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September 18th, 2008

Paulson’s Plan Could Reveal True Extent of the Problem



Treasury Secretary Henry Paulson revealed plans today to develop a government facility that would deal with clearing bad debt. Paulson’s plan would allow financial institutions to clear bad assets off of company balance sheets. The facility would be designed to overtake bad assets, and dispose of them in an orderly fashion. “A government move to help pull bad assets off the books may be the next step,” said HSH Vice President Keith Gumbinger.

Although it may sound like another bailout, the government may be willing to take, or buy, the bad debt no investor is interested in buying. “This would prevent another Merrill Lynch situation from developing — a dumping of assets into an already glutted marketplace,” said Gumbinger. “There are simply no buyers for some assets in this market.”

Will the government buy these bad assets at a discount rate, or will they just take them? Who’s putting up the cash if the government is indeed buying bad debt?

These questions remain unanswered as the terms have not yet been structured, if even fully contemplated. If the government moves forward with this plan, it could truly reveal just how much bad debt is weighing down the current market. Since investors are currently only interested in safe bets, this facility could be crucial in restarting a healthy marketplace.

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7 Responses to “Paulson’s Plan Could Reveal True Extent of the Problem”

  1. James Says: September 18th, 2008 at 8:18 pm

    Hi, I found your blog on this new directory of WordPress Blogs at blackhatbootcamp.com/listofwordpressblogs. I dont know how your blog came up, must have been a typo, i duno. Anyways, I just clicked it and here I am. Your blog looks good. Have a nice day. James.

  2. jimma Says: September 19th, 2008 at 1:22 pm

    If credit cards are the greatest source of bad debt, auto loans are a close second. You are upside down on the loan the second you drive off the dealership’s lot and it’s downhill from there. Too many people shrug off a car payment as a necessary evil.

  3. Tim Manni Says: September 19th, 2008 at 3:57 pm

    James — Hope you stumble back soon, thanks for stopping by! Spread the good word!

  4. Tim Manni Says: September 19th, 2008 at 4:14 pm

    Jimma — I agree, auto loans are seemingly overlooked. I wonder what the default rate on auto loans is when compared to credit or home loans. Jeez, if you buy a used car,you spend the first couple years of your auto loan basically paying straight interest! Cars do depreciate faster than most investments, which I guess means they aren’t much of a investment at all — yet, contrary to your point, it does kind of make them a necessary evil. Only if we could all be lucky enough to pay cash in full, but still your value drop the moment you own it.

    Thanks for reading, comment again soon,

  5. pofien Says: October 30th, 2008 at 5:52 pm

    Cool post. Thanks for information. Bookmarked!!!!

  6. Damien Says: October 30th, 2008 at 6:14 pm

    Well spoken!! Thanks for information. Bookmarked!!!!

  7. Tim Manni Says: November 3rd, 2008 at 3:02 pm


    Thanks for reading, we’re glad you have found the blog useful. Be sure to check back in and comment with us again soon.


    Tim (HSH)

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HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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