However, it is very possible that this DOES NOT need to work as a prerequisite for an economic recovery. In fact, the best case is if it sort of dies out with minimal participation -- for whatever reason -- as the economy recovers without this sort of help.
1. The problem is with the shadow banking system, which is largely gone.
2. This doesn't apply to small banks. Period.
3. There aren't that many toxic assets. Unless someone would like to argue otherwise -- toxic assets are those that are opaque and difficult to value. A bad asset isn't a toxic asset.
4. It applies mostly to investment banks, which were doing huge amounts of securitization, but not much anymore. Legacy assets have no bearing on whether investment banks can sell new securitized loans. The original TALF sounded promising on that score.
5. Non investment banks don't have a lot of non agency mortgage backed securities.
6. FDIC insured banks have only abut $7 trillion in loans. They don't mark whole loans to market. They don't need to sell them.
7. The plan excludes CDO^2 or any mortgage security that holds something other than whole loans.
8. The investment banks may need to dump some securitized loans, but who/what/etc.
I don't see how this could work.
The only example that I can think of is if -- if someone like WFC wants to get rid of Pic a Pay, which already has a 40% haircut, and perhaps book a profit -- then maybe. Most other loan portfolios are booked with a 5% loan loss reserve or something similar.
It seems like this is just for Citi and BAC. Why didn't we just give them the $150 billion.