Is It Good Not To Be "Bad"?
While a formal announcement is still a day away, it appears the Obama Administration is backing away from the concept of a "bad bank" to take control of the bad assets of US banks. Instead, they will propose that price floors on assets would be set by the federal government as a means of inducing private investors to take control of the assets, manage them, and eventually sell them back into the marketplace.
In explaining the outlines of the proposal on Sunday, Lawrence Summers, the top White House economic adviser, indicated the administration had received a number of proposals from private equity firms, hedge funds, and insurance companies interested in asset management. He said that bringing private equity into the process would help limit the exposure of the taxpayer.
This approach—perhaps best described as a "mixed model"—puts the federal government in the guarantor position and would most likely involve federal oversight of the private firms' activities under the program. Some requirements might flow to the new asset managers as well. For example, a mandate or strong encouragement to restructure mortgage loans could well be a part of the deal for them.
