Detox Plan for Troubled Assets

[brianna69]

The government's plan to strip banks of troubled assets could force some firms to record large losses, but the painful purge would help restore confidence in the banking system, according to Sheila C. Bair, chairman of the Federal Deposit Insurance Corp.

Bair said yesterday that the effort might require more money than the $700 billion Congress has approved to aid the financial industry, but she added that taxpayers would probably reap an eventual profit on the asset purchases.

She said the greatest challenge was persuading banks and taxpayers to accept the necessity of the costly program.

"This takes courage to do, but if we don't do it, history shows that this kind of mechanism -- recognize the losses, get at the root of it and move on -- this is how you jump-start the economy. The other option, just to park those assets on the balance sheet, I don't think that gets us very far," Bair said in a discussion with Washington Post reporters and editors.

The government plans to partner with private investors to buy troubled assets, in part by providing financing at low cost. Bair and other federal officials said discussions were ongoing about the appropriate extent of the federal subsidy. A larger government contribution would allow investors to pay higher prices, limiting the losses that banks would record but also exposing taxpayers to greater risk.

The administration hopes to find the right balance and announce the details within the next two weeks, possibly as soon as next week, according to people familiar with the matter.

cont...

http://www.washingtonpost.com/wp-dyn/content/article/2009/03/09/AR2009030902627.html?hpid=topnews

[Tansy_Gold]

1. Excuse me, but aren't most of these so-called "assets"

little more than gambling chits? And they're all on losing bets?

I wish these assholes would at least be honest with us.

"Toxic assets" is nothing but a political euphemism for "toilet paper."



TG

[EVDebs]

2. Most of those 'weapons of financial destruction' are derivatives

the amounts being bandied about are the gambling chits you mention, derivatives.

$1.14 quadrillion, from Steve Pizzo's Follow The Numbers
http://newsforreal.com/newsdesk/?p=406

the $596 trillion figure from James Lieber's What Cooked The World's Economy ?
http://www.villagevoice.com/2009-01-28/news/what-cooked-the-world-s-economy/

and MarketWatch's $516 trillion guesstimate,

PAUL B. FARRELL
Derivatives the new 'ticking bomb'
http://www.marketwatch.com/news/story/derivatives-new-ticking-time-bomb/story.aspx?guid={B9E54A5D-4796-4D0D-AC9E-D9124B59D436}&print=true&dist=printTop

Obama should write those derivatives off, start the banks on a clean slate and start the RECOVERY ! End the endless bailouts.

[sandnsea]

5. Who will lose?

When the derivatives are written off?

[LittleBlue]

6. If all those derivatives were written off, God only knows.

Think about this: You give $10 to a bank. That bank lends it to someone at 10%, and that someone spends it at Home Depot. Home Depot puts it in their bank, and their bank lends it out at 10%. Keep this going on for perhaps 100 times, and you have $100 of interest revenue (and thus income) every year from just $10. Now imagine a reverse-collapse where everyone is fighting to claim that $10 in bankruptcy court. Every bank thinks they've got $10 ($10 x 100 banks so $1,000); get this: there's only $10 for everyone! (Joker laugh)

That's how bad it is, times about 4 trillion.

[sandnsea]

8. I know how bad it is

I just don't know who owns all those deriviatives because they are the reason we haven't written it all down so far.

[ljm2002]

7. Thanks for some straight talk!

It's about time we quit letting these assholes use their ginned-up euphemisms to hide the reality from us. You nailed it on the first try. You ought to send your comments to the Washington Post as a Letter to the Editor, seriously. IMO

[Frank Booth]

3. I'll probably get flamed for saying this, but this plan actually sounds pretty good.

"Bair calls the initiative an 'aggregator bank,' though Treasury officials contend that the partnerships should be called 'public-private investment funds.'

The funds would use that capital to borrow more money, in much the way that a home buyer makes a down payment to take out a mortgage from a bank. In this case, the loan would be likely to come from the Federal Reserve. In a theoretical example, to raise $10 million, the government and the private investors might each contribute $1 million, and then borrow $8 million from the Federal Reserve. The government and private investors also could contribute different shares. Officials said the proportions remain under discussion.

The funds would use the money to buy toxic assets from banks. The private investors would manage the funds and determine how much to pay for the assets. That would allow the government to benefit from their expertise and desire to maximize profits."

With the private investors bargaining, they may actually be able to establish a true fair market value for these assets, whereas if it were the government bargaining the banks would just "hold up" the gov and demand 90 cents on the dollar.

[LittleBlue]

4. NO NO NO! I don't want your shit assets

Stop giving me the bogus lie that buying this toxic shit will eventually yield a profit! That's absurd! Let me illustrate why

Say you purchased something for $1,000
Now it's worth $10
Why should I be forced to buy it for $100? I don't give a shit what some moron at the FDIC thinks it will be worth in the future(we know how great they are at making predictions), you should never pay more than fair market value for anything. Lending at subsidized rates = buying the assets, since the assets will undoubtedly securitize the loan. Paying more than FMV is tantamount to a DONATION TO THE CORPORATION! WHY ARE WE CONTEMPLATING DONATING MONEY TO CORPORATIONS WHEN PEOPLE CAN'T GET FUCKING HEALTH INSURANCE???? Buy or seize those corporations at FMV, but never, ever loot our government for charitable donations to greedy corporations.