CFA Rolfe Winkler offers a sobering assessment of the current administration's proposal to create a "bad bank" to absorb trillions of dollars worth of toxic mortgages. To illustrate his point, Winkler uses a Miami condo, bought at the height of the boom for $1 million, which is today worth roughly $500,000. "The government might buy the million-dollar loan for close to a million dollars - even though the condo itself is still worth just $500,000. But that's no longer the bank's problem," Winkler says. "Since taxpayers now own the asset, they take the half-million dollar loss. While government reports suggest the bad bank will spend $1 trillion to $2 trillion to buy toxic assets, Goldman Sachs estimates that $4 trillion may ultimately be needed. And banks are likely to sell their most toxic trash to the bad bank, meaning the public's losses will be massive - certainly hundreds of billions of dollars, based on current fair value estimates." A very bad idea, indeed.
0 comments:
Post a Comment