Zero Hedge

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Zero Hedge: "So does the upcoming bailout have the makings of actually fixing the structural problems in the economy? Some thoughts on the various approaches, from BAC:

Aggregator Bank

This is an off balance sheet vehicle that pools multiple bank’s bad assets into one “Bad Bank” or “Aggregator Bank” that can both manage and dispose of the bad assets it buys from banks. To alleviate the pricing problem, the bad bank could focus on trading account securities and loans that have been most heavily marked down. By either taking these at the latest mark, or standardizing these marks across banks of the (relatively) more price transparent assets, the pricing issue – setting the correct price to protect taxpayers – could be avoided. The impact of this move would remove further downside uncertainty for the banks, freeing them up from those assets (while at the same time transferring all future upside to the government as well). However, that pool would be limited to those deemed sufficiently marked down to be able to avoid both price uncertainty and the potential that by setting too low of a price, further capital inadequacy issues would be exacerbated. These were the core problems of the first TARP program.

Ring fencing

This approach has two attractions. First, it avoids having to deal with the pricing issue. This is important for loans with no ready price an"

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Double-whammy for Treasury?

MiamiHerald.com: "After the Treasury buys up their bad debts, businesses could write off the debt as a loss -- and pay less in taxes to the Treasury as a result. Banks and other financial institutions can conceivably write off billions of dollars in losses after they sell bad mortgage assets to the government.

The bailout measure allows as much as $700 billion of taxpayer money to be used by the Treasury Department to buy up distressed mortgage-backed securities. Those securities are now dead weight on banks' balance sheets, smothering their ability to lend to each other, businesses and consumers. If a company ends up selling its securities at a loss to the government, the amount of the loss may be applied toward a deduction on their corporate taxes -- meaning that in addition to the $700 billion, the U.S. Treasury may also see less money coming back in corporate taxes as a result of its own program."

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