Investors ready to buy U.S. government-backed toxic assets?
If you actually analyze the press release, its a load of crap (pardon me) but that is what it is. The basis of this approach is instead of discovering the “real” price of these “toxic” assets, we would rather have the government provide financing for assets that are worth very little if anything to investors that would not normally purchase these if they did not have government financing. Here is my favorite quote “Neel Kashkari, who administers the Treasury’s $700 billion Troubled Asset Relief Program, told a U.S. House of Representatives Oversight and Government Reform subcommittee that without financing private investors would pay such low prices for the assets that bank balance sheets would be hurt.“ Let the balance-sheets be hurt, they made bad choices and this is how a market economy deals with them.
News:
A U.S. Treasury-led effort to soak up toxic assets from bank balance sheets could draw in private investors with the right government financing, a senior Treasury official said on Wednesday.
Neel Kashkari, who administers the Treasury’s $700 billion Troubled Asset Relief Program, told a U.S. House of Representatives Oversight and Government Reform subcommittee that without financing private investors would pay such low prices for the assets that bank balance sheets would be hurt.
Popularity: 1%
Overview of 2009 U.S. bank rescue plan (Bank Bailout)
First off, the market is tanking pretty bad. Not a vote of confidence at any stretch. At the time of this writing the market is down 4.6%, ouch. Basically the plan is used to buy toxic assets and use money to help private investors purchase these assets.
Outside of the mortgage-backed securities, I am not sure what investors are going to buy? I don’t think I would purchase debt insurance contracts (CDS) in this market, who would want that risk when so many other indicators are pointing towards a global depression. Plus I still stand by my prediction that the white elephant in the room is the fact that many of these banks are carrying insurance contracts on their balance-sheet (somewhere) that have already gone bust so they are not a real asset, but a liability. Here is the full overview:
2009 Bank Bailout Overview:
Popularity: 1%