Anonymous Banker has a good point. TALF doesn't really solve any problems. It doesn't matter if you're talking about new issue or legacy, TALF will not be the savior. It is riddled with issues that hinder its own success.
A) Diverse Collateral - unless the FRBNY looks the other way, the DDR deal is simply not diverse. It is 100% one sponsor, and 100% retail. The deal makes sense - we should support loans to institutional quality collateral, even when the sponsors have a BB+ rating, but this deal does not pass the diversity test. (Fortress likely passes, but the other deals in the pipeline don't pass this test either)
B) Failure to Specify TALF Eligibility Requirements - They've basically said, hey, we'll fund it as long as it is AAA and diverse, but we may reject it anyway. So, investors have to buy the bond with the added risk that they may be stuck with it and no TALF loan to leverage it (and a lower price b/c the NYFRB will immediately tell everyone they rejected it). It's the equivalent of telling your assistant to get you a triple-venti non-fat latte, and then throwing it in her face when she gets back from running down the street in the rain because the cup had a black lid instead of white one.
And more specifically to AB's point - what does TALF do to restart the loan market? CMBS was only about a quarter of the CRE lending market to start with, and it's maturity problems are mostly down the road 7+ years, unlike banks. Someone needs to step up and provide some very concrete guidelines and give the market some confidence.
-Stop all this FASB nonsense - just come up with a set of rules and implement it. Preferably stick to rules that aren't stupid like most of your recent changes.
-Stop all this talk about requiring issuers to retain an interest in securities - this already existed (see ABS Auto deals, or Specials on CMBS deals) and it doesn't solve the problem. "Hi, I'm XYZ 2009-1 and the government requires me to retain 10% of the deal on my books, so I'm going to increase some other costs by 10% and value that at near $0.00. Worst-case, we lose nothing and likely case is that value increases to something more than $0.00." "Oh yeah, and because of the new stupid FASB rule, I'm still going to have to put 100% of the deal on my balance sheet, even though I only actually have 10% on there)!"
-If you're going to give investors cheap leverage, how about giving very defined rules on how bonds will be eligible (or just publish a list of CUSIPs you nimrods). While you're at it, how about letting us use our Social Security savings and letting us leverage up on the assets. These aren't 144a. Plop them in a public fund and give us an option - hell, I'll take an $8,000 tax credit, or the clunker value of my primary vehicle, and put it in the fund out of the kindness of my heart to get things started. My tax rate next year is going to be 57% all in, I'm paying 100% of my insurance, rent, mortgage, vehicle loans, etc. - it's time for me to get something back for that, and I want control over as much of my money as possible. Why should some douche managing a fund get to benefit from my tax dollars (my 57 cents of every dollar I earn)?
-Instead of some useless scheme such as TALF, why not sell CDS on the new issue deals. This way an investor can offset their risk, at their own free will, and the government will receive a market-based fee for taking on that risk (a risk that will be far less than 3 or 4 times the purchase price, which is TALF). Structure it to benefit the taxpayer - I'm sure you guys have some great thoughts on this.
-Workout some reinsurance scheme. You can even support a third party to do it to keep the risk as far away from the taxpayer as possible. Offer it on whole loan portfolios, not just securities like CMBS - let an insurer offset some of their risk so they'll underwrite new portfolio loans (they still have money coming in that they need to put to work).
CoStar's People of Note (Feb. 12)
2 days ago