U.S. has developed a plan by which it could buy up a trillion dollars in "toxic assets"
| Date: March 23, 2009 | Source: Sources |
| Category: Economy | |
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Loading ... The U.S. Treasury today unveiled a plan to buy 'toxic assets' for an initial amount of up to 500,000 million (EUR 368.642 million) that could reach one trillion dollars (737.342 million euros).
The department headed by Tim Geithner explained that the 'Plan of public-private investment in legacy assets' with funding from the Federal Reserve (Fed) and the Deposit Insurance Corporation (FDIC), as well as private sector participation.
In this regard, the Treasury said to be employed between 75,000 and 100,000 million (55 323 and 73.773 million euros) from the bank rescue plan (TARP), which, along with capital provided by private investors, will provide the ability to program to acquire up to half a billion dollars in assets 'toxic' with the possibility of expanding the program up to a trillion dollars.
This new program of the U.S. Aministración aims to maximize the results of operations for taxpayers to share the risks and benefits of the plan with the private sector and, through the effect of competition between private operators to avoid paying a premium by the Government through competitive pricing.
Specifically, the program includes a first area of activity by purchasing loans, which will "clean" bank balance sheets of troubled loans and reduce the uncertainty associated with these assets.
In this regard, the Treasury hopes to attract private investors such as pension funds, insurance companies and other long-term investors to permit the creation of investment funds public-private partnerships that will have oversight of the FDIC and advice when purchasing these assets to banks.
In addition, investors will have equity financing by the Treasury and the private sector, while the FDIC will provide guarantees for debt issued by public-private funds when financing the purchase of assets. The Treasury said it intends to provide 50% of the equity capital of each fund, but are private investors who control the management of assets under a "strict FDIC oversight."
Thus, the process of purchasing these loans follow a sequence in which banks must first identify who wish to sell assets, to be awarded by auction to the highest bid, while the FDIC will grant financing guarantees.
Another second field action in the new program refers to the segment values and the program's goal is to reopen the markets for these assets, allowing banks and other financial institutions free up capital and stimulate new lending.
In this regard, the Treasury explained that the Fed will expand its current program of credit to finance purchases of mortgage-backed securities by investors to include residential mortgage-backed securities (RMBS) and asset-backed securities (ABS) that do not apply to agencies government and Fannie Mae or Freddie Mac and that enjoyed a 'AAA'.
"The resulting process of price fixing will also reduce the uncertainty surrounding financial institutions holding these assets, which would enable to raise new capital," the Treasury.
