< Back to JVM's Blog

Stocks Soar Upon News of Toxic Asset Disposal

Lenders overall remain surprisingly reluctant to hire more staff to meet the temporary surge in demand brought on by the recent reduction in rates and the surge in home-buying demand.

Rates are holding steady, as the Fed continues its willingness to be the dominant buyer of mortgage backed securities. Rates could possibly drop further if major investors show interest in buying up mortgage backed securities, but so far this year we have seen little investor interest.

The Dow Jones Index rose almost 500 points yesterday, the fifth largest one-day gain in history, and the largest one day gain since November. The enthusiasm was fostered by the Treasury Department finally outlining the details of their plan for disposing of all the toxic assets on bank and financial institution balance sheets. It is believed that these bad assets (non-performing and under-collateralized loans, and the securities they back) are clogging up the financial system and preventing banks from doing the lending necessary to get the economy moving.

The Treasury’s Plan involves the set-up of an entity much like the “RTC” that was put in place after the S&L crisis of the 1980s. The Treasury plans to work with the FDIC to remove bad assets (loans and mortgage backed securities) from the balance sheets of financial institutions. The Treasury intends to auction off these assets to private investors. They intend to allure private investors by both putting up some of the purchase-money and by guaranteeing some of the financing that can be used to buy the assets at auction. This is a potentially a very good deal for both investors and the banks and it has drawn a lot of criticism from major economists. The stock market was encouraged both by the concrete details of the plan (because it removes a lot of uncertainty) and by how favorable the plan is for some of the major banks.

Call Jay Voorhees at (925) 855-4491

Real Estate Broker, CA Bureau of Real Estate, BRE# 01524255, NMLS# 335646