U.S. may buy up banks’ toxic assets

[DGuller]

Obviously it's a good idea for those who are offered what is called a "freeroll" in poker, a risk with only an upside.

[Berkut]

Hey, Geitner is still looking for people to fill out positions.  Nobody else wants the Job.  Why not see if they'll pick you.

The barrel hasn't been scraped anywhere near that far down to the bottom.

Besides I would never agree to submit myself to the vetting process in place these days, for the dubious privileges of taking a massive paycut, and of getting to give testimony (or defend myself from) the inevitable special counsel investigations to come.  Congress and the press have done their best over the last 50 years to make public service totally unpalatable to rational people. 

Indeed. I blame the Dem love affair with lowest common denominator populism.

And the republican love affair with....well, the exact same thing.

Maybe that guy who said whatever it was he said about bread and circuses was right. We are all doomed.

[Admiral Yi]

What is nonrecourse leverage in English Joansky?

And I don't get how 71.5K gets you 500K on a doubled million dollar asset.

[Fate]

The profits are split 50/50. At least that's what Summers said on the News Hour...

[The Minsky Moment]

What is nonrecourse leverage in English Joansky?

And I don't get how 71.5K gets you 500K on a doubled million dollar asset.

Non recourse means that the government lends the money to the private investor to buy the asset, but if the asset out to be worthless, the borrower doesn't have to pay back the loan.  The government does not have recourse to the borrower to make good.

The gain is only 500K b/c the government is putting up 50% of the equity as well.

[Admiral Yi]

Non recourse means that the government lends the money to the private investor to buy the asset, but if the asset out to be worthless, the borrower doesn't have to pay back the loan.  The government does not have recourse to the borrower to make good.

The gain is only 500K b/c the government is putting up 50% of the equity as well.

Worthless meaning market value drops to zero (when?), or below the purchase price, or what?  Is the US getting a reasonable rate of return on this loan?  Is that still to be decided?  What's your favorite color?

[Zanza]

What is nonrecourse leverage in English Joansky?

And I don't get how 71.5K gets you 500K on a doubled million dollar asset.

Non recourse means that the government lends the money to the private investor to buy the asset, but if the asset out to be worthless, the borrower doesn't have to pay back the loan.  The government does not have recourse to the borrower to make good.

The gain is only 500K b/c the government is putting up 50% of the equity as well.

So what's the risk to the private investor? 

[The Minsky Moment]

Worthless meaning market value drops to zero (when?), or below the purchase price, or what?  Is the US getting a reasonable rate of return on this loan?  Is that still to be decided?  What's your favorite color?

If the market value of the asset drops below the purchase price, the government and the private investor are both subject to loss of their equity, up to the total amount of the combined equity contribution (14.3%).  If the value drops by more than 14.3%, the loss is sustained by the debt financing, which is all provided by the government.

The interest rate for the loans has not been set, but has been described as lower than what could be obtained now in private markets, but higher than what could have been obtained in private markets before the crisis began.  EDIT: this is pretty misleading though - b/c no one in their right mind would provide non-recourse financing for such assets where the counterparty is only putting down 7 percent up front, regardless of interest rate.

[The Minsky Moment]

What is nonrecourse leverage in English Joansky?

And I don't get how 71.5K gets you 500K on a doubled million dollar asset.

Non recourse means that the government lends the money to the private investor to buy the asset, but if the asset out to be worthless, the borrower doesn't have to pay back the loan.  The government does not have recourse to the borrower to make good.

The gain is only 500K b/c the government is putting up 50% of the equity as well.

So what's the risk to the private investor? 

They can lose the 70K up front investment (in the example of a $1 million purchase).

[Razgovory]

I just hope all this works.

[KRonn]

I just hope all this works.

What could possibly go wrong!?     

[DGuller]

So what's the risk to the private investor? 

Guilty conscience?