Toxic Loans Program on Hold

When Treasury Secretary Tim Geithner rolled out his plan for the bailout in February, one of the featured elements was a public-private program to move toxic assets off of the balance sheets of the nation's struggling banks. The Treasury set aside $100 billion of the TARP to partner with private investors who would purchase pools of questionable loans (especially mortgages) and asset-backed securities. But now one-half of that program, the part to deal with pools of loans, is on hold, Sheila Bair, the head of the FDIC, announced yesterday. (The other half is still being developed.)

According to Bair, the banks have been so successful in raising private capital that interest in the program has diminished. Whether the program is still needed is debatable. From the New York Times:

But some analysts said the banks’ reluctance to clean up their balance sheets meant they were merely postponing their day of reckoning. Indeed, some analysts said government policies had made it easier for banks to gloss over their bad loans.

“What’s happened is that the government’s programs have addressed the symptoms of the financial crisis, but not the cause,” said Frederick Cannon, chief equity strategist at Keefe, Bruyette & Woods, which analyzes the industry. “The patient feels better, but the underlying cause of the problem is still unaddressed.”

Other links this morning:
Big Banks Eagerly Await U.S. Approval to Repay Aid (WaPo)
Banks Try to Stiff-Arm New Accounting Rule (WSJ)
US Lawmakers Want To Shine More Light On Federal Reserve (Dow Jones)
Regulator to Detail Plan for Derivatives (NYT)
G.M. and Chrysler Defend Dealer Closings to Senate Panel (NYT)
Chrysler Deal With Fiat Hits Legal Road Bump (WaPo)

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