Title: Slicing the toxic pizza, an analysis of FDIC's Legacy Loans Program for receivership assets

Authors: Linus Wilson

Addresses: Department of Economics and Finance, B. I. Moody III College of Business, University of Louisiana at Lafayette, 214 Hebrard Boulevard, Moody Hall 253, P.O. Box 44570, Lafayette, LA 70504-4570, USA

Abstract: The Legacy Loans Program (LLP) is an elaborate way of slicing the Federal Deposit Insurance Corporation|s (FDIC|s) receivership assets. At best, the financial structure is irrelevant to the FDIC|s expected long-run recovery rates. Yet, it may boost short-term prices by creating bond insurance liabilities that will come due several years down the road. If the private investor can increase the value of the toxic loans through non-contractible investments, then the public equity stake and subsidised leverage may hinder the FDIC from obtaining the best recovery rates from these troubled loan portfolios.

Keywords: banks; FDIC; federal deposit insurance corporation; LLP; legacy loans program; loans; mortgage securities; PPIP; public-private investment partnership; real estate; receivership assets; TARP; toxic assets; recovery rates; USA; United States.

DOI: 10.1504/IJMEF.2010.033459

International Journal of Monetary Economics and Finance, 2010 Vol.3 No.3, pp.300 - 309

Published online: 02 Jun 2010 *

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