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Ted D. Bear

Is The Treasury Now The World's Bad Bank?

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Maybe there aren't enough details out there about Broon's debt underwriting plan to answer this, but if there's anyone here whose looking at the small print can they reassure me that the following can't happen:

1. Say the Treasury underwriting plan will return 75% the value of a bad debt in event of default.

2. Say a US (for sake of argument) bank has a bad debt for (say) $100million that it expects to be completely written off.

3. A UK bank buys the bad debt for (say) 10million - the US bank gets $10 million it wasn't expecting, bonuses all round etc.

4. UK bank insures the debt with the Treasury

5. The loan defaults

6. Treasury coughs up $75 million

7. UK bank pockets the net $60 million

8. Taxpayer on the hook for $75 million

In short, has the Treasury just agreed to underwrite any and all dodgy loans in the world?


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I expect that there will be some restrictions... the question is whether any such restrictions will amount to protectionism. FWIW - the US had similar worries with the TARP.

You'd hope that there is a degree of discretionary decision making in accepting the loans.... by somebody with a little common sense.....er... but .... then again :rolleyes::rolleyes:

Edited by deaglecat

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