AP is reporting that Timothy Geithner will be releasing the details of his plan to deal with toxic assets that are on the books and the New York Times is reporting some leaked details of the proposed plan.
Treasury will ask banks, like Citigroup or JPMorgan Chase, to identify pools of residential and commercial real estate loans that they will be willing to sell through an auction. Private investors will bid against each other, setting a market price. No bank will be required to participate.
The idea’s not knew (frustratingly it’s one that Mark Cuban came up with last fall) but it seems like a good one because the market will value the assets and determines a “real” value for them. And, frankly, it’s about the best idea out there. However, even with FDIC loans, you can bet these investors will literally bid pennies on the dollar and the banks are going to have to take a major haircut on any assets that they sell in this auction. It is going to be really interesting to see how that idea shakes out.
Read the whole AP story too. Make special note of this paragraph too:
Some industry officials said that participation by the private sector may be harmed because potential investors will now be worried that the government will change the terms of the deal or impose new restrictions because of the current political backlash against Wall Street.
Hedge funds and other big investors are likely to be more leery of accepting the government’s enticements to purchase these assets, fearing tighter government restraints in such areas as executive compensation.
This is indeed more hope and change. Ye reap what ye sow and another 2 Trillion of our money! It had better work.