“US eyes bond issues to offload bank assets” reports: “The US Federal Deposit Insurance Corporation is working on plans to package billions of dollars of assets from failed banks into securities, a move that will help restart the still dysfunctional markets for mortgage-backed bonds.
“If the FDIC goes through with the bond issues it would mark a milestone in government efforts to rid the banking system of troubled assets. The FDIC has more than $36bn in assets on its books from failed institutions seized during the financial crisis.
“People involved in discussions said the plan to use the troubled assets to back securities – ‘securitisation’ – is at a preliminary stage…
“One option being considered by the FDIC is selling bonds with a US government guarantee in order to ensure they have triple A credit ratings.”
WATCHDOG: This idea was bandied about a year ago.
If the securities were acquired at or near market value rather than face value, the proposal would be fair to the taxpayers and provide liquidity to the system. However, the banks would have to take such large write offs when they disgorged the securities that many would become insolvent and most of the rest would have to severely cut back on lending.
More likely this is a way of passing along the losses on the toxic loans to the tax payers.
Growl!
