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Fallout: The Financial Crisis

Toxic purge helped by private sector

Jeremy Hobson Mar 23, 2009
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Fallout: The Financial Crisis

Toxic purge helped by private sector

Jeremy Hobson Mar 23, 2009
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TEXT OF STORY

Bob Moon: Have I got a deal for you: dirt-cheap loans the government hopes will encourage big investors to start buying up all those toxic assets — the ones banks haven’t been able to unload for months and months now. And yes, the government will also be laying more of its own money on the line.

The Obama administration is spelling out the plan today, and as Marketplace’s Jeremy Hobson reports, the question now is, will investors feel it’s safe enough to get back in the game?


Jeremy Hobson: With the government assuming so much of the risk — more than 90 percent in some cases — you might wonder: Why bother having private investors involved at all? The reason is that the White House feels it’ll be easier to create a market for these toxic assets if they are priced by the private sector. That’ll happen at auctions run by the FDIC.

Mark Zandi, chief economist at Moody’s Economy.com, says this plan could finally get these assets away from the banks:

Mark Zandi: Now a trillion dollars won’t get the job completely done — there’s probably twice as many bad assets on bank balance sheets. But this first trillion dollars works reasonably well, I think they’ll probably go back to Congress, get more money and try to get the other trillion off bank balance sheets.

Investors who want to buy toxic assets will be leveraged 6-to-1 at best and 1-to-1 at worst. The White House is also trying to assure investors they won’t be subject to AIG-style retroactive regulation from Congress.

In New York, I’m Jeremy Hobson for Marketplace.

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