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Geithner Bad Bank Alternative May Rely on Loans to Hedge Funds

Bloomberg – Treasury Secretary Timothy Geithner’s financial-rescue plan may be doomed if he doesn’t offer low-cost loans to hedge funds and other investors to help them buy toxic assets weighing down bank balance sheets.

Creating a “bad bank” or “aggregator bank” that would use federal funds to acquire and warehouse the assets, as some have proposed, would be costly for taxpayers and require too much government interference, say two experts on distressed securities who have pitched an alternative plan to officials.

John Ryding, chief economist at RDQ Economics LLC in New York, and Matt Chasin, chief operating officer of Sorin Capital Management LLC, a Stamford, Connecticut-based hedge fund that manages about $1 billion, say the Treasury Department should provide loans at commercial rates to investors for up to 50 percent of the purchase price of securities. The financing would be for as long as the maturities of the assets being acquired.

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