In this case, he redistributes from the public to those who sold him the bad assets.
Like hedge funds, the Fed is a perfect vehicle to transform bad assets into good.
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Paulson's in for a battery of questions: How to price the bad assets the Treasury will take over?
These transfers, experts say, would include the refinancing of bad assets in the banks' own structured investment vehicles (SIVs).
Last year the loan to finance the sale of its bad assets was switched to a market interest rate.
What happened in Ireland suggests that formal transfers of bad assets to a new institution can be very expensive indeed.
Nor is Japan all that keen to follow the American model when it comes to disposing of banks' bad assets.
Bo Lundgren, one of the architects of Sweden's much-vaunted 1990s bank bail-out, stresses the importance of transparent valuations of bad assets.
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Treasury's plan to remove bad assets from bank balance sheets could help.
After all, it has been made clear to them that the Fed and Treasury stand ready to bail out banks bad assets at any cost.
Two things that haven't been tried: Obama could ditch the TARP and start over with its original purpose--buying up bad assets from struggling firms.
As its bad assets (12% of portfolio now) dwindle at Citi Holdings, and business conditions improve, it seems Citi shares would have to rise.
All of this suggests that the bridge banks and their bad assets will, like their American counterparts, be auctioned off as quickly as possible.
In each of those scenarios, the government rode in and split a company into two separate entities, taking on the bad assets to preserve the good business.
It could also develop a professional and uniform approach to valuing and disposing of bad assets while leaving new lending decisions to the good banks.
The government's creation of a mechanism to take on bad assets from banks and other financial institutions has stopped a catastrophic meltdown of the system.
C. takes the firm into receivership, divesting it of its bad assets and returning its healthy assets to the private sector as quickly as possible.
Together, the top nine have written down bad assets by several hundred billion dollars, and they could use the new cash to cover future losses.
In fact, the effort to recruit private investors into a government-led campaign to buy bad assets from the banks is still, at best, half a plan.
The government could then separate bad assets from good, appoint new managers and reprivatise the cleaned-up bits by selling them to investors (ideally, including some foreigners).
We supported TARP as a way to prevent a financial meltdown, providing public capital to help regulators manage problem banks, arrange mergers, and work off bad assets.
Paulson and Fed Chairman Ben Bernanke, a historian of the Depression, led the charge for the government to buy up the bad assets and, they hope, reignite lending.
The money from the TARP went to fill gaping holes in their balance sheets, rather than the original plan to buy up bad assets, freeing the banks of toxic obligations.
Even Thailand, the model patient, has still not made great progress in selling off the bad assets of closed finance companies, which might allow the glutted property market to clear.
Moreover, while both sides are fighting over the details, they ultimately have the same goal: removing bad assets from banks' balance sheets in an effort to help restore confidence to credit markets.
Among big banks, Schutz has a sizable position in Citigroup, which he expects to generate the best returns among money center banks as it sells off bad assets and begins buying back stock.
The real estate overcapitalization in the United States followed by immersive equity losses could not be overcome another way, the banks had to write off the accumulating bad assets, foreclosures, draining capital, etc.
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Pressure is likely to grow for the creation of a more formal mechanism for handling the sick, akin to the Resolution Trust Corporation that took on bad assets from the savings and loan crisis of the 1980s.
If the cycle of falling asset prices, insolvency and credit constriction is excessive, the government may have to step in and buy up bad assets en masse, as has often occurred in other financial meltdowns (see article).
Rather than doing too little too late, as it has so far, Spain's government should quickly admit the scale of the problem, clean up the banks, preferably by removing bad assets, and shut down, or recapitalise, what is left.
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