TALF, PPIP, TARP and the real politics behind themWe no longerhear the media and politicians talking much about toxic assets andrestarting securitization. The reality is all of this was purepolitics. In late 2008 Paulson and Bernancke had to make a dramaticmove to prove that the government was going to essentiallyguarantee the soundness of the financial system, or we would havehad a complete collapse in November, 2008. TARP was designed to dothat and it worked. Other than Citi and GMAC, nobody really neededthe capital. It was all designed to send a giant message. Thestress tests were designed to do the same. Treasury and the Fedknew the outcome before they ever proposed the tests, or they neverwould have done it. The regulators had all the numbers. The testswere set to be able to say things are OK, and to be able to forcethe big banks to raise added capital. It was designed to be anotherconfidence builder.PPIP and TALF were both purely politicalprograms specifically designed to sound good, do a tiny bit, but toessentially fail quietly. Anyone who thinks these programs weredesigned to really do anything, simply does not understand what wasreally going on behind the curtain. The government needed to looklike it had answers and was taking action. In early 09 Volker andothers pressed for RTC 2 instead.A number of people in Wall Stattribute the substantial narrowing of CMBS spreads to TALF. IfCMBS spreads had narrowed and no other spreads had done so, thenone could make the argument. However, all spreads, across most ofthe world, also came in substantially around the same time, andthat had nothing at all to do with TALF. The reality is themarkets calmed and investors and traders were much more willing tomove out the risk curve fairly rapidly once it was clear the worldwas not ending and governments around the world were not going toallow the system to crash. TALF had little to do with spreadsnarrowing-it was coincidence. Spreads were going to come in anyway.All TALF did was accelerate the timing of the narrowing for CMBS.Securitzation will restart when the markets are ready to accept thepaper and underwriting is reset to reflect reality. TALF is notrelevant.Even though a few PPIP programs were set up, we hearnothing of them any longer. Debt is being issued without TALF.Hardly anyone wants to be bothered dealing with the hassle thatcomes with it. The markets are now willing to buy the non-TALFpaper, which is exactly what Treasury counted on. The politicalgamble worked.The real inflection points in all this were two majorevents. The first was the big bank CEO meeting with Obama in Marchwhen they essentially told him to stop bashing the banks, or hewould create worse problems. You can closely correlate theturn in the equity markets to that day. Obama still has not got thefull message. The second was the disgraceful media circus whenBarney Frank and his band of clowns held a made for TV spectacle touse Liddy as a punching bag. After the Liddy political theater,nobody wanted anything to do with government funding ever again ifthey could avoid it. Barney Frank has done more damage to thesystem than almost anyone. He protected Fannie and Freddie andRaines, and he has now made it clear nobody should deal with thegovernment if they can avoid it, unless you are a union, then youget taken care of as was the UAW, and now all unions withhealthcare.As always, markets correct themselves and revert to themean. There is a group of traders in every situation who are ableto see past the chaos, and will step in to bid when they perceivethe price to be irresistible. A base is formed and then othersfollow. Spreads come in, the early actors make a killing, andmarkets start to function again. This was no different. Now themarkets will be in a more normal trading range.

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Joel Ross

Joel Ross began his career in Wall St as an investment banker in 1965, handling corporate advisory matters for a variety of clients. During the seventies he was CEO of North American operations for a UK based conglomerate, and sat on the parent company board. In 1981, he began his own firm handling leveraged buyouts, investment banking and real estate financing. In 1984 Ross began providing investment banking services and arranging financing for real estate transactions with his own firm, Ross Properties, Inc. In 1993 Ross and a partner, Lexington Mortgage, created the first Wall St hotel CMBS program in conjunction with Nomura. They went on to develop a similar CMBS program for another major Wall St investment bank and for five leading hotel companies. Lexington, in partnership with Mr. Ross established a hotel mortgage bank table funded by an investment bank, and making all CMBS hotel loans on their behalf. In 1999 he formed Citadel Realty Advisors as a successor to Ross Properties Corp., focusing on real estate investment banking in the US, UK and Paris. He has closed over $3.0 billion of financings for office, hotel, retail, land and multifamily projects. Ross is also a founder of Market Street Investors, a brownfield land development company, and has been involved in the acquisition of notes on defaulted loans and various REO assets in conjunction with several major investors. Ross was an adjunct professor in the graduate program at the NYU Hotel School. He is a member of Urban Land Institute and was a member of the leadership of his ULI council. In 1999, he conceived and co-authored with PricewaterhouseCoopers, the Hotel Mortgage Performance Report, a major study of hotel mortgage default rates.