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Distressed hotel assets find no fast relief in bailout plan. Up to $1 trillion “bad bank” to take toxic assets. No critical details yet.

10 February 2008

Hotel lawyers on the continuing financial crisis. A few minutes ago, on a 61-37 vote, the U.S. Senate approved an $838 billion package to attack the financial crisis. Negotiations will now start to strike a compromise with the House.

Meanwhile, Treasury secretary Timothy F. Geithner’s greatly anticipated unveiling of the administration’s bailout plan details left the markets and many expert’s flat. Expecting more detail on exactly how the plan would work, “investors greeted Mr. Geithner’s speech with dismay and the Dow Jones industrial average shed 300 points” according to the Wall Street Journal.

Here’s what we know.

Detail missing on two critical points.

Lawmakers and investors alike continue to wait for the all important details on how the bailout plan will liberate toxic assets from banks and how to deal with the rise in homeowner foreclosures. The announcement today gave very little detail on either of these 2 critical points. So things continued to drift.

Up to $2 trillion for the program

The program will attempt to focus up to $2 trillion on the financial crisis from a combination of the Treasury, the Federal Reserve.and private investors
Geithner did say that the Treasury plans to devote the $100 billion to the purchase of various securitized consumer loans through the TALF program (Term Asset-Backed Securities Loan Facility), and the Treasury is hoping to leverage this amount up to $1 trillion.

Geithner also said that the administration is exploring a wide range of options for a program to provide a market for real estate related finance. The vehicle will be “a public private investment fund” jointly run by the Treasury and the Federal Reserve, with investment from private investors. This “bad bank” will buy the toxic assets from financial institutions. It will start with $500 billion and ultimately reach another $1 trillion.

Public private venture

The administration is seeking a means to use private capital and private asset managers to provide a market mechanism for valuing the assets. While the program will ultimately provide up to $1 trillion in financing capacity, it will launch with $500 billion. There are no details on how it will begin the process.

Somebody better figure something out soon! This isn’t going anywhere yet.

Other articles on the Global Financial Crisis & Recovery and Outlook & Trends

For other articles about the Global Financial Crisis and where this all takes us, here are some recent articles and links. You can also go to Global Financial Crisis & Recovery and Outlook & Trends on

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