USA Fire Sale: 1st Meeting July 3, 2007

[FRED]

USA Fire Sale - July 3, 2007

In the spirit of our original USA Bankruptcy Filing posted on iTulip.com in 2001, and the faux iTulip interview with Alan Greenspan (google: "greenspan interview") from 1999, the following is the transcript of the first meeting in 2010 between a fictitious character Henry Cheng who represents U.S. creditors, and Hank Anderson, seller of U.S. assets.

Cheng: We have $1.2 trillion. What do you have for sale?
Anderson: Our first item is a portfolio of ABS CDOs.

Cheng: ABS is asset-backed security. What's "CDO"?
Anderson: CDO stands for collateralized debt obligation and in this case it means packages of debt based on parts of asset-backed securities which were previously low rated but which, because of the way they are packaged, have high ratings as CDOs.

Cheng: Why is a package of parts of things worth nothing worth more than nothing?
Anderson: Well, it's complicated but it has to do with the models of the risk of default under various conditions...

Cheng: We will give you one dollar.
Anderson: Mr. Cheng, I haven't told you what we are asking, yet. This collection of CDO portfolios originally sold for $140 billion...

Cheng: Ok, we'll give you two dollars.
Anderson: How can they be worth two dollars if they were once worth $140 billion?

Cheng: If you have a better offer, take it.
Anderson: Um, let's move onto our next asset. This is a big opportunity. We have $460 billion in asset backed securities and bonds on defaulted sub-prime mortgages. These were owned by hedge funds and investment banks, then purchased by the Federal Reserve following the passage of the 2009 Emergency Asset Classification Act.

Cheng: What is "sub-prime"?
Anderson: Sub-prime is a loan a lender offers to borrowers who have higher default risk than a prime borrower's.

Cheng: Why?
Anderson: Why is the default risk higher? Because the borrower is less creditworthy than a prime borrower.

Cheng: No, why lend money to borrowers when you know they cannot pay back?
Anderson: Well, statistically, many can pay back, enough for the loans to make money, usually, and in terms of policy, we want poor families to own homes and build wealth.

Cheng: Ridiculous. A poor family needs income and equity, not credit and debt. "Usual" is never usual for long. What else do you have?
Anderson: We have $560 billion in bonds on defaulted adjustable rate mortgages. These were "A" rated, prime.

Cheng: But not now, right? So were not rated correctly. How rated now?
Anderson: Ratings vary but mostly this portfolio is rated "B" or less.

Cheng: Junk.
Anderson: Well, technically, yes...

Cheng: Not buying that, sand in a desert.
Anderson: Let's move on. We see you are looking for high quality items. We have Treasury and agency bonds...

Cheng: You joke! We sell US Treasury bonds, buy for our economic needs. What else is for sale?
Anderson: We have $490 billion in distressed bonds from corporations that were financed by private equity firms in 2006 and 2007.

Cheng: Interesting. We buy energy, manufacturing, resources. We like oil, coal, gas, metals. Fifty cents on the dollar! Very good price!
Anderson: Uh, those are not for sale. As I am sure you know, laws passed by Congress in 2008 prohibit foreign ownership of US companies in strategic industries. All of the industries you name are strategic. Sorry.

Cheng: Pharmaceutical. Biotech. Technology... networking, comms, wireless, software?
Anderson: Those are the crown jewels of the U.S. economy. They are not for sale.

Cheng: We buy stem cell R&D companies. Your laws prohibit this. Ours do not. For sale?
Anderson: Right, so we have not developed that technology. Sorry, none for sale.

Cheng: It's ok. You will buy new medicines from us later. Anything else?
Anderson: This is all we came prepared to offer today.

Cheng: Ok, we wait, come back later and buy "strategic" industries... ten cents on dollar. Goodbye.