In a 25 March 2009 post (Karl Denninger’s ‘Open Letter to the Ombudsman’ on the PPIP), I mentioned the possibility of troubled banks buying each other’s troubled assets at inflated prices and gaming the system.

On 2 April 2009 in the Financial Times, Bailed-out banks eye toxic asset buys indicates Citigroup, Goldman Sachs, Morgan Stanley, and JP Morgan Chase, are indeed thinking of buying toxic assets of their competitors.

The FT said, ‘The plans proved controversial, with critics charging that the government’s public-private partnership – which provide generous loans to investors – are intended to help banks sell, rather than acquire, troubled securities and loans.

‘Spencer Bachus, the top Republican on the House financial services committee, vowed after being told of the plans by the FT to introduce legislation to stop financial institutions ”gaming the system to reap taxpayer-subsidised windfalls”.

‘Mr Bachus added it would mark ”a new level of absurdity” if financial institutions were ”colluding to swap assets at inflated prices using taxpayers’ dollars.” ‘

Read the whole article.