Monday, July 2, 2012

Bailout toxic assets in the United States, it serve?


Bailout toxic assets in the U.S., will it help? March 25th, 2009

Markets often get excited easily, it's true. But for this enthusiasm will last, demanding concrete action and not just ads. This has been demonstrated throughout this crisis when the ads of bailouts and economic stimulus programs did rebound to international markets, but in an action of short duration, making it clear that what they claim are not only signs or good intentions. One of the many ads that were made in recent months has been the bailout of the toxic assets held by U.S. banks. The announcement was of great importance both for the U.S. economy to the global economy, because it implied the possibility of clearing the way for recovery of the U.S. banking system and with it, private sector credit, essential to economic recovery. Last Monday was an important step in that direction when the U.S. Treasury secretary, Timothy Geithner, gave details of the rescue plan. In response to this new program to help the economy, USA allocated an initial budget of U.S. $ 500,000 million for the purchase of toxic assets, which could be expanded to $ 1 trillion.

In this rescue plan will involve the private sector could contribute between 7% and 8% of the total budget allocated for the bailout.

While it may seem unnecessary to private sector (since, U.S. $ 100,000 million more, would not be significant within the huge expenditures that the U.S. government has done), is a good indication of industry's commitment to lift the economy the crisis. The private sector has demonstrated its willingness to accept risk. On the other hand, competition between private operators will be installed will be established competitive prices in the toxic preventing the U.S. government paid a premium for them. The issue of valuation of toxic assets is of great importance both in terms of negative incentives can cause overvaluation, as well as the great resistance that could result from the population that is how your taxes are wasted save those responsible for the current crisis. Through the plan reduces the uncertainty surrounding these assets and restore confidence would be achieved in the U.S. financial system, which is necessary to restore credit in the economy. How will the process of cleaning up bank balance sheets? As is known so far, in a first stage, banks will identify those who wish to sell assets, which will be awarded at auction to the highest bid, while the Federal Deposit Insurance Corporation (FDIC) will provide funding guarantees , thus stimulating the demand for them and looking for that entity to obtain the highest possible price that competitive markets are willing to give for such assets. In addition, the plan aims to stock markets on which it intends to relocate to such assets.

That those assets can be re-traded in the securities markets would be more than good for them because at least partially recover the lost cash. In this regard, to encourage demand for these assets from the capital market, the Fed recently announced it will expand its current program of credit to finance purchases of mortgage-backed securities by investors to include residential mortgage-backed securities (RMBS) and asset-backed securities (ABS), provided that they do not correspond to government agencies like Fannie Mae (NYSE: FNM) or Freddie Mac (NYSE: FRE) and counted with a 'AAA'. Thus, the Fed will provide funds but in a responsible manner, avoiding speculative stocks can be generated around this initiative. As regards the private contribution to the bailout, the Treasury is confident to attract pension funds, insurers and other long-term investors. With these investors, the Treasury will fund public-private investment which will have oversight of the FDIC and advice when buying these assets to the banks, and will be managed by the private sector.

Perhaps it is premature to hazard a prediction on the outcome of this rescue plan (especially considering that all previous attempts have not achieved the expected result), but this plan has a good chance of being successful. ¿He will take this plan to rescue the U.S. economy from the crisis? This will be a key operational capability of the plan to clean up bank balance sheets and put the bodies in a position to revive the credit market. The implementation plan will be key to driving expectations and enhance the plan's success and appeal of toxic assets for both private sector and for the capital market. For now, stock markets have reacted positively: Is it a fleeting mood change or be anticipating a clear horizon for the economic recovery?

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