There is a lot of speculation and anticipation in the market in the past weeks about the new Troubled Asset Relief Program. Ideas such as the creation of “bad banks” and the nationalization of banks that avail of it have been tossed around. However, one strong reassurance from the Obama administration that this plan contains ideas that work to loosen the money from the banks’ tight fisted grip and get the credit market moving again.
One early concept was the idea of the “bad bank” that would acquire the toxic mortgage assets from other banks’ balance sheets. This would help the banks get rid of assets that would otherwise remain illiquid and this make banks more comfortable with providing credit to consumers. Right now, it’s a balance between hurting the taxpayers or not helping the bank enough.
Another idea being speculated on is an asset insurance plan, an approach that has been adopted by the Bank of America and Citigroup. In this concept, banks would absorb some losses initially and then pass later potential losses to the government. This then acts more like a traditional private mortgage insurance.
President Obama has said previously that he intends to have up to a hundred billion dollars earmarked for forclosure prevention under a foreclosure assistance program.
as soon as possible.