It looks like there will be another attempt to clean up the financial system's toxic asset problem. According to a story in this morning's Washington Post (More Help Coming To Clean Up Crisis):
But, as I've also said, watch for the flood of red ink as the banks are finally forced to write off those assets at the prices that the markets set for them, rather than the assumed value of the mark-to-myth models.
UPDATE: According to a story in the Wall Street Journal, the IMF estimates that banks still have $1.5 trillion to write off. However the US is ahead of Europe in the process: "Banks in the U.S. have recognized about 60% of anticipated write-downs, the IMF calculated. Banks in the Britain and continental Europe have recognized only about 40% of their potential losses."
Since July, the Treasury Department has been working with a group of private firms to build investment funds that would combine public and private resources to buy troubled bank securities. The firms plan to buy the assets at bargain prices in hopes that they will turn profitable over time.As the reader of this blog know, I have long advocated such a step. If the program can take the assets off the books, it will go a long way to restarting the securitization market (see earlier posting). And that will help the financial markets for intangibles.
This week, the first round of financing from the Treasury is slated to go out the door, sources familiar with the program said. The department plans to commit more than $2.5 billion to match dollar-for-dollar what has been raised by the private firms, the sources said. The investment funds can then borrow another $5 billion from the Treasury in a form of leverage intended to provide a further incentive to the private firms.
The total size of the program is expected to eventually reach $40 billion and can be expanded if needed, administration officials have said.
But, as I've also said, watch for the flood of red ink as the banks are finally forced to write off those assets at the prices that the markets set for them, rather than the assumed value of the mark-to-myth models.
UPDATE: According to a story in the Wall Street Journal, the IMF estimates that banks still have $1.5 trillion to write off. However the US is ahead of Europe in the process: "Banks in the U.S. have recognized about 60% of anticipated write-downs, the IMF calculated. Banks in the Britain and continental Europe have recognized only about 40% of their potential losses."
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