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Bailed-out Banks May Buy Toxic Assets

April 3, 2009 by Marco Santarelli

There's a lot going on today. The unemployment rate "surprisingly" hit 8.5%. President Obama knocked 'em dead at the G-20 meetings.

But the headline that caught my eye was "Bailed-out banks may buy toxic assets."

Believe it or not, Citigroup, Goldman Sachs, Morgan Stanley and JP Morgan, are considering using the Public-Private Investment Program to buy toxic assets from other banks, according to the Financial Times.

The Public-Private Investment Program is designed to encourage private investors to put money to work buying toxic assets from distressed banks. The Treasury and the Fed have offered loans to make the purchases less risky for the buyer. In essence, all a buyer has to do is put up a token amount of cash and the government will fund the rest.

Yes, the plan reduces risk to the point that it's kind of like a free money giveaway – the taxpayer takes the risk, the subsidized investor makes the profit, assuming there is one.

Personally, I'm not happy about the plan. But something has to be done to get the market for these toxic assets moving. Right now, there's a huge spread between the banks asking price and investors' bid. And nobody's budging. Throw in some free money via the Public-Private Investment Program, and the bid can rise to be more in line with the ask price. It's a sweetheart deal.

Filed Under: Economy, Financing

About Marco Santarelli

Marco Santarelli is an investor, author, Inc. 5000 entrepreneur, and the founder of Norada Real Estate Investments – a nationwide provider of turnkey cash-flow investment property.  His mission is to help 1 million people create wealth and passive income and put them on the path to financial freedom with real estate.  He’s also the host of the top-rated podcast – Passive Real Estate Investing.

Comments

  1. john says

    April 4, 2009 at 6:24 am

    That is ludicris. What the government should do is buy them and hold them.however, I guess this is a way to reduce principle that the banks have with the clients

  2. Eleanoe says

    April 4, 2009 at 10:34 am

    The government should let these people stay in their homes amd reduce the monthly martgage to the current value of the property.Too many people are homeless and the banks are still not giving good rates on these homes.

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