German Bad Bank Plan: Government Should Take Over Toxic Assets at Zero Cost

With Germany's banking sector still suffering from the effects of the financial crisis, public discussion of plans to place toxic assets in one or more bad banks has gained steam in recent weeks. The following paper presents a bad bank plan from the German Institute for Economic Research. The key element of the plan is the valuation of troubled assets at their current market value - assets with no market would thus be valued at zero. The current shareholders will cover the losses arising from the depreciation reserve in the amount of the difference of the toxic assets' current book value and their market value. Under the plan, the government would bear responsibility for the management and future resale of toxic assets at its own cost and recapitalize the good bank by taking an equity stake in it. In extreme cases, this would mean a takeover of the bank by the government. The risk to taxpayers from this investment would be acceptable, however, once the banks are freed from toxic assets. A clear emphasis that the government stake is temporary would also be necessary. The government would cover the bad bank's losses, while profits would be distributed to the distressed bank's current shareholders. The plan is viable independent of whether the government decides to have one centralized bad bank or to establish a separate bad bank for each systemically relevant banking institute. Under the terms of the plan, bad banks and nationalization are not alternatives but rather two sides of the same coin. This plan effectively addresses three key challenges. It provides for the transparent removal of toxic assets and gives the banks a fresh start. At the same time, it offers the chance to keep the cost to taxpayers low. In addition, the risk of moral hazard is curtailed.Financial crisis, Bad bank, Recapitalization

Bad Bank(s) and Recapitalization of the Banking Sector

With banking sectors worldwide still suffering from the effects of the financial crisis, public discussion of plans to place toxic assets in one or more bad banks has gained steam in recent weeks. The following paper presents a plan how governments can efficiently relieve ailing banks from toxic assets by transferring these assets into a publicly sponsored work-out unit, a so-called bad bank. The key element of the plan is the valuation of troubled assets at their current market value - assets with no market would thus be valued at zero. The current shareholders will cover the losses arising from the depreciation reserve in the amount of the difference of the toxic assets' current book value and their market value. Under the plan, the government would bear responsibility for the management and future resale of toxic assets at its own cost and recapitalize the good bank by taking an equity stake in it. In extreme cases, this would mean a takeover of the bank by the government. The risk to taxpayers from this investment would be acceptable, however, once the banks are freed from toxic assets. A clear emphasis that the government stake is temporary would also be necessary. The government would cover the bad bank's losses, while profits would be distributed to the distressed bank's current shareholders. The plan is viable independent of whether the government decides to have one centralized bad bank or to establish a separate bad bank for each systemically relevant banking institute. Under the terms of the plan, bad banks and nationalization are not alternatives but rather two sides of the same coin. This plan effectively addresses three key challenges. It provides for the transparent removal of toxic assets and gives the banks a fresh start. At the same time, it offers the chance to keep the cost to taxpayers low. In addition, the risk of moral hazard is curtailed. The comparison of the proposed design with the bad bank plan of the German government reveals some shortcomings of the latter plan that may threaten the achievement of these key issues.Financial crisis, financial regulation, toxic assets, Bad Bank

Meson Masses in High Density QCD

The low-energy effective theories for the two- and three-flavor color-superconductors arising in the high density limit of QCD are discussed. Using an effective field theory to describe quarks near the fermi surface, we compute the masses of the pseudo-Goldstone bosons that dominate the low-momentum dynamics of these systems.Comment: 13 pages, 3 figures, late

Bad Bank(s) and Recapitalization of the Banking Sector

With banking sectors worldwide still suffering from the effects of the financial crisis, public discussion of plans to place toxic assets in one or more bad banks has gained steam in recent weeks. The following paper presents a plan how governments can efficiently relieve ailing banks from toxic assets by transferring these assets into a publicly sponsored work-out unit, a so-called bad bank. The key element of the plan is the valuation of troubled assets at their current market value – assets with no market would thus be valued at zero. The current shareholders will cover the losses arising from the depreciation reserve in the amount of the difference of the toxic assets’ current book value and their market value. Under the plan, the government would bear responsibility for the management and future resale of toxic assets at its own cost and recapitalize the good bank by taking an equity stake in it. In extreme cases, this would mean a takeover of the bank by the government. The risk to taxpayers from this investment would be acceptable, however, once the banks are freed from toxic assets. A clear emphasis that the government stake is temporary would also be necessary. The government would cover the bad bank’s losses, while profits would be distributed to the distressed bank’s current shareholders. The plan is viable independent of whether the government decides to have one centralized bad bank or to establish a separate bad bank for each systemically relevant banking institute. Under the terms of the plan, bad banks and nationalization are not alternatives but rather two sides of the same coin. This plan effectively addresses three key challenges. It provides for the transparent removal of toxic assets and gives the banks a fresh start. At the same time, it offers the chance to keep the cost to taxpayers low. In addition, the risk of moral hazard is curtailed. The comparison of the proposed design with the bad bank plan of the German government reveals some shortcomings of the latter plan that may threaten the achievement of these key issues.financial crisis, financial regulation, toxic assets, bad bank

The Anderson impurity model with a narrow-band host: from orbital physics to the Kondo effect

A particle-hole symmetric Anderson impurity model with a metallic host of narrow bandwidth is studied within the framework of the local moment approach. The resultant single-particle spectra are compared to unrestricted Hartree-Fock, second order perturbation theory about the noninteracting limit, and Lanczos spectra by Hofstetter and Kehrein. Rather accurate analytical results explain the spectral evolution over almost the entire range of interactions. These encompass, in particular, a rationale for the four-peak structure observed in the low-energy sector of the Lanczos spectra in the moderate-coupling regime. In weak coupling, the spectral evolution is governed by orbital effects, while in the strong coupling Kondo limit, the model is shown to connect smoothly to the generic Anderson impurity with a flat and infinitely wide hybridization band.Comment: 17 pages, 7 figure

Biglycan : a multivalent proteoglycan providing structure and signals

Research over the past few years has provided fascinating results indicating that biglycan, besides being a ubiquitous structural component of the extracellular matrix (ECM), may act as a signaling molecule. Proteolytically released from the ECM, biglycan acts as a danger signal signifying tissue stress or injury. As a ligand of innate immunity receptors and activator of the inflammasome, biglycan stimulates multifunctional proinflammatory signaling linking the innate to the adaptive immune response. By clustering several types of receptors on the cell surface and orchestrating their downstream signaling events, biglycan is capable to autonomously trigger sterile inflammation and to potentiate the inflammatory response to microbial invasion. Besides operating in a broad biological context, biglycan also displays tissue-specific affinities to certain receptors and structural components, thereby playing a crucial role in bone formation, muscle integrity, and synapse stability at the neuromuscular junction. This review attempts to provide a concise summary of recent data regarding the involvement of biglycan in the regulation of inflammation and the musculoskeletal system, pointing out both a signaling and a structural role for this proteoglycan. The potential of biglycan as a novel therapeutic target or agent for the treatment of inflammatory diseases and skeletal muscular dystrophies is also addressed