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Financial Rescue Turns to Toxic Assets

New Funds to Vie for the Securities, Setting A Market Price So Banks Could Sell Them

By David Cho and Neil Irwin

Washington Post Staff Writers

Wednesday, March 4, 2009; D01

The Obama administration is aiming to solve one of the toughest riddles at the heart of the financial crisis -- how to value the toxic assets weighing down the books of banks -- by setting up several funds to vie for these securities, sources familiar with the plans said yesterday. By competing to buy assets, the funds could set a market price that would finally allow banks to sell them off.

. . . Federal officials in the Bush and Obama administrations have struggled for months to find a way to price these distressed assets, which are backed by troubled mortgages and other loans, that is high enough to help banks but low enough to protect the government from massive losses. Establishing several funds, run by private managers, would take that vexing problem out of the government's ha…