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

International Journal of Monetary Economics and Finance, Vol. 3, No. 3, pp. 300-309, 2010

19 Pages Posted: 22 Sep 2009 Last revised: 15 Apr 2012

Linus Wilson

University of Louisiana at Lafayette - College of Business Administration

Date Written: 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.

Keywords: FDIC, PPIP, toxic assets, Legacy Loans Program, LLP, Public-Private Investment Partnership, financial crisis, banking

JEL Classification: G01

Suggested Citation

Wilson, Linus, Slicing the Toxic Pizza: An Analysis of FDIC’s Legacy Loan Program for Receivership Assets (September 21, 2009). International Journal of Monetary Economics and Finance, Vol. 3, No. 3, pp. 300-309, 2010. Available at SSRN: https://ssrn.com/abstract=1476333 or http://dx.doi.org/10.2139/ssrn.1476333

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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