Financial Services News & Information : Blank Rome Government Relations Lobbying Firm : Government Relations, Corporate Governance : Financial Reform Watch Law Blog

Who appointed the G7 (+1) to its perch? The finance ministers for the main protagonists in World War II (1939-1945) met in Rome over the weekend to discuss the world economic crisis. Does a meeting of this nature that excludes India and China truly have a hope of wrapping its collective mind around the problems and their possible solutions?

Is ideology standing in the way of the most elegant solution to the U.S. banking crisis? Give former President George W. Bush his due: when the dimensions of the banking crisis became apparent to him, he scrapped a "market guy" ideology and poured taxpayer money into the banks. Is the Obama Administration willing to take what for them would be a similar ideological leap? Is their unwillingness to do so behind the complex public-private partnership at the center of the Geithner proposal to deal with troubled assets? Is there a similar reason behind the relatively light-handed approach Geithner would take to pushing the banks to resume lending?

• Email This
• Print
• Comments
• Trackbacks
• Share Link

While a formal announcement is still a day away, it appears the Obama Administration is backing away from the concept of a "bad bank" to take control of the bad assets of US banks. Instead, they will propose that price floors on assets would be set by the federal government as a means of inducing private investors to take control of the assets, manage them, and eventually sell them back into the marketplace.

In explaining the outlines of the proposal on Sunday, Lawrence Summers, the top White House economic adviser, indicated the administration had received a number of proposals from private equity firms, hedge funds, and insurance companies interested in asset management. He said that bringing private equity into the process would help limit the exposure of the taxpayer.

This approach—perhaps best described as a "mixed model"—puts the federal government in the guarantor position and would most likely involve federal oversight of the private firms' activities under the program. Some requirements might flow to the new asset managers as well. For example, a mandate or strong encouragement to restructure mortgage loans could well be a part of the deal for them.

• Email This
• Print
• Comments
• Trackbacks
• Share Link