As the Obama administration prepares its strategy to rescue the nation’s banks by buying or guaranteeing troubled assets on their books, it confronts one central problem: How should they be valued?
Not just billions, but hundreds of billions of taxpayer dollars are at stake.
The Treasury secretary, Timothy Geithner, is expected to announce details of the new plan within weeks. Administration and congressional officials say it will give the government flexibility to buy some bad assets and guarantee others in an effort to have a broad impact but still tailor the aid for different institutions.
But getting this right will not be easy. The wild variations on the value of many bad bank assets can be seen by looking at one mortgage-backed bond recently analyzed by a division of Standard & Poor’s, the credit rating agency.
If past performance is any guarantee of future results, campaign donations, junkets to the Caribbean and discounted mortgages will get one favorable treatment with the “ins” these days.