Word: toxication
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...speech to Germany's banking élite, Merkel also acknowledged that Europeans were under pressure to deal with the issue of toxic debt. "I am dying to see how the American model will work and whether private-sector incentives can actually sell the more difficult assets," she said skeptically. "But we can't dodge the issue because otherwise it will take far too long before the banks can return to their full strength...
...German banks have an estimated $265 billion to $400 billion in bad debt on their books. Put another way: that's as much as 12% of German GDP. The U.S. bad-bank plans calls for purchasing up to $1 trillion in toxic debt, equivalent to 6.8% of U.S. GDP. German banks have about $550 billion in cash reserves. So, it's not hard to figure out what would happen to the real economy if the banks are left on their own to work through loan failure of this magnitude. "Germany has not succeeded yet in getting control of the financial...
...Deutsche Bundesbank, said talks between the banks, the finance ministry and SoFFin, the federal bank-stabilization fund, could produce a viable concept for a bad bank before the G-20 meeting. According to Weber, Germany would not create a central bad bank and it would not buy the toxic assets from the banks. Instead, German banks could split each bank into a good bank and a bad bank, allowing the banks to move the bad debt into their bad bank and in return receive fresh capital from the government for their good bank. The government remains skeptical of the plan...
...Federation of German Banks, which represents the main private-sector banks, has proposed something along these lines already. Rather than calling it a bad bank the banks call it a "mobilization fund." Each bank would park its toxic assets in an account with the government. This way the assets would be off the banks' books but each security would still be associated with its original owner rather than pooled together. "The mobilization fund is not about burdening the taxpayer with all the risks," Klaus-Peter Müller, head of the banking federation, told reporters...
...economic-research institute, suggests that the banks sell the toxic assets to the federal government at no charge. In exchange, the government would then provide the banks with equity by taking stakes in banks that participate. The toxic assets would be placed in a state-owned bad bank and sold back to the banks at a later date when a market for such assets reemerges. "This ensures that the shareholders and not the taxpayers have to bear the initial costs of the failure," says Dorothea Schäfer, DIW head of research...