Archive for the ‘Toxic Assets’ Category

“My” Solution to the Toxic Asset Fiasco–Revised

March 27, 2009

As I previewed two days ago, “my” solution to the toxic asset problem is for the government to buy these assets at the value the banks currently have for them on their balance sheets—what they have the securities marked at on their books (I use the scare quotes because I cannot remember if I came up with this idea on my own or read about elsewhere).  In return, the seller gives the Government essentially an insurance policy that they will pay for any losses the Government actually suffers, but only when those losses are suffered.  Essentially, the Government will not only be purchasing the assets, but also be purchasing a Credit Default Swap from the bank. (more…)


The Public-Private Partnership Does Not Solve the Root Problem: The Pricing of the Toxic Assets

March 25, 2009

The plan announced by Treasury Department to partner with private investment firms does not solve the root problem–the pricing of the toxic assets.  When one reads the Treasury’s plan, one would think that we simply have a liquidity problem–a lack of of capital in the private markets to buy up these assets.  But as has been reported,  there is plenty of capital sitting on the sidelines specifically waiting to buy these assets.  For example, back in July, Merrill Lynch sold toxic assets with a face amount or notional value of $30.6 bn to Lone Star Funds for 22 cents on the dollar–$6.7bn (and lent them non-recourse, except to the assets, 75%).


Raw Deal for Taxpayers — Revised to Take Into Account the Cost of Debt Financing

March 23, 2009

This morning, the Treasury Department unveiled its “Public-Private Investment Program.”  This program is designed to entice private investors to “partner” with the Government to buy the so-called toxic assets (most of the assets are mortgage-backed securities).  But this is not a “partnership” in any sense of the word.  While profits will be split 50-50, the Government, and in turn the taxpayers, bears more than 92% of the risk.


Why We Need More Mark to Market Accounting, Not Less

March 18, 2009

As of late, there has been a lot of talk of doing away with or at least suspending Mark to Market Accounting.  Many on Jon Stewart’s favorite channel, CNBC,  have blamed it for the banks’ tenuous financial position.  They argue that if we did away with this accounting, the banks would actually look and be much healthier.  Leave aside for the moment that it was the banks’ dumb investments in illiquid residential and commercial mortgage backed securities that got them into this position, not the accounting.  Should we really be looking to suspend, repeal or in anyway minimize the use of mark to market accounting?