Obama’s Plan for Toxic Assets

Yesterday the Obama Administration revealed their three-part Public-Private Investment Program to clean up so-called toxic assets off bank books. Here’s the plan.
Part 1 – Bundling Whole Mortgages
Under one component of the plan, the Federal Deposit Insurance Corporation (FDIC) will provide oversight for a program of bundled mortgages. Banks will group whole mortgages together to sell to private investors. The FDIC will then auction these off. Making the investment attractive is the fact that the government would lend up to 85% of the purchase price for each portfolio of mortgages. (See my post on leverage from last week.)
Part 2 – Pooled Mortgages
While the bundling …read more