Date Presented

Spring 3-2011

Document Type

Thesis

Degree Name

Bachelor of Science

Department

Accountancy

First Advisor

Dr. David Murphy

Second Advisor

Dr. Katherine Gray

Third Advisor

Dr. Lee Schimmoeller

Abstract

The crash of the housing market caused risky home loans and mortgage backed securities to be worth almost nothing; this not only drastically decreased national banks’ net income but also devastated the United States’ economy. The United States Treasury Department believes that they have found a $700 billion solution to the United States’ financial crisis. The Public- Private Investment Program (P-PIP), which is a part of the Troubled Asset Relief Program (TARP), plans on clearing toxic assets from national banks’ balance sheets through auctions. Two main concerns that affect the end results of this auction is how to motivate banks and investors to participate, and how to valuate assets and liabilities. With current valuation accounting standards, bad assets’ value would be significantly lowered, causing banks to report large losses and may even force banks into bankruptcy. The goal of this paper is to evaluate valuation mechanisms that distribute the risk and returns fairly to the banks and taxpayers.

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