The government's next set of gyrations over "bad assets" is about to unfold this coming week, and if the leaked details over at the New York Times this weekend are any indication of the reality about to be foisted upon us, we're all about to get a nasty case of déjà vu, all over again.

Remember the discussion about 'intrinsic value' that we had to endure when the Troubled Asset Purchase Program — which never did purchase any assets — was first announced? Get ready to hear the same debate, all over again; but this time, the idea is that someone from the Holy Triumverate© of the Treasury, the FDIC, and/or the Fed will be buying something troubled that may once have even resembled an asset.

The Times' story paints a picture of this latest plan — this one has THREE PRONGS, so it must be better, right? — to subsidize overpaying for "bad assets" that are still stubbornly clogging up bank balance sheets from San Francisco to New York City. This plan uses the collective resources of all three prongs to allegedly entice private capital into purchasing debt/securities/assets, but private investors would be putting up as little as 3 percent of the equity in this so-called public-private partnership, ostensibly to be led by the FDIC.

Heck of a partnership, there. It's like we're chasing our collective tails here, forgetting where we've already been. And for Obama, this may be a misstep that could mark his next four years; he may not have enough political capital to head back to the well for another spin on this.

Since at least early 2007, I've urged readers here at HW to keep their eyes focused on one very simple truth: no matter how complex the financial instrument, or the derivative based upon it, what matters most here is the underlying collateral. As the Times notes, we have an estimated $2 trillion in "bad assets" out there, the vast majority tied in some way, shape or form to residential or commercial mortgage credit. Which means that any argument over the real value/intrinsic value/future value of a debt/security/asset — call it what you will — ultimately comes down to a question of what you believe about the underlying collateral here.

Investors have clearly spoken in terms of what they believe that collateral to be worth. And it's far less than what many banks can afford to sell at. (So we have to hear more nonsense on mark-to-market accounting, which is an issue I'll save for a later rant, and for better versed colleagues to parse).

Do you still believe that we're facing irrational panic by investors and an entire global market? Or do you believe banks are holding truly bad assets that are surely worth something, but not worth anywhere near the marks banks have placed on them? These are the questions Paul Krugman would have each of us ponder, as he discusses in his own commentary. The answer should be amply clear to all of us.

Reading about the likely old-is-new-again solution about to be rolled out this week, with its sure-to-be requisite bells and whistles, I can't help but wonder: where is the Resolution Trust Corp.? Can someone please explain that to me? Why aren't regulators pursuing a model that actually has worked in the past? Is it really, as Krugman opines, that this administration "is still clinging to the idea that this is just a panic attack, and that all it needs to do is calm the markets by buying up a bunch of troubled assets"? Or is there another reason that none of us, except those in regulatory seats of power, have been able to thusly divine?

This plan, as leaked, isn't the RTC — it's not even close. The RTC pioneered public-private equity partnerships in the liquidiation of real estate, yes. But don't be fooled by the partnerships that appear likely to be unveiled here; the RTC existed to sell assets of already-siezed financial institutions that didn't have enough assets to cover their debts — not to see investors put up 3 percent equity as part of a strategy that will see the government buy and hold "assets" to maturity.

And asset managers? AMs were selected by the investor and not by the government, since the investor had an partnership interest in liquidation. None of what I've seen discussed thus far even remotely passes the smell test for something like this — instead, we've got the Treasury selecting its own asset managers, since it's the investor, and ever-expanding its purchases so long as there are bad assets to be had. (No doubt we'll see Bill Gross' name on that asset managers list, and perhaps Goldman, too.)

Let me be as blunt as I've been in a awhile in this space: we need the RTC. We don't need to clean up a few bad assets here; we need to clean up likely thousands of banks and financial institutions that made bets tied to mortgages that they never thought they'd lose on. We need to restore faith in our banking system, no different than we need to restore faith in our nation's mortgage markets.

We have the model. The only question that remains is this: will we use it?

Write to Paul Jackson at paul.jackson@housingwire.com.

(Update 1)

Here's a twist on government bank seizures: the holding company for Washington Mutual is suing the Federal Deposit Insurance Corp. for more than $13 billion in damages, alleging that the bank regulator violated the bank holding company's rights in forcing the sale of banking assets to JP Morgan Chase & Co. (JPM: 37.21 -0.75%) at a "fire sale" price. The lawsuit was first reported by Reuters on Saturday afternoon, available here.

Regulators seized the Seattle-based thrift last September, making it the largest bank failure in U.S. history. The bank's assets were sold to JP Morgan for just $1.9 billion, a price that Washington Mutual lawyer's say was too low, according to the AP report.

JP Morgan did not assume WaMu’s liabilities in the takeover of WaMu, including claims by equity or any senior or subordinated debt holders — but it did agree to absorb WaMu’s troublesome loan portfolio, famously heavy on option ARM mortgages. The deal made JP Morgan into the largest U.S. bank by deposits.

At the time WaMu was shuttered, the thrift held a $231.1 billion loan portfolio at the end of Q2 2008 included $52.9 billion in option ARMs and another $62.5 billion in home equity loans and lines of credit. Total nonperforming assets jumped to $11.2 billion at the end of the second quarter, as well, up 22 percent from the first quarter and nearly three times the NPAs recorded one year earlier. JP Morgan said it would write down WaMu’s loan portfolio by roughly $31 billion, to account for losses inherent in the book of business.

For its part, JP Morgan posted a $702 million, or 7 cents per share, fourth-quarter 2008 profit — largely due to a $1.1 billion boost from its acquisition of Washington Mutual — compared to a profit of $3 billion, or 86 cents a share, in the same period last year. Without WaMu, JP Morgan said it would have lost 28 cents a share during the fourth quarter.

Write to Paul Jackson at paul.jackson@housingwire.com.

Disclosure: The author held various put option contracts on JPM when this story was published, and not other relevant investment positions. Indirect holdings may exist via mutual fund investments.

The Federal Reserve Bank of New York said late Thursday it had purchased another $28.2 billion in agency mortgage-backed securities this week from government-sponsored entities Freddie Mac (FRE: 0.00 N/A), Fannie Mae (FNM: 0.00 N/A) and Ginnie Mae. For the week ending March 18, the Fed purchased, net of $8.5 billion in coupon sales, $19.7 billion in coupons after a booming week ending March 11, during which the Fed had purchased $61.4 billion total, or $27.1 billion net of sales.

The Fed bought $13.14 billion from Freddie's books, $11.65 billion from Fannie and $3.4 billion off of Ginnie's books this week. It was the second-largest week of purchases for Ginnie, coming in behind the $4.3 billion bought from the agency in the week ending Jan. 28. Thirty-year, 4.5 coupons were the most popular item purchased at $12.6 billion from all agencies in the week, followed by 30-year 4s at $6.9 billion. Meanwhile the Fed also sold $695 million worth of Freddie's coupons, $6.5 billion in Fannie's coupons and $1.4 billion in Ginnie's coupons; it was the third consecutive week of listed sales. All told, the Fed's purchased have grossed $308.4 billion so far, but net of sales that figure drops to $299.9 billion.

See a detailed table of the current week's purchases and sales.

The Federal Reserve’s assets gained $163.74 billion in the same week ending March 18, according to a balance sheet summary released Thursday. The data show the Fed’s consolidated balance sheet grew to a value of $2.04 trillion from the previous week, and is up more than $1.16 trillion from the year-ago week ended March 19, 2008. The Fed's balance sheet had been shrinking considerably in recent weeks. Then, on Wednesday, the Federal Open Market Committee released a statement announcing it had decided to increase the Fed's balance sheet in an attempt to "provide greater support to mortgage lending and housing markets…." The FOMC said it would increase the Fed's purchases  of agency MBS by $750 billion, to $1.25 trillion this year. It also announced it would increase the Fed's commitment to purchase agency debt by $100 billion, to a total of up to $200 billion.

Write to Diana Golobay at diana.golobay@housingwire.com.

Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.

American International Group, Inc. (AIG: 25.25 +0.44%) isn't the only government-assisted corporation to come under fire for the payout of bonuses to employees — housing finance giants Fannie Mae (FNM: 0.00 N/A) and Freddie Mac (FRE: 0.00 N/A) are taking center stage as this week comes to a close for their own plans to pay out so-called 'retention' bonuses.

Fannie Mae is set to pay retention bonuses totaling at least $1 million over two years to four key executives, according to the company; Freddie has similar plans. Obviously, the dollar amount here is ostensibly far smaller compared to the bonuses paid out by AIG, but it's pretty clear that public tolerance for bonuses at companies being propped up with taxpayer dollars is wearing thin.

On Friday, House Financial Services Committee chairman Barney Frank (D-MA) sent a letter to Federal Housing Finance Agency director James Lockhart, asking him to cancel planned bonuses to executives at both Fannie Mae and Freddie Mac.

"I remain very skeptical that retaining and rewarding people who made the mistakes that contributed to the unsatisfactory performance is a good idea," he wrote in the letter. "Further, in this troubled economy, and in this job market, it is difficult to imagine that the companies would not be able to find competent and talented replacements for anyone who chooses to leave."

Lockhart, whose agency oversees the GSEs, earlier this week had defended the bonus plans. "We started to design a retention plan with a compensation consultant even before the conservatorship because it was critical to retain their most important asset –- their employees — who are being asked to play a vital role in the nation’s economic recovery," he said in a statement released Wednesday afternoon.

"As the previous senior management teams left, it would have been catastrophic to lose the next layers down and other highly experienced employees. Fannie Mae and Freddie Mac purchased 73 percent of all mortgages originated last year and are the key players in the Making Home Affordable plan designed to help millions of homeowners. Many employees have received significant pay reductions, with no bonuses for 2008 performance and all past stock grants are virtually worthless."

House Democrats on Thursday passed a bonus-blocking bill that would discourage the use of funds at major financial institutions, by imposing a 90 percent tax on such bonuses. The tax would apply to employees at companies that have received more than $5 billion from the government — including Fannie and Freddie. Read full coverage.

Write to Paul Jackson at paul.jackson@housingwire.com.

Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments.

Citigroup Inc. (C: 30.87 +1.61%) announced Friday it will move Gary Crittenden from the role  of chief financial officer of Citi to chairman of Citi Holdings, the branch the bank plans to split off from its core business. In the new role, Crittenden will work to "optimize the value of the businesses" of the unit, which represents a significant portion of Citi's assets, bank officials said in a media statement. Before joining Citi as CFO in 2007, Crittenden worked seven years as executive vice president, CFO and head of global network services at American Express Co. (AXP: 49.85 -0.26%).

The former head of global banking at Citi, Edward Kelly, will assume Crittenden's old role as CFO of Citigroup. Before joining Citi Alternative Investments in February 2008, Kelly worked as a managing director at the private investment firm The Carlyle Group. He had worked in various roles at Mercantile Bankshares Corp. for six years until it was acquired by The PNC Financial Services Group (PNC: 59.08 +0.31%), which kept Kelly as vice chairman. Kelly didn't stay long after the March 2007 acquisition; he left for Carlyle months later in July 2007, according to Citi officials.

"Gary and [Edward] will build on our early accomplishments and help to meet our strategic objectives at Citicorp and Citi Holdings," said Citi CEO Vikram Pandit. On Jan. 16, the bank announced, after posting a staggering $18.7 billion year-end loss for 2008, that it would split into two branches, essentially undoing the '98 merger between Citicorp and Travelers Group.

The bank said in January it plans to unwind its non-core business in the Citi Holdings branch, which will take on brokerage and asset management, local consumer finance, and a special asset pool covered by the government loss-sharing agreement. These non-core businesses “do not sufficiently enhance the capabilities of Citi’s core business, and in many ways compete for its resources,” officials said in a January press statement. While Citi Holdings will absorb many of the bank's losses, Citicorp will be a “relationship-focused” global and regional business and consumer bank.

Pandit said in an internal memo obtained in early March that he was “disappointed” with recent stock prices — which briefly entered dollar territory — as they did not reflect the bank’s capital strength or earnings potential. Despite market behavior, Pandit said he was “most encouraged” with the strength of Citi’s business so far in 2009. The bank was profitable through the first two months of 2009, marking its best quarter-to-date performance since the third quarter of 2007, he said.

Despite its negative media exposure in recent weeks, Citi reported to the U.S. Treasury Department that its total mortgage originations were up to $7.8 billion in January from $5.5 billion in December. According to a monthly lending report released in mid-March by the Treasury, Citi followed the popular trend of spiked refinance loan volume and declining new purchase loan volume from recent months. Citi posted $1.3 billion in refi originations in January from $858 million in December, and $278 million in new purchase mortgages in January from $489 million a month earlier.

Write to Diana Golobay at diana.golobay@housingwire.com.

Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.

Want to buy non-performing mortgage notes? Well, first you've got to go where the debt is.

One Newport Beach, Calif.-based auctioneer says they have the solution, in the form a new online website designed to manage the auction of debt notes. The LFC Group of Companies, which manages a portfolio of online real estate auction websites, said Thursday that the company has launched BigBidder.com as a tool for investors to buy and sell notes secured by real estate.

The company touted its platform as the "first-ever website for auctioning notes online" in a press statement. LFC executives say that the transparency and fairness inherent in the auction process is something that's been lacking when it comes to transacting in debt — especially in terms of price discovery. Visit the BigBidder.com website.

"For years institutional firms and savvy investors have bought and sold notes for profit and to maintain cash liquidity," LFC senior vice president Paul Lyons said. "We're breaking away from the traditional paradigm with this powerful tool allowing individual qualified investors and small investment consortiums to diversify their portfolios by investing in notes via a fair and transparent retail process."

While the idea of online auctions of real estate debt may be new, LFC isn't the first company to look to establish an online marketplace for the exchange of debt — Boston-based DebtX has well-established itself in the market for online distressed debt exchange in commercial real estate notes, and holds multiyear contracts to sell distressed debt for the Federal Deposit Insurance Corp. and the U.S. Department of Housing and Urban Development. The exchange has managed the sale of well over $1 billion in CRE debt over the past 12 months.

On March 31, DebtX will sell more than $318 million in secured debt on the FDIC's behalf; the debt is tied to California-based Security Pacific Bank, which was taken over by regulators late last year.

“This FDIC transaction is expected to generate strong interest from buyers around the world,” said DebtX CEO Kingsley Greenland. “The FDIC receivership sales are among the growing volume of performing and non-performing loans being sold by global financial institutions seeking to benefit from the liquidity at DebtX’s marketplace.”

While the DebtX platform has traditionally focused on a wide range of performing and non-performing loans secured by multifamily real estate, retail, office, industrial, assisted living and business assets, the company has recently managed transactions involving residential notes as well.

Write to Paul Jackson at paul.jackson@housingwire.com.