They say beware the Ides of March; the middle of the month is unlucky. In fact, it’s been about a year since toxic assets dragged down Bear Stearns.
Monday March 17th, 2008 will always be remembered as an historic day on Wall Street as we all watched the demise of Bear Stearns, the nation’s fifth largest investment bank. It was an institution that survived the Great Depression, World War II, Watergate and more only to be brought down by the housing crisis.
On March 17th the federal reserve stepped in, and provided $30 billion in capital to support JPMorgan’s shotgun acquisition of Bear Stearns -- the only bank in America viewed as having the capital to support a balance sheet as toxic as this one.
Since then we’ve seen toxic assets drag down many other firms, most notably Washington Mutual, Wachovia, and of course, Lehman Brothers.
And since then, relieving banks of these toxic assets has frustrated two administrations and set back taxpayers $750 billion.
One year later are we any closer to a solution?
According to CNBC’s Steve Liesman the short answer is yes and new developments are coming any day now.
He says the Obama administration's plan to purchase toxic assets from the banks in a public/private partnership could be made public as soon as this week.
Several competing funds will be established with capital from both public and private sources. The hope is to have these funds bid on the assets weighing down the balance sheets of the nation's banks and create a market price through the competition.
The administration plans to begin the program, to be overseen by the Treasury, the Federal Deposit Insurance Corporation and the Federal Reserve, with purchases of up to $500 billion in assets. It could be expanded to $1 trillion.
The bidders will be offered low-cost government financing to buy the assets and some form of insurance to protect them against downside risk. Taxpayers, in turn, will also have a way of profiting on the upside if the assets appreciate.