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Geithner's Plan: Loopholes Galore - BusinessWeek
PORTFOLIO SWAPPING

For all the talk of toxic assets, some banks may want to hold on to their suspect loans in the belief that they will eventually pay off. The Treasury and the Fed, however, are breathing down the banks' necks to unload problem debts.

What to do? A bank could effectively swap its existing portfolio of junky loans for another one very similar--only this time limiting the downside by using government loans and guarantees. The bank would auction off its loans to a public-private partnership. Then, using a portion of the auction proceeds, it would set up a different public-private partnership that would of course have access to government loan guarantees and matching funds. The bank would use the new partnership to buy a portfolio of similar problem assets twice the size of its old portfolio. The bank would then split any gains from the new portfolio 50-50 with the feds--but risk no more than the sliver of equity it contributed to the deal. The Administration may seek to block such maneuvers.



"Dieu se rit des hommes qui se plaignent des conséquences alors qu'ils en chérissent les causes" Jacques-Bénigne Bossuet
by Melanchthon on Fri Apr 3rd, 2009 at 05:30:25 AM EST
[ Parent ]
Melanchthon:
The Administration may seek to block such maneuvers.
Good luck with that.

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith
by Carrie (migeru at eurotrib dot com) on Fri Apr 3rd, 2009 at 05:59:09 AM EST
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Isn't that very possibility in fact the goal of Giethner's plan?  ALL LIABILITY TO THE TAXPAYER!

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Apr 3rd, 2009 at 01:00:10 PM EST
[ Parent ]
Obama may not know diddley squat about economics, but he's a decent lawyer. Can he not understand on a legal basis the petard Geithner is hoisting him on?

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith
by Carrie (migeru at eurotrib dot com) on Sat Apr 4th, 2009 at 04:04:19 AM EST
[ Parent ]
One would think....Perhaps he fears that a politically premature move would doom his administration and give the country eight more years of Republicans.  While I don't want that, it might not make too much difference if political opportunity comes too late for the economy.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sat Apr 4th, 2009 at 12:17:16 PM EST
[ Parent ]

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