by Mark Johnston
Earlier this week, the US Treasury Department said that it would start to sell on the toxic assets that it had accumulated during the financial crisis. It is also hoped that selling these assets, worth an estimated 142 billion dollars, will close another chapter in the financial crises and bring about renewed confidence in the system and plan in place.
“We will exit this investment at a gradual and orderly pace to maximize the recovery of taxpayer dollars and help protect the process of repair of the housing finance market,” said Treasury official Mary Miller. It is generally accepted that what happens in the USA will inevitably happen in the UK. I hope government bailed out organisations are willing to return to respectability and pay back all loans and interest owed to the UK public.
During the financial crisis the US Government secured by state backed mortgage lenders Fannie Mae and Freddie Mac and bought their toxic assets during 2008 – 2009. Once investors began to lose confidence in financial providers, the Government had to step in and buy the mortgage backed securities or toxic assets.
The Treasury department is hoping to sell up to $10 billion of the mortgage backed securities, per month and potentially generate somewhere between $15 and $20 billion from the sale, depending on market conditions and appetite. According to Nancy Vanden Houten, an analyst at Stone & McCarthy, that estimate “might be on the high side,” but a profit was quite likely. This will go a little way to help with the humungous debt, tipping over $14 trillion and rising daily.
Three years after the credit crisis, the Treasury is claiming that the market for asset backed derivatives is much more robust. “The market for agency-guaranteed MBS has notably improved since the time Treasury purchased these securities in 2008 and 2009,” it said in a statement.
This was certainly not the case as their value was plummeting during the peak of the crisis after the housing bubble burst so spectacularly across the world. This prompted fears that a wave of asset write offs might drag down lenders and banks and spark further panic in the market.
Fannie Mae and Freddie Mac were not the only big independent financial organisations to receive support. The Treasury also recently sold off stakes held in Citigroup, General Motors, Ally Financial and American International Group (AIG).
AIG placed an offer of $15.7 billion on the table in an attempt to buy back their mortgage backed securities from the Federal Reserve as part of its efforts to come out of the government backed bailout and appear a strong competitor once again.
Sales in the housing market are still considered quite fragile; figures released show a fall in home sales in February of 9.6 per cent when compared to January. Reducing the public debt has to be the Governments number one priority and by the moves they are making this week, it seems they have this in mind.
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