Calculated Risk has this to say about the Treasury's latest plan to deal with financial institutions' toxic assets, by making low interest, non-recourse loans to private investors to buy bad assets:
"By offering low interest non-recourse loans, these public-private entities can pay a higher than market price for the toxic assets (since there is no downside risk). This amounts to a direct subsidy from the taxpayers to the banks. It is amazing how many different ways they’ve tried to recycle the same bad idea."
And from Tim Duy's Fed Watch:
"For Bernanke and Geithner, there are no bad assets. Only misunderstood assets."
If, as increasingly seems to be the case, for some financial institutions this is a solvency, not a liquidity problem, the solution is not about overpaying for toxic assets.
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