I just could not believe that the question has not been asked!
TOXIC ASSET SOLUTION discussed on Meet the Press with Tim Geitner
$100 million in toxic assets. Bank reserve against this pool of $30 million = net value of $70 million - with possible additional writedowns needed in the furture.
The proposal - Auction for this pool - assume it sells for $60 million
Results - Bank has $10 million write down + $5 million from and investor + $5 million from the Fed and $50 million from the FDIC = $70 million.
If the investor selles the pool for >$60 million, say $70 million, Then the investor wins and the Fed and Treasury get the money back.
If the investor selles for <$60 million say $50 million, the investor looses his $5 million first followed by $5 million in losses by the Fed and FDIC.
What if, the Pool which is on the books for a net for the bank is $70 million is sold at auction to the highest bidder for $70 million??? OK, now the bank looks wise since it appears that they properly adjusted the value of the pool.
But the Smart investor realizes only $55 million from the sale. The $15 million in losses are split with the investor loosing his investmemt of approx $5.5 million and the fed and FDIC (that's you and me and our kids) loosing the remaining $9.5 million.
But the invesor should be WISER and that should not happen. But what if the bank that had the Toxic assets was lending the money (fronting the money) to the investor? The bank avoided the eventual loaa of $15 million on the final sale. If I was a bank and believed I could pull this off, I would lend the money to an investor ($5.5 million) knowing that it would be a loss in the future to avoid a $15 million loss on the assets if I kept them on my books and sold them in the future. Does this sound like a STRAW BUYER to you? This is something that has been around for a long time and I don't see any protection from it happening in this program. Or, am I too pessimistic?
Another case of our leaders being over-matched by the crooks. Have a great day!
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