Does Kramer Finally Get to Be a Banker and Does There Have to Be Skin in the Game for CDS?

Cosmo Kramer of Seinfeld fame always wanted to be a banker. WillTreasury Secretary Geithner’s Public-Private Investment Program (PPIP)finally allow him to fulfill his dream?

Cosmo Kramer of Seinfeld fame always wanted to be a banker. Will Treasury Secretary Geithner’s Public-Private Investment Program (PPIP) finally allow him to fulfill his dream? PPIP should have no shortage of private investors signing up to buy financial institutions’ toxic assets – sorry, “legacy” assets.

After all, the purchasers will obtain government-guaranteed financing, government-guaranteed default-risk protection and plenty of leverage to boost returns. The question is how eager will financial institutions be to sell their legacy assets.

Given all the incentives for private buyers to participate, it is likely that bid prices for legacy assets will be above current market prices. So, those institutions that already have marked their legacy assets to current market prices might be willing sellers as they might now be able to book some profits. However, those institutions that are still carrying some of these impaired assets at historical cost will be less willing to sell because they would have to book losses.

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