"Bad Bank" Plan Threatened over Lack of Details

The plan outlined by Treasury Secretary Timothy Geithner for the government to buy up toxic assets via a “bad bank” has been drawing hostile fire from a number of sources, including the investors needed to make the plan work. Private-equity firms, pension funds and other investors needed to jump-start the government's plans to buy toxic assets from banks have expressed frustration over the lack of detail included in the Treasury Secretary’s plan. These parties would need to be on board for the plan to succeed as they would be the groups investing in the toxic assets.

Though specific details remain scarce, it is believed that the plan being considered by the Treasury Department would ask the U.S. government and private investors to put up equal amounts of capital in the creation of the “bad bank.” The Federal Reserve would then lend to the investment fund, allowing it to sharply increase its buying power. Any profits would be divided between taxpayers and investors.

Those on the investment side, however, are concerned that not enough information has been presented. Major private-equity funds are rumored to be interested in the plan, but would prefer more details, including how the government will create financial backstops to safeguard the entire process.

If private investors do not receive the information and government assurances they need, then it’s likely the Treasury Department’s plan may never see the light of day.

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