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Today the government released information detailing what it plans to do to buy into banks’ troubled assets.

Banks really needed to get rid of the troubled assets to go forward with lending but here’s what was keeping them held up:

Risk-taking institutional investors, like hedge funds and private equity funds, have refused to pay more than about 30 cents on the dollar for many bundles of mortgages, even if most of the borrowers are still current. But banks holding those mortgages, not wanting to book huge losses on their holdings, have often refused to sell for less than 60 cents on the dollar.

The result has been a paralyzing impasse. Banks, unwilling to sell their loans at fire-sale prices, have had less capital available to make new loans. Mortgage investors, unable to leverage their investments with borrowed money, have been unwilling to pay more than fire-sale prices.

The S&P jumped over 7% today on the news. Hopefully this measure will help out the banks and they actually will start lending again.

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Jeremy

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