So here’s my guess as to endgame for the ‘bad bank’ plan:
1. Banks, backed by the federal reserve, will buy some of the crummier so-called toxic assets – CDO’s backed by (worthless) mortgages, (wildly overinflated) lease agreements, (defaulted) credit card debt, and other juicy bits.
2. They’ll pair these assets with something looking a lot more like gold – say, treasuries – and then they’ll put them into a trust corporation.
3. The trust will then be securitized and sold as ‘government-backed high-yield assets’ or somesuch. It’ll look like a combination of gold and government-insured, high-yield assets.
4. Investors (including pension funds, state agencies, as well as more interesting investment companies), tired of losing their pants on the stock market and short on private equity deals, will take a big fat bite at this newly shiny apple.
5. Everyone declares victory and hopes that the ‘real’ economy picks up.
Oh, until the assets are suddenly revealed to be really worthless, and another giant wheelbarrow of public funds will be forced to back them, insurance-style.
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