The Treasury is handing out naked puts on behalf of the taxpayer

US Bancorp acquires Downey Savings & Loan and agrees to take the first $1.6B in losses and the FDIC will take any additional losses.

JP Morgan acquires WaMu in a deal that requires JP Morgan to take the first 30B in losses and the FDIC will take any additional losses.

Now IndyMac is acquired by a private equity group for $13.9B in a deal where they liable for the first 20% of losses, and the FDIC is liable for the remaining amount. No quantification of what that 20% is a percentage of. I am looking for the details.

What kind of deals are these? A free put contract for an asset already purchased at a severe discounted asset? The capitalization of the FDIC is not designed to recapitalize distressed mortgage asset portfolios. Thus the bill for these extended losses will be a virtual pass through to the taxpayer.

WaMu, Downey, and other deals like these all potential exposures much bigger than "first loss" amount describe above. My question is why can't the acquirer at least endure some of the extended downside. Maybe 100% first loss, then 25% after a certain threshold? But the current policy gives the companies no incentive to resolve deterioration of the underlying assets after a certain loss level. In fact, it may just make a great extended tax break subsidized by the general public.

In a year of panic and half baked ideas, this was one of the worst ideas to come out of the Treasury and I plan to write my Congressmen to communicate that.