Here's The Rub

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As you probably know by now, a move was afoot in the Treasury to put the Resolution Trust Corporation (also know as the “RTC”) back in business.

Such a move, according to its advocates, would allow banks to shovel bad debt off their balance sheets and send them back to business as usual.

Sounds good on the surface but we don't know at what price the US government buys these assets and once they own them, and how they dispose of them. For insights we turn to Josh Rosner, manager director Graham Fisher.

Following is an excerpt from his conversation on Fast Money.

Ratigan: What’s the mechanism to purchase the securities and once the American public is effectively long American housing how will they unwind it?

Rosner: If we had the answer to that, private investors would have already done it. There’s a lot of distressed asset money on the sidelines waiting for that to be released largely from "Level 3." I think the issue is less that it’s illiquid than sellers don’t want to lift the kimono. In other words they don’t want to have to open their Level 3 exposure and let it price in the open market.

Ratigan: In other words the owners don’t want to sell them, because they think if they hold them instead, these assets will come back to a higher value.

Rosner: That’s right. And I think there’s going to be some significant push back on the RTC process unless what we’re talking about is, after an institution fails, the new RTC comes in and manages the sale of those assets. That makes perfect sense. But if you’re talking about buying the assets from institutions that are still solvent it becomes unworkable and I don’t think it will go anywhere.

Ratigan: Haven’t we already taken a step in that direction already with Bear Stearns when we allowed the banks to take the mortgage bonds that they held as collateral and then take Treasurys out?

Rosner: Yes, but that was done in sort of an ad-hoc basis. We’d have to come up with a more systemic approach and I don’t think it makes sense. My view is.. if you circle problem assets and unwind them over a long period of time there’s nothing that can’t be unwound.

Ratigan: Should the government consider legislating Level 3 assets so everyone can see what’s in that category?

Rosner: I think that makes a lot more sense!

For the entire interview please watch the video!

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