How to Value Toxic Bank Assets, the Wall Street Journal, Feb 3, 2009

[nodular]

http://online.wsj.com/article/SB123362351978641849.html


A good solution to a tough problem:

"Here's a practical solution: After making its best estimate of an asset's current value, Treasury should offer the bank a cash payment equal to 80% of that value. For the remaining 20%, Treasury should provide the bank with a capital certificate, which would count as common stock in determining whether the bank meets its capital requirement.

"The certificate will also entitle the bank to 80% of the actual price at which the asset is later sold by the government -- but only to the extent that the actual price exceeds the initial cash payment.

"For example, suppose the Treasury estimates that a toxic asset is worth $700,000. It would pay the bank $560,000 in cash plus a capital certificate for $140,000.

"If the government later sold that security for $660,000, the bank would receive an additional cash payment of $80,000 (80% of $100,000, the excess of $660,000 over $560,000). The Treasury would receive the remaining $20,000 of the excess."

for more on related stuff and etc., see my blog potpourri, http://random-potpourri.blogspot.com/

[DJ13]

1. Easier solution.... stop trying to keep those crooks in business, just nationalize the banks!

All the politicians (sadly, Obama included) are more concerned with keeping the same bank executives that screwed up in the first place in their jobs than they are concerned with resolving to end the banking crisis as soon as possible.

[GeorgeGist]

2. "Toxic assets "

is just Wall Street jibberish for selling crap to the only buyer left.