U.S. Treasury to buy up to $1 trillion of banks' toxic assets - Phoenix Business Journal:

ernstiryastrov.blogspot.com
Stocks moved higher earlt Monday in response to the with hopes high of a big rall y onWall Street. As of noon Phoenix time, the was up 368 pointsa to 7647. The 500 was up 40 to 808, whilr the was up 68 to 1,523. The Treasury Departmentg released details of its planthis morning, saying it wouled use $75 billion to $100 billion in TARP capital and capitaol from private investors. The government said the Public-Privatd Investment Program will generatethe $500 billion and the and the will providw the financing for the “This approach is superior to the alternatives of either hoping for banks to graduallyt work these assets off their books or of the government purchasingf the assets directly,” according to a statement from the The private investors will compete with one anothetr to set the price for the troublefd loans and securities in order to help insure the government doesn’tr overpay for the assets.
“Steop 1: If a bank has a pool of residentiapl mortgageswith $100 face value that it is seeking to the bank would approach the Step 2: The FDIC woulx determine, according to the above process, that they woulde be willing to leverage the pool at a 6-to- 1 debt-to-equity ratio. Step 3: The pool woulr then be auctioned bythe FDIC, with several privats sector bidders submitting bids. The highest bid from the privatesecto – in this example, $84 would be the winner and would form a Public-Private Investmenyt Fund to purchase the pool of Step 4: Of this $84 purchasw price, the FDIC would provide guaranteeas for $72 of financing, leaving $12 of equity.
Step 5: The Treasuryh would then provide 50% of the equitt funding required ona side-by-side basis with the investor. In this Treasury would investapproximately $6, with the private investor contributing $6. Step 6: The privatre investor would then manage the servicintg of the asset pool and the timing of its disposition on an ongoinbbasis – using asset managers approved and subject to oversight by the For the full text of the government’s click .