Word: toxication
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...before most economists. His forecasts for the next year or so seem reasonable and are widely viewed as a good road map for what is likely to be ahead for GDP and employment. However, he may not be right with his estimate that total banks write-offs due to toxic financial instruments sold by U.S. will be about $3.3 trillion worldwide. That is well above projections by most economists and the IMF. Nationalization of U.S. banks would cause hundreds of billions of dollars of losses to the common and preferred stockholders in the firms. This, in turn, could cause...
...Nationalization would obviously make taxpayers responsible for the losses these banks may experience in the future. But, the taxpayer is already likely to face that fate. The federal government is in the process of guaranteeing bad paper at the banks and may end up buying many of these toxic assets to keep losses at the firms at a level where they do not have to raise even more capital...
...national bank is almost certain to follow practices which are unsound, which would not make it terribly different from the large firms that helped get the economy into trouble. Bank managements bought toxic assets two or three years ago. A government-controlled bank might offer mortgages at extremely low rates, rates so low that they clearly do not take into account the level of home loan defaults. From a policy standpoint, it may make "sense" to do that to help buttress the housing market. But, to some extent that moves the government's control of the credit system from nationalizing...
Treasury Secretary Timothy Geithner has unveiled a new plan to combat the financial crisis: persuading private financial institutions to buy up toxic assets with the government's backing. While this is a step up from former Secretary Henry Paulson's original bailout plan - in which the government itself would buy up the bad securities - it is still not the right approach...
...less money on their mortgages, they will be less likely to stop making their payments. The plan is equivalent to a universal renegotiation of terms that improves the situation for both homeowners and banks. As a bonus, mortgage-backed - and, indeed, all mortgage-based - securities will become less toxic by virtue of a trickle-up effect...