Toxic Asset Valuation - Piece of Cake

[ShockediSay]

>Banks wishing to unload ‘toxic assets’ volunteer these assets to the
federal government for financial assistance.

>The federal government, in turn, buys these assets at some nominal discount, say 5 or 10 per cent (the discount is justified by the very fact that they are volunteered for toxic asset treatment).

>The federal government pays for these assets over time with interest.

>If the ‘toxic asset’ declines in value the federal government can periodically reduce the amount it must pay the bank over the life of the installment purchase.
>>In asset based commercial finance circles, this is most commonly referenced as debt ‘with recourse’ although there is a twist here.

>The bank now books the installment sale price of the toxic asset as a government obligation asset (subject to the contingency of recourse reduction by the federal government.)
>>a)This improves the balance sheet of the bank, b)the bank is not underpaid, c)any recourse write-downs occur gradually/periodically, d)I the taxpayer do not overpay and e)instead of having to print money, the government is effectively borrowing money from the bank via the installment sale/payment over time.

>Since the federal government will inevitably come to own defaulted mortgages, it will f) be in a position to refinance defaulting ‘good’ borrowers.

[Double T]

1. Toxic Asset Value = Zero, Nichts, Nada.

How many GD ways do we have to say it?

[knowbody0]

2. mark to market

across the board

[DJ13]

3. Those derivatives arent worth more than .15 to .20 on the dollar

Lehman sold a bunch before they went under last year for .15 per $1.

The articles coming out talking about the government buying them for the bargain price of .60 or more are pro- banking industry puff pieces.

The banks dont want to sell them for their true value, so they are mounting a PR campaign to try and get us taxpayers to buy them at 4x their value.