Tuesday, March 24, 2009

US Treasury Unveils Legacy Asset Program

This is yet another one of the ways the US is trying to help the economy recover.

A short explanation on how it works :

The US government is forming a public-private funds in order to help buy into all the troubled assets. On one hand, the government reduces its risk in buying the risky assets, while on the other hand, they also prevent private investors from potentially making a big profit. ( some people worry that private investors might be able to find VERY VERY good deals and hence make too much $$ out of it..)

This in turn will help to free up their assets that the banks are holding which cannot be sold off, because with the government sharing the risk, people might be more confident to buying the risky assets. Leading to banks having more confident to lend money to companies ( as they now hold more liquidity) and in turn boost the economy.

Problems that I feel might occur:

  1. This fund is managed by the private fund mangers! Which means that something sneaky might go on, or that they might do things for their best interest.
  2. Also this does not solve the problem that the assets are still 'troubled'. I mean even though the risks might be reduced, it does not mean people will make crazy decisions of buying lousy assets.
  3. If such funds happens to fail (due to buying of wrong assets), it will lead to a greater impact on the weak economy. Hence prolonging the crisis.

1 comment:


Where in the world is all this QE stuff going.