‘Toxic assets’ weren’t so toxic

WASHINGTON -- The bundles of bad home mortgages that panicked the Bush and Obama administrations have turned out to be not so toxic for the financial industry after all.

After assembling $700 billion to deal with the problem, the government is devoting a relatively modest $30 billion to buy troubled mortgage-backed securities. With that on the back burner, the big threat to the economy is now believed to be troubled credit-card, commercial real estate and commercial industrial debt.

These bad loans, made worse by the severity of the recession, could be responsible for two-thirds of banks' losses.

"The commercial real estate time bomb is ticking," Rep. Carolyn B. Maloney, D-N.Y., said yesterday.

On that front, the administration is still looking for a solution. A "legacy loan" purchase plan by the Federal Deposit Insurance Corp. announced in March has fizzled.

At the end of the first quarter of this year, banks held about $1.8 trillion in commercial real estate loans. About 7 percent of those loans were considered delinquent, almost twice the level of a year earlier, Jon D. Greenlee, the Federal Reserve's associate director for banking supervision and regulation, told Congress yesterday.

It's hard to imagine today the dread with which Wall Street and top government officials viewed the mortgage-backed assets that banks were carrying last September. Lawmakers were told that these securities had so been so devalued that they had pushed the entire economy to the edge of a precipice. Congress moved swiftly to pass the $700 billion Troubled Asset Relief Program.

As initially planned, the program would have bought, managed and sold these toxic assets to allow banks to recapitalize and free up more lending. But the Treasury Department soon found that it was nearly impossible to assign a price. Instead, the Bush administration and later the Obama administration reassembled TARP into about a dozen programs.

The government now is making large, direct infusions into hundreds of financial institutions, and helping lenders modify mortgages. The government also is using loans and other subsidies to prop up large firms including banks, automakers and an insurance company.