Fallout: The Financial Crisis

Should government buy toxic debt?

Marketplace Staff Sep 19, 2008
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Fallout: The Financial Crisis

Should government buy toxic debt?

Marketplace Staff Sep 19, 2008
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TEXT OF STORY

Scott Jagow: Let’s look into this a little more. We’re joined by David Buik, a partner with the brokerage firm, BGC Partners in London. David, so far, the stock markets have barely responded to all these government bailouts. Why is this plan, even though we don’t have the details, getting such a positive reaction?

David Buik: The difference is, Scott, is the fact that supposedly using the euphemism “a bad bank” will be set up whereby all the banks can drop their toxic debts into it to the tune of perhaps $800 billion together with $450 billion worth of insurance, on, you know, to cover that risk. You can say it’s pretty cosmetic, but what I think everybody is extremely concerned about is the length of time it’s taking for the banks to be in a position to say that they don’t have to write down debt. As we know with this toxic debt, somebody is going to make a king’s ransom out of it, eventually.

Jagow: So, who’s going to benefit? If the government buys them up, will the government benefit?

Buik: The government will buy them up, but it won’t be cost free, and one has to hope that because the U.S. taxpayer has been absolutely asked to stand behind Fannie and Freddie, as well as Bear Stearns and as well as AIG for the time being means that they’ve paid their debt to society. And they want their money back, and there’re totally justified in thinking that.

Jagow: Does it seem like to you that the U.S. government is trying to speed up this process of healing here and get to the end of the tunnel?

Buik: Yes. And I also think it’s trying to stabilize the market. And at the moment it’s working. But the problems we need to know are not over. This is a magical and a very sharp relief rally. But anybody who thinks it’s all over by the shouting. Get real, because it isn’t.

Jagow: All right, David. Thanks for joining us.

Buik: Pleasure.

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