U.S. toxic-asset plan stirs fears
The government will take on a mountain of risk while trying to create an artificial market for the loans and debt securities. Critics worry about possible fraud and further banking system damage.
Reporting from Washington and Los Angeles -- The Obama administration's impending effort to buy about $1 trillion in toxic assets in partnership with private investors -- aimed at solving the most intractable part of the credit crisis -- is now generating widespread fear that it is vulnerable to manipulation and carries sharp risks for taxpayers.
The program represents the biggest gamble yet in the federal bailout, but its still-hazy details have prompted bankers, economists, federal investigators and politicians to question whether it will solve the financial crisis. More than 400 written comments were recently submitted to the Treasury Department, many of them sharply negative.
The program represents the biggest gamble yet in the federal bailout, but its still-hazy details have prompted bankers, economists, federal investigators and politicians to question whether it will solve the financial crisis. More than 400 written comments were recently submitted to the Treasury Department, many of them sharply negative.
The program is trying to create an artificial market for assets that have no known value, something that has never been done before on this scale. The only way to accomplish that is for the government to accept a mountain of risk.
In the process, critics fear that the banking system could be further damaged and the program subjected to a boom in fraud.
Nobel Prize-winning economist Joseph Stiglitz of Columbia University said the program violated so many laws of economics that it was little more than an "empty box."
The toxic assets are a multitrillion-dollar collection of mortgage loans, commercial loans and a variety of complex debt securities, in which many borrowers have stopped making payments and the value of the underlying properties have tumbled. There is so much uncertainty about the value of those loans -- held both by banks and by big institutional investors -- that they have become a black hole in the financial system. (more)
In the process, critics fear that the banking system could be further damaged and the program subjected to a boom in fraud.
Nobel Prize-winning economist Joseph Stiglitz of Columbia University said the program violated so many laws of economics that it was little more than an "empty box."
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