The US plan to create a $700bn financial rescue fund encountered widespread discontent in Congress on Tuesday as Ben Bernanke suggested the government should buy toxic mortgage assets at more than their current distressed prices. The Fed chairman said there would be “substantial benefits” for all if the Treasury buys assets at a price “close to the hold-to-maturity price” rather than current “firesale” price. Banks would be able to mark their portfolios to the new higher prices rather than firesale prices, while taxpayers would still be reasonably safe as the government would pay less than the cash flow value of the securities. In effect, Bernanke argued there could be a win-win solution for both taxpayers and banks. But his pitch was overshadowed by doubts about the $700bn plan, despite warnings from Bernanke and Treasury secretary Hank Paulson that failure to pass the bill could have disastrous consequences. The FT’s Martin Wolf says the plan as it stands is a costly and ineffective way of meeting today’s crucial challenge, while Lex is more sanguine and asks whether politicians are needlessly meddling.

This entry was posted by Gwen Robinson on Wednesday, September 24th, 2008 at 5:40 and is filed under Capital markets, People. Tagged with ben bernanke, hank paulson. Edit this entry.