23 Sep Public Purchases of Bad Assets
Federal Reserve Chairman Ben S. Bernanke signaled that the government should buy devalued assets at above-market values to make its proposed $700 billion rescue package most effective in combating the financial crisis…. Analysts said Bernanke is essentially advocating that government use a pricing model that assumes that the debt will be paid in full over a long period of time. That is different from the mark-to-market model used by investment banks that prices assets at what they are worth on a given day.
The risk is that the model does not provide transparent pricing of the assets taxpayers are taking on, said Ann Rutledge, partner at R&R Consulting in New York, a firm that specializes in structured finance. Many of the securities “are not going to pay at maturity,” Rutledge said.
– Craig Torres and Kathleen Hays, “Bernanke Signals U.S. Should Pay More for Bad Debt,” Bloomberg, September 23, 2008