A Binomial Model of Geithner’s Toxic Asset Plan

57 Pages Posted: 2 Jul 2009 Last revised: 15 Apr 2012

Linus Wilson

University of Louisiana at Lafayette - College of Business Administration

Date Written: November 30, 2010

Abstract

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.

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

Suggested Citation

Wilson, Linus, A Binomial Model of Geithner’s Toxic Asset Plan (November 30, 2010). Journal of Economics and Business, Vol. 63, No. 5, 2011. Available at SSRN: https://ssrn.com/abstract=1428666 or http://dx.doi.org/10.2139/ssrn.1428666

Linus Wilson (Contact Author)

University of Louisiana at Lafayette - College of Business Administration ( email )

Department of Economics & Finance
214 Hebrard Blvd., Room 326
Lafayette, LA 70504-0200
United States
(337) 482-6209 (Phone)
(337) 482-6675 (Fax)

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

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