Treasury to Use Up to $30 Billion to Buy Toxic Assets
On Wednesday, the Treasury Department announced that nine asset managers (see the list below) had been picked to partner with the government to buy older, hard-to-value mortgage-backed securities. Up to $30 billion in taxpayer money will go toward the effort. The fund managers will raise up to $10 billion, which will be matched by up to $10 billion in TARP money, with $20 billion more available from the TARP as cheap financing to boost the size of the buys.
Originally conceived as the whole purpose of the TARP, then a major portion ($100 billion) of the TARP, the purchase of troubled assets was presented yesterday by Treasury officials as a modest intervention. Things aren't at the crisis point they were last September, the Treasury said, and banks have been able to raise large amounts of private capital over the past couple of months. But the market for these troubled securities remains sluggish. So the Treasury is just trying to "jump-start" the market, a senior Treasury official told reporters on a conference call Wednesday, adding that the approximately $40 billion in purchasing power created through the program would have a "significant impact." But the Treasury said it could ramp up the program if the economy deteriorates. The fund managers could start buying securities as soon as next month.
Because the Treasury has scaled back its estimate of how much in TARP money will be used for these toxic security purchases, we're changing our accounting for how much of the $700 billion bailout remains. With that adjustment ($100 billion down to $30 billion), about $209 billion of the TARP money remains uncommitted.
The fund managers:
- AllianceBernstein LP and its sub-advisers, Greenfield Partners LLC and Rialto Capital Management LLC.
- Angelo, Gordon & Co. LP and GE Capital Real Estate.
- BlackRock Inc.
- Invesco Ltd.
- Marathon Asset Management LP.
- Oaktree Capital Management LP.
- RLJ Western Asset Management LP.
- The TCW Group Inc.
- Wellington Management Company LLP.
Other links this morning:
Keeping Toxic Asset Prices Secret (NYT)
White House Ponders Bernanke's Future (WSJ)
Exit Package for Ousted GM CEO in Works (WSJ)
Rep. Frank Introduces U.S. Consumer Agency Bill (Reuters)
As big banks return their TARP money, Fannie Mae and Freddie Mac continue to be a drain.