The problem with the so-called toxic assets is not the gap between bank valuations for those assets and their market price. The problem is the toxicity itself. They lost value, in some sense are actually worthless, because of that toxicity. That is not a function of investor confidence, but rather of their organic composition and design. That cancer will not go away simply by artificially inflating their market price through subsidization. That just means that we eat the cancerous bits, instead of banks having to cut them out and eat the losses.
Theassets must be unwound, the toxicity surgically removed, and the clean, new, transparent security re-rated and re-sold, if possible. BlackRock has apparently devised a software program to facilitate this process. Geithner has already engaged them, with the promise of huge government fees, in his effort to entice investors and jumstart the credit derivatives market. This activity is being done secretively because it exposes that the problem is not one of confidence, but rather one of systemic design and behavior. Credit derivatives will result in cancer if traded over the counter with no oversight or controls. The incentive to deceive is too great.
Now, I say re-rated and re-sold, if possible, because the economy is in crisis. No one can predict how long or how deep this global recession will be. The assets became toxic because they were derived from bundles of assets that are not performing. The uncertainty of that performance remains and, in some regards, is deepening. Hence, the elevated risk, and the crash in price. Until and unless there is systemic reform, only a fool would invest in those derivatives with an eye towards anything other than a quick buck. I see no indication that Geithner and Obama have any intention to implement systemic reform.
They are simply trying desperately to pull a snow-job on everyone and shove the problem down the road. It's quite despicable and beneath contempt.