Paulson & Bair Raise ‘Aggregator Bank’ for Toxic Debt

January 16, 2009 by · Leave a Comment
Filed under: Industry News 

So let me get this straight, our answer in this suppose free-market system is to have our government who is essentially backed by the U.S. taxpayer, is to have a bad asset bank setup that will become the dumping ground for all this mal-investment, bad loans and insurance contracts (CDS) gone bust?  How is this good for the nation or for good banks that did not make these choices.  

Why do we just have these banks come clean and market these assets to market and if they have no value then you get no value.  You should be outraged if we give cash at face value on assets during the credit bubble.  That is bad business and will ultimately reward these bad companies and set us up for this to happen again because these same banks will expect the same response.  Bad policy and no real leadership is what we are seeing here.  Everyone wants to be popular but the right choices are usually not the popular ones.

News:

 The heads of the U.S. Treasury and Federal Deposit Insurance Corp. gave further momentum to the idea of a new government-backed bank to remove toxic assets from lenders’ balance sheets.

“A lot of work has been done on an aggregator bank” and other ways of using the $700 billion financial-rescue fund “to let it go further when it comes to dealing with illiquid assets,” Treasury Secretary Henry Paulson told reporters today in Washington. FDIC Chairman Sheila Bair praised the idea in an interview on CNBC, saying it might have “some merit.”

Today’s remarks come days before President-elect Barack Obama takes office, and signal a readiness among regulators to undertake what’s likely to be the most radical effort yet to unfreeze lending. Fed Chairman Ben S. Bernanke earlier this week urged a “comprehensive plan” to address illiquid assets, floating the idea of a “bad bank.”

Investors continue to question banks’ viability even after officials committed the first $350 billion from the Troubled Asset Relief Program and after a doubling in the Fed’s balance sheet to $2.1 trillion. Bank of America Corp. today required a further $20 billion injection of taxpayer funds and government backing for a $118 billion pool of bad assets.

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