Wednesday, May 06, 2009

Toxic Assets reported Buying loans from banks – the types of loans that need to be handled with latex gloves and hazmat suits – is becoming a new growth industry. Former mortgage bankers and Wall Street wheeler-dealers even now are leafing through confidential bank documents detailing tens of billions of dollars of bad mortgages and other loans known as “toxic assets.” Their goal: to find undervalued assets they can buy cheaply and make money on.
What they need to be concerned about is if they buy assets they think they can sell, will congress suddenly change the law and say they cannot eject the current resident that is not paying for the house, and rent it to them at a price congress determines. If the White House will threaten to ruin the reputation of bondholders that will not take 20 cents on the dollar, and are holding out for 30 cents on the dollar for Chrysler, while giving 55% of the company to the unions, what makes you think they will not attempt
It may be chutzpah. It may be opportunism. Or it may be the solution to cleaning up the banks’ balance sheets. Whatever the case, many prospective buyers are mining for data that will help them in June, when a new government plan to deal with banks’ problems starts up.
Get a firm commitment they won't change the rules in mid stream.
This time, unlike during the roaring mortgage boom, some potential investors are actually visiting houses, talking to lenders, and acting like crime scene investigators for bad loans.
Crime scene investigators are what is needed. The people that forced the banks to make bad loans should be in jail, along with the people that bundled bad loans with good and sold them.
The decisions made by loan sleuths on how much to pay for the banks’ bad holdings will determine the success of the government’s plan to try to move those holdings off the banks’ books. If the banks agree to the prices offered for their loans, the shifts in ownership of those loans could ultimately free up capital for the economy’s recovery. But if the banks balk because they believe the assets are more valuable, think about the economy in terms of molasses.

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