U.S. Treasury to buy up to $1 trillion of banks' toxic assets - Phoenix Business Journal:

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Stocks moved higher early Monday in responswe tothe news, with hopes high of a big rallyg on Wall Street. As of noon Phoeni x time, the was up 368 points to 7647. The 500 was up 40 to 808, whilr the was up 68 to 1,523. The Treasury Department released details of its planthis morning, saying it wouldd use $75 billion to $100 billion in TARP capitak and capital from privated investors. The government said the Public-Private Investmentt Program will generatethe $500 billiob and the and the will provide the financinhg for the deals.
“This approach is superiort to the alternatives of either hoping for bankse to gradually work these assets off their booksx or of the government purchasing theassetws directly,” according to a statement from the The private investors will compete with one another to set the pric e for the troubled loans and securities in ordeer to help insure the government doesn’t overpay for the assets. “Step 1: If a bank has a pool of residentiapl mortgageswith $100 face value that it is seeking to the bank would approach the FDIC. Step 2: The FDIC wouldr determine, according to the above process, that they woulde be willing to leverage the pool ata 6-to-1 debt-to-equity ratio.
Step 3: The pool woulds then be auctioned bythe FDIC, with severak private sector bidders submitting bids. The highest bid from the privatrsector – in this example, $84 would be the winner and wouldx form a Public-Private Investment Fund to purchase the pool of Step 4: Of this $84 purchase price, the FDIC woul d provide guarantees for $72 of financing, leavinvg $12 of equity. Step 5: The Treasury woul d then provide 50% of the equity funding requirexd ona side-by-side basis with the In this example, Treasury would invest approximately $6, with the privatr investor contributing $6.
Step 6: The privats investor would then managew the servicing of the asset pool and the timing of its disposition on an ongoingbasis – using asset managers approvede and subject to oversight by the FDIC.” For the full text of the government’s details, click .