News
TROUBLED ASSETS; SILVER LINING
April 1, 2009
| We nod politely during conversations about Treasury and FDIC programs promoting the purchase of troubled loans and mortgage-backed securities, but inside, our heads are spinning. Mercifully, Arent Fox finance guru David Dubrow broke it down for us when we visited his Broadway office. |
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| David tells us rather than buying loans from the banks, or nationalizing them, the government chose a hybrid plan.(Well, if it's good enough for a Prius . . .) The FDIC will evaluate loan portfolios offered by banks and then agree to a ratio of debt to equity (6:1 maximum). It will then auction the debt, and the winner would purchase the loans in a private-public partnership, with the federal government putting in equal equity and guaranteeing the debt. This way, private bidding will drive up the loans' prices and diminish risk for the private investors at the same time. |
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| David, with fellow attorney Jackie Weiss, cautions there are still issues to be ironed out: the government hasn't defined who's an eligible investor or how asset managers will be chosen; investors may not be allowed to transfer ownership interests; and, the government said "passive investors" won't be subject to executive compensation, but didn't define "passive." He suggests investors with concerns send comments to the Treasury by April 10. |
