxic derivatives are always going to be toxic, you have to admit that, Timmy Geithner, before you can correct it it; stop giving Wall Street the ammunition to continue “gaming the system” and the taxpayers.

Originally slated to last through December 2009, TALF will now last until June 30, 2010. The securities eligible for collateralizing TALF loans include newly issued, triple-A-rated ABS backed by loans to consumers and businesses, and newly issued and legacy triple-A-rated CMBS. Hmmmm … wonder who rates these things?

Now, the $1.1 trillion federal government Public-Private Investment Program (PPIP) is nothing but another Timmy Geithner scam plan to entice investors to invest with the fed in the already toxic garbage known as MBS that unless housing values skyrocket (unlikely) so that the MBS that are currently going bad turn in the other direction so that they can actually re-fi or sell their homes for a profit the toxic garbage remains just that, toxic garbage, and if Geithner “guarantees” these loans using the FDIC, then the seller of the toxic garbage will make a profit but only because the FDIC underpriced the cost of the loan and the taxpayer will take it in the back again and the federal debt will be … ah … what’s the dif’ Geithner wants the banks to take some risk to help get us out of this mess … y’know change their underwriting guidelines … y’know make loans to … wait a minute … isn’t that what got us into this mess in the first place? Just sayin’ …