Friday, January 16, 2009

How Do You Get Bad Assets Off The Books?


Joe Terranova thinks an exchange should be created to sell toxic assets like credit default swaps. He postulates that the government can take these assets off the books of banks and then sell them for pennies on the dollar. This would alleviate the "capital crisis".

My guess is that much of this stuff is worthless. Nothing more than "phony baloney" paper. The real point here is how long is it going to take banks to work off this crap without destroying themselves. It is a ticking time bomb.

How Do You Get Bad Assets Off The Books?



Fast Money trader Joe Terranova doesn’t see the market turning a corner until banks get bad assets off their books. And he has a plan!

As you might know we call Terranova the Liquidator because he has extensive experience selling off assets that few people want.

He tells us that the market for assets currently on the balance sheets of major banks probably isn't coming back anytime soon. That’s because the toxic assets are tied to real estate woes which will probably get worse before they get better.

We’re talking about things like credit default swaps and mortgage backed securities. “It’s not a liquidity crisis it’s a capital crisis,” he says.

So what do you do with the toxic assets?

“The Fed and Treasury need take the bad positions out of banks' hands,” says Terranova.

But he also thinks they can be sold. “Mark this stuff to pennies on the dollar and at that level you could find a buyer.”

And the way to find those buyers is to list these highly distressed assets on an open exchange. “Give me a marketplace and buyers will step up,” he demands.

Jeff Macke doesn't agree. He thinks you can create a marketplace and in turn transparency but that won't change a thing. “A transparent autopsy is still pretty grim,” bristles Jeff Macke. “The reason you can’t get transparency is because it’s hideous to see.”

“But at least you’d know who’s dead,” concludes Dylan Ratigan.

Intrigued? Want to know more? Watch the video now!



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Trader disclosure: On Jan. 15th, 2008, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Macke Owns (APPL), (TM), (MCD), (DIS); Seymour Owns (AAPL), (BAC), (EEM), (F), (INFY), (TSO); Najarian Owns (MSFT); Najarian Own (NVDA) Calls, (XME) Calls, (XLF) Calls; Najarian Owns (CSCO) & (CSCO) Short Calls; Najarian Owns (FCX) Stock & (FCS) Short Calls; Najarian Owns (HSBC) Put Spread; Najarian Owns (PALM) Call Spread; Najarian Owns (XLB) Call Spread; Finerman's Firm Owns (DSX); Finerman's Firm Is Short (VNO), (IYR), (IJR), (IWM), (MDY), (SPY), (USO), (ANF); Finerman's Firm Owns (MSFT) & Put Spreads; Finerman's Firm Owns (DNA) & Call Spreads

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