American Morning
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March 23rd, 2009
10:00 AM ET
Buying toxic bank assets
White House economic adviser Christina Romer discusses President Obama's financial rescue plan.
Today, the Obama administration will roll out its latest plan to tackle the banking crisis and get loans flowing to families and businesses again.
President Obama's Chief Economic Adviser, Christina Romer, joined us live from the White House.
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When a bank makes a loan, it is marked against their capital. Most banks have an 80/20 policy. This means that the bank figures that 80% of loans will be paid back and the other 20% would be lost. Why can't the govt say to the banks anything over 20% you can put in a suspense acct for 2yrs. To be able to use this, the banks have to unfreeze the credit. During that 2yrs, the banks would have 2yrs to clear these toxic assets up with the govt helps ( lower rates, other lending programs, etc), After the 2yrs are up that whatever is left in that account , we will forgive 50 cents on the dollar and you can take the loss for the balance. Example; say you have 10% left in that suspense acct, the govt will forgive 5% and the bank would take a hit on the other 5%. Is this possible?