interesting question. and

Deadman — Tue, 24 Mar 2009 00:49:36 +0000

In reply to Geithner's core assumption

interesting question. and yeah, the value of these assets is somewhat dependent on the health of the overall economy, and if people feel that these efforts will revive the economy they may bring the value of the assets along as well. obviously, i've expressed my skepticism of that notion repeatedly.

moreover, there are certainly people who feel that the value of the assets underlying these assets (ie housing) became so far extended beyond any realistic justification that they have farther to fall no matter what the overall economy does. that said, much of the value of these assets is predicated only somewhat on the underlying collateral, but mostly on the ability for the people to pay off their debts in timely fashion. (ie a buyer of a toxic subprime MBS doesn't care a whit if the price of the underlying collateral falls another 20% if the person who owns the mortgages keeps paying off their debt on a timely basis)

Geithner's core assumption

Michael Wolraich — Mon, 23 Mar 2009 22:25:00 +0000

In reply to The dagbuzz for 3/23/09: (The Geithner Bank Stability Plan)

Geithner's core assumption is that current market prices for these toxic assets are not reflective of their underlying value

Isn't there a feedback mechanism here? Value is not static. Part of the reason the assets have so little value right now is that investors are bearish on the economy. They're not necessarily irrational; they just expect the worst. And indeed, if the country plunges deeper into an extended recession or worse, those assets will never recover any value. But if the economy rebounds, the assets will very likely become worth more than their current market value. So doing nothing is a self-fulfilling prophecy. The question is whether government action is capable of spurring an economic recovery which would de-toxify many of the troubled assets.

PS Good post

dagblog - Comments for "The dagbuzz for 3/23/09: (The Geithner Bank Stability Plan)"

interesting question. and

Geithner's core assumption