Details of Toxic Asset Plan Released

As promised, more details were announced today for the plan to remove toxic assets off the balance sheets using a combination of private and public capital. Check out this article which asks the right question - will the banking plan work? More to the point, will this plan attract private investors?? The biggest hurdle is the concern over compensation rage. This plan does nothing to solve the concern that at any point Congress can decide to change the rules and go back and tax any profits that are seen as excessive. It makes it very hard for private investors to take the risk and put money to work when they cannot guarantee that the rules will not change.

Geithner took a lot of heat the first time the toxic asset plan was presented for lack of details. There are still a lot of very important details not answered by today's press release. We now understand HOW the assets will be priced but it will be interesting to see WHAT price is actually put on these assets as well as the interest rate.

The most amazing detail of today's press release is that Treasury will allow for up to 6x leverage to acquire these toxic assets. Leverage got us into this mess due to the amount of deleveraging that had to take place in the market so it is a bit interesting that we are going to lever up the system one more time...