Treasury Assets

In relation to this issue, the Secretary of the Treasury, Timothy Geithner, has given three possibilities that are being considered: evaluate them such and as the market is valuing similar assets, using valuation models used by independent firms or seek an appraisal by financial supervisors. Whereas the methodology of valuation and its relationship with the true market value of the toxic assets, are identified two variants to this modality of bad Bank: the good bad Bank and the bad bad Bank. The first alternative is that would generate lower costs and is more aligned with the objectives seek a prudent behaviour of financial institutions against the risk. Perhaps check out Jim Vos for more information. It is that in such a variant the bad Bank acquires assets at their market value forcing banks to amortize such assets and clean up their balance sheets. The resulting, those banks which prove to be insolvent are recapitalized, nationalized or liquidated by the State. In the variant of bad bad Bank, bad Bank would buy the toxic assets at inflated prices (above its market value) so that banks can start as soon as possible to lend money again. This alternative appears as attractive for Governments since it would accelerate the process of economic recovery (to revive the credit channel), but it would create perverse incentives for banks in the future in addition to imply higher tax cost (even big questions by the population).

On these alternatives, according to the vision of David Roche, who has been for many years head of Morgan Stanley and now President of his independent firm strategy: if good bad Bank solution is not adopted, the system remains as corrupt as before. The bad assets will continue sucking resources from the economic system in the form of borrowers zombies, bad distribution and distorted price of capital, public debt and budget deficits. But beyond the modality adopted the proposal (although this is not an issue minor), the truth is that the creation of such entity increases the chances of a faster recovery of the American economy since it would bring the U.S.