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Geithner's TAP - Taxpayer's Losses
Suppose we segregate the MBS and CDO assets currently held by banks into 3 separate tranches:
Assets backed by Prime Mortgages; Assets backed by a blend of Prime and Sub-prime Mortgages; and Assets backed by Sub-prime and Alt-A Mortgages. Assets backed by Prime Mortgages were properly rated as AAA investments and are performing well. The Banks will not want to sell these assets and they wont be offered to the FDIC to liquidate via the TAP sanctioned auctions.
Assets backed by a blend of Prime and Sub-prime Mortgages are underperforming at present and the current market price for these assets is well under the banks' book value. These assets have a reasonable to good risk to reward ratio and will garner a fair amount of interest from participants in the TAP Public Private Investment Fund. The problem is that the banks will be reluctant to sell these assets at auction prices because losses incurred by the sale of these assets at market value will further jeopardize their solvency and work against the banks' own best interest by reducing the demand for the most toxic assets.
Assets backed by Sub-prime and Alt-A mortgages are basically not performing because these mortgages are not ... more

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