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US treasury plan: Geithner’s plan lacks legs

Timothy Geithner’s proposals for hedge funds and private equity funds to buy the mortgage-backed assets that clog financial institutions’ books have not been met with the enthusiasm the US government might have wished for.

In February, the Treasury secretary said: "By providing the financing that the private markets cannot now provide, this will help start a market for the real estate-related assets that are at the centre of this crisis. Our objective is to use private capital and private asset managers to help provide a market mechanism for valuing the assets."

Industry participants are somewhat bemused by the vague plan. David Beim, a professor at Columbia Business School, says: "It sounds like Geithner intends to set up a new entity with joint ownership of government and the private sector to buy up these bad assets but I’m not sure why private investors would want to buy into that. The goal seems to be a government purpose and not a profit-seeking purpose and that is unlikely to attract interest. It would be better to let the private sector own the assets and support that ownership with insurance or leverage. Without that support it will be hard to get investors to commit."

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