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Post By: Dana Sunderlin
President Obama’s administration recently drew up a plan to use capital injections as an incentive, in order to get private investors to buy up a trillion dollars worth of bad assets from those banks who are currently reluctant to give out loans to different consumers and companies. Along with these incentives, private investors would receive federal loans to buy the assets. Treasury Secretary Timothy Geithner feels that it would be “cheaper to provide taxpayer financing than have the government buy the assets outright.”
Many people feel that the toxic asset plan is not the answer for a revival of credit markets. It has been found that this new prospect that taxpayers may need to pay for underperforming assets is making banks reluctant to sell these bad assets off to lower bidders. The plan has made banks afraid to buy and to sell, since the government’s plan for these toxic assets has created additional value for them; “As long as there’s the prospect the federal government will overpay for the toxic assets…these banks would be insane to sell in the private market.” As a result, the plan is not resolving anything.
However, President Obama’s take on the plan is that it is a critical element in the revival of our economy and he is confident that it will work. Treasury officials reportedly have no solid forecast on when these asset purchases will actually begin, although many believe that it will be within a few weeks.
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