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.
