Posted by: Lisa Crowley
The Dow Jones shot up to its fifth record high 500 points after the news released from the government for buying back the toxic assets. The government plans to partner with private sectors and investors to finance the bad debt with US $1 trillion dollar.
This is much wanted and needed news for investors and Wall Street because it tackles the two most important issues facing currently the economy, housing and banking.
But who is going to buy trash for cash? The government is giving huge incentives for the investors to buy the mortgage-back securities and other hard to sell assets. It some cases they even provide up to 90% of the finances to buy the assets and this is a concern to many. This subsidy plan is made so rich that it comes at the expense of the taxpayer, so in these times I am not sure how that will work out.
One of the major problems is when the banks are going to sell the toxic asset. They may want to wait it out longer to get a better deal when the economy recovers or sell now it for cheaper. Geithner said investors will set the price for toxic assets through the degree of interest they show in buying them, sparing the government from having to make that decision.
As of right now the government has once again stepped in and pumped money into the economy; however, this time has a more optimistic viewpoint since it is attacking the two critical issues that caused the economy to spiral down. “The great risk that we face now is that after a long period of irresponsibility and excessive risk-taking, that the system will not take enough risk now,'' he said.
It is a matter of waiting to see if the consumer can regain confidence in the banking sector and then if Wall Street follows in an upward direction also reflecting the increase of housing prices or if something else happens.
http://blogs.wsj.com/economics/2009/03/16/outsized-finance-sector-meant-outsized-consumer-spending/
http://www.businessday.com.au/business/world-business/us-woos-investors-to-buy-toxic-assets-20090324-97qm.html?page=-1
http://online.wsj.com/article/SB123747972153985751.html
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