Would You Invest in Toxic Assets?
Right now, it appears that our leaders are doing their best to figure out the best possible way to stimulate the economy. They seem to be doing it with the “throw a bunch of things at the wall and see what sticks” method. This includes the the economic stimulus bill, which is a hodge-podge of experiments in and of itself — from a $15,000 tax credit for homebuying to billions to spruce up the National Mall. And tomorrow, Treasury Secretary Timothy Geithner is set to unveil his bank rescue package, which includes the plan to have private capital help finance the bailout for banks.
This isn’t a new idea; Henry Paulson floated the idea back in the fall. However, now it is getting a serious look again. The idea is to try and get investors and funds, anxious for profits, to invest in toxic assets. In order to mitigate some of the risk (since there’s a reason these assets have been called “toxic”), the government plans to guaranty a floor value. It’s a classic case of more of the same thing we’ve been seeing recently — privatizing profits while we socialize the risk.
But will investors want toxic assets?
Some investors, with the financial and emotional risk tolerance to deal with these investments, might be drawn to the idea. After all, their initial outlay is guaranteed by the government (assuming the government doesn’t fail), and they could stand to make a great deal of money if things work out and anyone can actually figure out how much these toxic assets are worth.
And that’s the rub. No one really can say how much these assets should be valued at. Which is probably why the government has put off unveiling its plan for bank rescue.
Disclaimer: I am not an investment professional. Nothing in this piece or on this Web site should be construed as investment advice. Before making investment decisions, do your own research and/or consult with an investment professional. All investment comes with the risk of loss. You are responsible for your own investment decisions and any loss that may result from your decisions.
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