Posted by Rick Goates on Tue, Mar 24, 2009 @ 08:22 PM
It's an interesting plan...one that if it works will no doubt stabilize the mess we have had for a couple years now.The Treasury is going to aid banks in unloading their "Toxic" assets.
The plan works like this...The banks decide which loans they want to unload.The treasury will finance a large part of the new loan and then guarantee another chunk against investor loss.Investor's are pretty interested in this new news so that show me it makes sense!
Below is an example of how it could work-Courtesy of Wall Street Journal-Market Watch:
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A bank decides what pool of assets they would like to sell.
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After determining that it would be willing to leverage the pool, the
FDIC will conduct an auction. For instance, mortgages with $100 face
value would be bought for $84.
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Of the $84, the FDIC would provide guarantees for $72 of financing, leaving $12 of equity.
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The Treasury would then provide 50% of the equity financing. In this
example, Treasury would invest $6 and the private investor would
contribute the other $6.
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The private investor would manage the servicing of the asset pool using managers approved by the FDIC.
- This is similar to Jim Cramer's idea a year ago that the Government should step in and purchase these toxic loans for .60-.70c on the dollar and then off them or back them and sell them to investors.This would have taken the buden off the bank and taught them a lesson but not collapsed them!
- Glad to see someone is listening to good advice!
- Lets hope it works!
- Best
Rick