Thursday,
April 23, 2009
Buying toxic bank
assets
will pay dividends for U.S.
- by
Willard "Chuck" Lewis
The
public
has been skeptical of the rescue plans put forth by the U.S. Treasury
departments of both the Bush and Obama administrations as a way to
bring stability to the economy.
But the government’s new plan for helping banking companies
isn’t a run-of-the-mill bailout that will squeeze taxpayers
dry. The new program is the country’s best chance for
strengthening the financial system during this economic crisis. After
all, there have been no alternative plans proposed and we must take
action. If we do not embrace the actions that have been taken by
Treasury, then we sit idly by complaining while the country sinks
deeper into recession. This is unacceptable.
The Public-Private Investment Program, unveiled in detail by Treasury
Secretary Tim Geithner last month, intends to clear banks’
balance sheets of at least $500 billion in toxic mortgage-related loans
and securities that have not attracted investment for months, due to
their uncertain risk.
As part of the new program, the Treasury Department will use $75
billion to $100 billion of its $700 billion Troubled Asset Relief
Program funds to move these bad assets off the books. Assessing the
worth of these troubled and undervalued assets, the Treasury and
Federal Deposit Insurance Corp. will provide low-interest loans to
investors. Then, the FDIC will auction the assets and become a partner
with the winning bidder. In some cases the Treasury will match a
private-sector partner’s investment dollar for dollar and
share equally in any profits or losses.
These investors won’t be the vilified corporations
we’ve read so much about in recent weeks, companies such as
American International Group, which came under fire for giving out
bonuses after being bailed out by the government. This program is
designed to attract other hedge funds, private equity firms and
sovereign wealth funds. Many already have expressed support for the
program, including BlackRock Inc. and Pacific Investment Management
Co., the world’s largest bond fund.
By freeing banks of these bad loans and securities — most of
which were related to the real estate downturn — asset values
will increase and uncertainty about financial institutions will
decrease. Banks will be able to boost their lending capacity and extend
more credit to borrowers. And that, in turn, will help kick-start the
economy. As President Barack Obama told the CBS News program
“60 Minutes” recently: “Unless we get
these banks moving again, then we can’t get this economy to
recover.”
Chuck Lewis is president/ CEO of One Georgia Bank and is on the Georgia Bankers Association’s board.