A Binomial Model of Geithner’s Toxic Asset Plan
University of Louisiana at Lafayette - College of Business Administration
November 30, 2010
Journal of Economics and Business, Vol. 63, No. 5, 2011
This paper formally models the Public Private Investment Partnership (PPIP), a plan for U.S. government sponsored purchases of distressed assets. This paper solves both the problem of the asset manager buying toxic assets and the banks selling toxic assets. It solves for the fair market value of toxic assets implied by subsidized toxic asset sales, and it estimates the size of the government’s subsidy. Moreover, this paper finds the circumstances under which banks and asset managers will meet at mutually acceptable prices. In general, healthier banks will be more willing sellers of toxic assets than zombies.
Number of Pages in PDF File: 57
Keywords: bailout, banking, CMBS, CDOs, EESA, Emergency Economic Stabilization Act, lending, Legacy Loans Program, Legacy Securities Program, mortgages, Public-Private Investment Partnership, PPIP, TALF, Term Asset-Backed Lending Facility, Troubled Asset Relief Program,TARP, RMBS, toxic assets,zombies
JEL Classification: G12, G13, G18, G21, G28, G38
Date posted: July 2, 2009 ; Last revised: April 15, 2012
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