Dealing with toxic assets to help foster intangible assets

David Wessel asks an important question in his recent column Stench of Toxic Assets Lingers:

So is it no longer necessary for the government to get toxic assets off banks' books to get credit flowing again? Is bolstering banks' capital a substitute for ridding them of smelly loans and securities?

His answer, we are about to find out. With the programs to buy toxic asset essentially not operating (in part because the banks have no incentives to sell), the next few months will tell. As he notes:

If the economy takes a bad turn, or attitudes toward banks change -- particularly toward banks that weren't deemed healthy enough to give back taxpayer capital -- a mechanism for removing toxic assets may yet prove essential to reaching a happy ending.

Wessel does a great job of explaining why removing toxic assets may be important to the credit system. Let me add one other with respect to intangibles. My fear is that as long as banks are sitting on these assets they will be very hesitant to embrace intangible-backed loans. After all, they are already carrying big load of uncertain in the form of these assets they can't sell, they can't value and they really don't understand. Why should they add more - in the form of intangible assets that they don't understand, don't think they can value and don't know how to sell if necessary.

Creating more certainty about intangibles (understanding/transparency, valuation and markets) is critical to their acceptance in financial markets. But so is dealing with the toxic assets. I fear that until we clear out the toxic, there is simply no room in the banks' uncertainty space for anything else.