A binomial model of Geithner's toxic asset plan |
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Authors: | Linus Wilson |
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Affiliation: | University of Louisiana at Lafayette, Department of Economics & Finance, B.I. Moody III College of Business Administration, P.O. Box 44570, 214 Hebrard Boulevard, Lafayette, LA 70504-4570, United States |
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Abstract: | This paper formally models the Public-Private Investment Partnership (PPIP), a plan for U.S. government sponsored purchases of distressed assets. This paper solves both the problem of the asset manager buying toxic assets and the banks selling toxic assets. It solves for the fair market value of toxic assets implied by subsidized toxic asset sales, and it estimates the size of the government's subsidy. Moreover, this paper finds the circumstances under which banks and asset managers will meet at mutually acceptable prices. In general, healthier banks will be more willing sellers of toxic assets than zombies. |
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Keywords: | G12 G13 G18 G21 G28 G38 |
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