Government Plans to Help Buy $1 Trillion of Toxic Assets

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Government Plans to Help Buy $1 Trillion of Toxic Assets

Posted by MoneyNing 1053 days ago, popular 1053 days ago (http://banksavingsreview.com)
Category: Economy | Tags: economy government tarp

$1 trillion dollars but this time everyone likes the plan. Is it really good or another plan that will cost tax payers lots of money?

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pimpyourfinances 1053 days ago

$160 million in bonuses = government gets angry

$1 trillion in toxic debt = government OK?

MoneyNing 1053 days ago

That's politics for you. I wonder what the collective salaries of all these congressmen/women are and whether they should be part of the "pay re-structure" as well.

opportunities 1053 days ago

This is what they should have done in the first place instead of bailing out (taking control of how the private sector does business) the companies that have their hands out. Except of course the companies that failed in large part due to government intervention. If they don't loosen the credit markets the economy will get stuck. I was in a meeting this morning with an investor that wants to use some of his credit line to expand his business, except he can't because it has been frozen due to inactivity. Let's see, if you use your credit and don't pay it back, the gov. will give you a bailout. If you don't use it or don't need a bailout, lenders won't give you any credit. That situation can not continue.

ObliviousInvestor 1053 days ago

I agree that this is what should have been done in the first place. We could have just bought all the toxic assets for $1 trillion, and *not* spent the other $1.x trillion on all the other bailouts going on.

Would it have been fair to the companies that didn't mess up? No. But it would have gotten the job done. (At least, along with some additional industry regulation in order to ensure this didn't happen again.)

mwarden 1053 days ago

How does it get the job done, again? By inflating the prices of these assets and not allowing them to deflate to their true market value according to their REAL risk profile? Haven't we all been complaining about how these are valued as non-risky assets when they are really worth a lot less than the credit rating agencies and therefore the market were saying?

BradleyJohnson 1053 days ago

Well the argument that they are under-priced due to uncertainty and that by creating for a market for them you can at least give them somewhat reasonable prices. I'm fairly certain that it's unrealistic to think that is a panacea, but I don't really think we're in an era of panacea. We're in an era of trying to cushion various falls. Those assets would be worth more if people had more confidence, so we try to manufacture it. It won't "work" in that we're still going to have a lot of pain, but it might be better than the alternative.

pimpyourfinances 1053 days ago

Couldn't this lead to artificially high prices? From what I understand, for every $100 of toxic assets that an investor buys, they'll only have to put up $7. TARP funds will be given away to match that $7, and the remaining $86 will come from an FDIC loan.

I can see how this will help banks, and investors, but it seems like the government is taking on all of the risk here. Investors will just walk away from the loan if their assets turn out to be worthless.

BradleyJohnson 1053 days ago

It inherently leads to artificially high prices, right? Otherwise they wouldn't bother to do it. It's not going to profit the gov't, the hope is that it's a cheaper way to bailout the banks than just giving them money, since you're getting a distressed asset that might wind up to be worth closer to your investment. At the same time, as you point out, it will price out anyone who doesn't qualify to get government money to finance their purchase.

pimpyourfinances 1053 days ago

Thanks for the explanation. I didn't realize that it could be a cheaper - and more effective way - of bailing out the banks.

adrianmurray 1052 days ago

the plan is going to help, anyway

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