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The Obama administration's long-awaited proposal to remove so-called "toxic" mortgage-backed assets from U.S. banks was finally unveiled on March 23. According to details of the plan, the government will form public-private partnerships to buy up the assets, putting up $7 in cash and $86 in government loans for every $7 spent by private capital pools like hedge funds. The expectation is that, once the markets begin to rise and these mortgaged-backed assets recover their value, both taxpayers and private investors stand to gain. Should the assets lose further value, of course, both investors and taxpayers will be on the hook--mainly taxpayers.
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The federal government will tap the Troubled Asset Relief Program for up to $100 billion, and rely on private investments, the FDIC, and (of course) the Federal Reserve for a total of $500 billion. However, ...