'Bad Bank' for Toxic Assets Among Feds' TARP Options

Paulson, Bair show support creating federally sponsored institution
By Nick McMaster,  Newser Staff
Posted Jan 16, 2009 2:12 PM CST
In this Nov. 24, 2008, file photo, President George W. Bush talks with Treasury Secretary Henry Paulson outside the Treasury Department in Washington.   (AP Photo)
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(Newser) – Support is growing for the latest proposed use of bailout funds: a federally sponsored “bad bank” to purchase toxic assets from troubled financial institutions, Bloomberg reports. “A lot of work has been done on an aggregator bank,” Treasury Secretary Henry Paulson said today; FDIC chief Sheila Bair recently said the idea has “merit.”

The new strategy brings the Troubled Asset Relief Program full circle to its originally stated purpose: buying securities soured by the credit crisis to restore health to banks’ balance sheets. The bad bank could be a primary use of the additional $350 billion in TARP funds requested by President-elect Obama and approved yesterday by the Senate.