PSST!… Wanna End The Recession?

Leave it to the private sector to do what Obama, Geithner, and the federal government seem totally unable to figure out. Buy up those so-called “toxic assets” and un-constipate the credit system so that banks can start lending again.
The lefties are gonna scream like hell about who’s doing this, but with an endorsement and a hefty contract from the federal government, and a helluva a success story, there’s not much to really argue about here. Free market capitalism is still the best road to prosperity. From the snarky NYT:

Stanford L. Kurland, Countrywide’s former president, and his team have been buying up delinquent home mortgages that the government took over from other failed banks, sometimes for pennies on the dollar. They get a piece of what they can collect.
“It has been very successful — very strong,” John Lawrence, the company’s head of loan servicing, told Mr. Kurland one recent morning in a glass-walled boardroom here at PennyMac’s spacious headquarters… “In fact, it’s off-the-charts good”
Federal banking officials — without mentioning Mr. Kurland by name — added that just because an executive worked at an institution like Countrywide did not mean he was to blame for questionable lending practices. They said that it was important to do business with experienced mortgage operators like Mr. Kurland, who know how to creatively renegotiate delinquent loans.
PennyMac, whose full legal name is the Private National Mortgage Acceptance Company, also received backing from BlackRock and Highfields Capital, a hedge fund based in Boston. It makes its money by buying loans from struggling or failed financial institutions at such a huge discount that it stands to profit enormously even if it offers to slash interest rates or make other loan modifications to entice borrowers into resuming payments.
Its biggest deal has been with the Federal Deposit Insurance Corporation, which it paid $43.2 million for $560 million worth of mostly delinquent residential loans left over after the failure last year of the First National Bank of Nevada. Many of these loans resemble the kind that Countrywide once offered, with interest rates that can suddenly balloon. PennyMac’s payment was the equivalent of 38 cents on the dollar, according to the full terms of the agreement.
Under the initial terms of the F.D.I.C. deal, PennyMac is entitled to keep 20 cents on every dollar it can collect, with the government receiving the rest. Eventually that will rise to 40 cents.

From the very beginning of the credit crisis last summer, the problem has been that the “toxic assets”, made up of bundled mortgage backed securities, were first “marked to market” as ordered by the SEC, and then, as the losses mounted, ate away at the capital of the firms which held them. While those securities had a face value of tens of trillions of dollars less than 10% of all mortgages in the US are not being paid on time. The securities may have been marked down to practically nothing, but the vast majority of the mortgages behind them are generating a steady stream of on-time payments.
The article grudgingly goes on to detail examples of people whose mortgages were purchased by Penny Mac, adjusted downward, often at half the original interest rate and payment, saving the homeowners from likely foreclosure, while still making a healthy profit for Penny Mac and its investors.
THIS is how to end the recession. Read the whole thing.