PrefBlog

It seems that PrefBlog is persuading the world that Bad Bank = Bad Idea:

The Obama administration, aiming to overhaul the $700 billion financial-rescue program, is refocusing on an effort to guarantee illiquid assets against losses without taking them off banks’ balance sheets.

Treasury Secretary Timothy Geithner is skeptical of setting up a so-called bad bank to hold the toxic securities, an option that still may form part of the final package, people familiar with the matter said. Senator Charles Schumer yesterday said debt guarantees are becoming “a favorite choice” of options because a bad bank would be too costly.

Across the curve is skeptical:

The process of repairing the banking system (read the nursery rhyme Humpty Dumpty) is proving to be a challenge for the Obama Administration. News reports indicate that the bad bank idea is losing followers and that the Administration seems to be turning to idea of massive guarantees of the flotsam and jetsam in bank portfolios. As one commentator noted, that has not worked out so well for the stock price of Citibank and B of A.

PerpetualDiscounts were off slightly today on good volume and now yield 6.98% – the equivalent of 9.77% interest at the standard equivalency factor of 1.4x. Long Corporates remain fairly steady at 7.6%, so the Pre-Tax Interest-Equivalent Spread has widened slightly to +217bp.

This entry was posted on Wednesday, February 4th, 2009 at 10:25 pm and is filed under Market Action. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.