FDIC may securitize bad assets

Jeremy Hobson Jan 25, 2010
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FDIC may securitize bad assets

Jeremy Hobson Jan 25, 2010
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Kai Ryssdal: Continuing with the theme here, you remember the phrase toxic assets from the good old days of the credit crisis? They are still around, and every time the government seizes a failed bank, we taxpayers own more of them. The FDIC took over five banks just last Friday. So what’s it going to do with all those bad assets the banks have on their books?

Marketplace’s Jeremy Hobson explains one idea that’s being thrown around.


JEREMY HOBSON: The FDIC says it is considering packaging up the loans it now owns and then selling securities to private investors.

Bill Isaac is a former chairman of the FDIC. He now heads LECG Global Financial Services. He says the plan sounds familiar.

BILL ISAAC: The FDIC packaged up a lot of assets from failed banks and S&L’s in the 1980s and early 1990s, sold them off into the markets. It was really quite a successful program to get the assets back into private sector hands.

But who on earth would want to buy these securities?

I asked Marilyn Cohen, the author of “Bonds Now: Making Money in the New Fixed-Income Landscape.” She says even cautious investors could bite, if they do their homework.

MARILYN COHEN: And they would figure out, you know, which of the underlying portfolio are going to fail, which are going to succeed, and you buy them at a discount. And you don’t need 100 percent or even 80 percent to succeed in order to make a lot of money.

All this optimism makes you wonder: If the FDIC goes ahead with this, and it works, will surviving banks finally be able to sell off their supposedly toxic assets?

Cassandra Toroian says not so fast. She’s president of Bell Rock Capital.

CASSANDRA TOROIAN: I mean remember, these banks still have the issue of cleaning up the balance sheet, versus what it does to their capital ratios.

Or put simply, it’s unclear how big of a loss banks are willing to take if they sell. That’s a question even the most plugged-in investors still can’t answer.

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

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