04/23/2009
| Q | What is the likely impact of Treasury secretary Timothy Geithner's proposal for a Public-Private Investment Program (PPIP), which is designed to enable banks to sell off their troubled assets? |
| A | The plan will likely create significant buying power in the markets for mortgage-backed (MBS) and
asset-backed securities (ABS), but a few questions remain about the pricing of these troubled assets. Equity capital of up to $75-100 billion will be made available from the Troubled Asset Relief Program (TARP) for the purchase of these securities and the troubled mortgages that continue to hinder the banking sector. With leverage, this will allow investors to purchase up to $500 billion of these "legacy assets," as they are called, with the possibility this could expand to $1 trillion. Pricing these assets, which is at the heart of the crisis, will be established via an auction in the case of troubled mortgages or via negotiations in the case of the securities. Initial sales of the assets could result in large write-ups of assets still on the books, potentially eliminating the need to sell them off. But what if the parties can't agree? Will the price offered establish a market value to which assets will have to be marked? For a further discussion of this topic, please read "Geithner's Plan Raises Hopes—and Questions." |
 Back to Top |
|
04/23/2009
| Q | Why was the Financial Stability Plan unveiled so quickly after the new administration took office? |
| A | The Financial Stability Plan needs to be put in place forcefully and quickly, because without that plan,
and without taking care of the toxic assets in the financial system, large parts of the economic
stimulus program would have trouble accomplishing the objective of reviving economic growth. For a further discussion of this topic, please read "Delving into the Financial Stability Plan." |
| Back to Top |
|
04/23/2009
| Q | Are commercial mortgage-backed securities the next big concern in the credit markets? |
| A | As bouts of panic wash over financial markets, questions about commercial mortgage-backed
securities (CMBSs) have naturally arisen. Certainly, these instruments have suffered, as have all
credit-sensitive fixed-income instruments. Default fears, liquidity problems, and an unfortunate
association with subprime have widened the gap between CMBS yields and those on Treasuries. But
while there is no denying the risks-of unforeseen credit problems or that a rise in rates depresses
price, for example-today's very wide yield spreads seem to more than discount the worst probabilities
and more than compensate investors for any probable default rates, making such bonds, after careful
attention to individual credit and subordination, an attractive addition to a fixed-income portfolio. For a further discussion of this topic, please read "CMBSs Remain Attractive to Fixed-Income Investors." |
| Back to Top |
|
Submit a Question
Lorem ipsum dolor sit amet, consectetuer
adipiscing elit. Etiam id tortor aliquet orci.
 |
Sign up to receive our Weekly Perspectives e-mail |