TOXIC ASSETS

TARP or Trouble Assets Recovery Program was sold to the country in the biggest government give away as the means to rid the banks from toxic assets. We all know that it did not happen as planned. Money went to acquire stakes in those institutions and other mundane issues. True, so far only half the funds have been released by Congress. This gives us some hope that the funds will eventually be used for their intended purpose: clean up the mess in bank's books and let them play their lending role.

In abandoning the clean up, Treasury claimed that it was difficult to price those assets. I think that they were talking about everything but mortgages. Those assets that banks acquire when they fund housing purchases and refinancing are very simple to identify and price. Either a loan is performing or it is not. Further, it is easy to determine the value of the collateral: just appraise the property. If Treasury or anyone wants to buy mortgages, they only have to look at the value of the collateral of the performing and non performing ones and make an offer. This process would in fact help in the valuation of the assets held by banks and others and, give both the stockholders and the general public the true value of those assets. This exercise will shed the light on actual value of these institutions.
With property values in steep decline for sometimes, and the rise in delinquencies, it is foolish to hang on to the face value of the mortgage notes.

It is evident that banks are playing the "don't ask, don't tell" game while they are getting lavished with billions in rescue funds. Shouldn't we know what these institutions have in their books before we give them any money? The longer we play this game, the worse things will get and by the time we require that a true valuation be conducted, the toxicity of these assets will have reached catastrophic proportions.

It is time that we demand that an industry wide clean up be initiated. It is strange that the automakers have to get on their knees, sell their jets (they should be driving their own cars), in order for the government to cough less than $20,000,000,000.