A binomial model of Geithner's toxic asset plan
This paper formally models the Public-Private Investment Partnership (PPIP), a plan for U.S. government sponsored purchases of distressed assets. This paper solves both the problem of the asset manager buying toxic assets and the banks selling toxic assets. It solves for the fair market value of toxic assets implied by subsidized toxic asset sales, and it estimates the size of the government's subsidy. Moreover, this paper finds the circumstances under which banks and asset managers will meet at mutually acceptable prices. In general, healthier banks will be more willing sellers of toxic assets than zombies.
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- Linus Wilson, 2011. "Troubling Research on Troubled Assets: Charles Zheng on the U.S. Toxic Asset Auction Plan," Econ Journal Watch, Econ Journal Watch, vol. 8(1), pages 33-38, January.
- Robert C. Merton, 1973. "Theory of Rational Option Pricing," Bell Journal of Economics, The RAND Corporation, vol. 4(1), pages 141-183, Spring.
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