Well, duh ... http://www.telegraph.co.uk/finance/...iches-speculators-in-sham-bank-bail-outs.html US 'sham' bank bail-outs enrich speculators, says buy-out chief Mark Patterson The US Treasuryâs effort to stabilise the banking system through the TARP programme is a hopelessly ill-conceived policy that enriches speculators at public expense, according to the buy-out firm supposed to be pioneering the joint public-private bank rescues. By Ambrose Evans-Pritchard in Doha Last Updated: 6:16AM BST 14 May 2009 MatlinPatterson took advantage of Tim Geithner's TARP matching funds to buy Flagstar Bancorp in Michigan - he now owns 80pc of the shares and the US government under 10pc. MatlinPatterson took advantage of Tim Geithner's TARP matching funds to buy Flagstar Bancorp in Michigan - he now owns 80pc of the shares and the US government under 10pc. âThe taxpayers ought to know that we are in effect receiving a subsidy. They put in 40pc of the money but get little of the equity upside,â said Mark Patterson, chairman of MatlinPatterson Advisers. The comments are likely to infuriate Tim Geithner, the US Treasury Secretary, because MatlinPatterson took advantage of the TARPâs matching funds to buy Flagstar Bancorp in Michigan. His confession appears to validate concerns that the bail-out strategy is geared towards Wall Street. Under the convoluted deal agreed earlier this year, MatlinPatterson has come to own 80pc of the shares while the US government has ended up with under 10pc. Mr Patterson said the US Treasury is out of its depth and seems to be trying to put off drastic action by pretending that the banking system is still viable. âItâs a sham. The banks are insolvent. The US government is trying to sedate the public because they are down to the last $100bn (Â£66bn) of the $700bn TARP funds. They think theyâre doing this for the greater good of society,â he said, speaking at the Qatar Global Investment Forum. Mr Patterson said it would be better for the US to bite the bullet as Britain has done, accepting that crippled lenders must be nationalised. âAt least the British are not hiding the bail-out,â he said. MatlinPatterson said private equity and hedge funds were deluding themselves in hoping to go back to business as usual after the trauma of the last 18 months. âThis is not a normal recession and there will be no V-shaped recovery. The crisis has destroyed leveraged companies. Weâre going to see a catastrophic increase in the number of LBOâs (leveraged buyouts) going into default because theyâre knee-deep in debt and no solution exists since they canât refinance,â he said. âAlfa hedge funds have been making their money by gambling with excessive leverage, so the knife that cuts off leverage is going to cut off their heads as well,â he said. Like many bears, Mr Patterson expects the great crunch to end in deliberate inflation, deemed a lesser evil than outright depression. âThe US government has thrown 29pc of GDP at this crisis compared to 8pc in the early 1930s. The Fedâs balance sheet has risen from $900bn to $2.7 trillion to bail out the system. America has to do it because the only way out is to debase the currency, but that is going to lead to some very high inflation three years down the road,â he said. Matlin Patterson, however, has missed the Spring rebound, the most powerful rise in equities in over 70 years. âWe shorted the equity rally because we thought it was lunatic. Weâve kept adding positions seven times, and weâre still holding,â he said. Ouch!