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Slicing the Toxic Pizza: An Analysis of FDIC’s Legacy Loan Program for Receivership Assets

Linus Wilson
University of Louisiana at Lafayette

September 21, 2009

Abstract:
The Legacy Loans Program is an elaborate way of slicing the FDIC’s receivership assets. At best, the financial structure is irrelevant to the FDIC’s expected long-run recovery rates. Yet, it may boost short-term prices by creating bond insurance liabilities that will come due several years down the road. If the private investor can increase the value of the toxic loans through non-contractible investments, then the public equity stake and subsidized leverage may hinder the FDIC from obtaining the best recovery rates from these troubled loan portfolios.

Working Paper Series

Date posted: September 22, 2009 ; Last revised: September 29, 2009

Suggested Citation

Wilson, Linus, Slicing the Toxic Pizza: An Analysis of FDIC’s Legacy Loan Program for Receivership Assets (September 21, 2009). Available at SSRN: http://ssrn.com/abstract=1476333

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Contact Information

Linus Wilson (Contact Author)

University of Louisiana at Lafayette ( email )

Department of Economics & Finance
P. O. Box 44570
Lafayette, LA 70504-4570
United States
(337) 482-6209 (Phone)
(337) 482-6675 (Fax)

HOME PAGE: http://www.linuswilson.com