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For Credit Suisse managing director Storm Duncan, speaking at the AAMA Connect conference in Santa Clara, Calif., the U.S. Government will inevitably loose money buying toxic mortgage assets from financial institutions that are pricing them much more than “fair market value”.

Banks are just unwilling to sell those distressed assets, causing the liquidity problem in the market. The hope is that when the Fed starts buying the poisonous assets, the banks will free up some cash and start lending. But at this point, all bets are off!

Finally, according to Duncan, only 2 groups can actually make money out of the bad assets:

1. The people that are buying it from the Government after they take it off the banks balance sheet. And no one will invest in assets if they don’t think they have very high probability of making money;
2. The banks can’t loose money because if they want to sell the mortgage assets for what it’s worth i.e. nothing, there are a lot of buyers today. This is not a liquidity crisis, this is an unwillingness to sell things for fair market value. But they can’t afford to sell it for fair market value because if they do the banks will go bankrupt.

Here’s an excerpt of Duncan comments at AAMA about the winners and losers of the bailout:

This entry was posted on Sunday, October 5th, 2008 at 12:19 am and is filed under news. 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.