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Question relating to toxic assets

  • 19-03-2009 9:23pm
    #1
    Closed Accounts Posts: 6


    ]In an efficient market, the toxic assets held by US banks should be worth very little. So selling them would bring in an amount that’s far less than what the loans were originally worth. How is this supposed to help the banks?


Comments

  • Registered Users, Registered Users 2 Posts: 876 ✭✭✭woodseb


    Arka wrote: »
    ]In an efficient market, the toxic assets held by US banks should be worth very little. So selling them would bring in an amount that’s far less than what the loans were originally worth. How is this supposed to help the banks?

    it removes the inherent uncertainty that is on bank's balance sheets. Since there is no efficient market nobody knows the true value. Once the banks can sell them to anybody it removes the uncertainty and allows them to draw a line under it and rebuild from there


  • Closed Accounts Posts: 6 Arka


    Thank you! I knew it was something to do with investor confidence, risk aversion of buyers etc. etc. I do have another query. I've been reading about governments buying shares in banks. Does it mean that these banks are now immunized from declaring bankruptcy? is buying shares really nationalization of the banks?


  • Registered Users, Registered Users 2 Posts: 526 ✭✭✭LuckyCharms


    The government won't allow the banks to go bankrupt as has been showed by them ploughing money into them.By buying shares the banks are in part being nationalised but unless there is a full blown nationalisation like Anglo Irish , it is my understanding that they are not immune from it.

    But it is highly improbable that a bank which was become part nationalised being allowed to just fail .

    Lastly being nationalised doesn't secure a bank from bankkruptcy it just means that aslong as Ireland Inc. doesn't become bankrupt, neither will the bank


  • Closed Accounts Posts: 6 Arka


    Thank you!


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