Geithner's Vague Bad Bank Plan Aggravates Credit Crunch: Analysis

03/15/2009 05:12 am ET | Updated May 25, 2011

WASHINGTON (Reuters) - Global credit markets are unlikely to revive as long as the U.S. government continues to dangle the vague prospect of a toxic asset purchase plan in front of distressed banks, some lawmakers warned on Wednesday.

The chance that taxpayers could be made to overpay for underperforming assets is making bankers, whose balance sheets are saddled with them, reluctant to sell to lower bidders, suggested Texas Republican Rep. Randy Neugebauer.

"People are afraid to buy and afraid to sell because they're afraid the government is going to sweeten the deal," he told Reuters in an interview. "The markets are just waiting to see when we're going to be done."

Uncertainty about the government's strategy for toxic assets props up their value above what private investors might pay for them and delays potential resolution of the problems they pose, said California Democratic Rep. Brad Sherman.

"As long as there's the prospect the federal government will overpay for the toxic assets ... these banks would be insane to sell" in the private market, Sherman told Reuters.

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