As the House Defeats $700B Financial Industry Bailout, Banks Will Turn to Private Equity Funds

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228-205 vote to reject the $700 billion bill leaves financial institutions with very few options to stay afloat. Now the last resort for banks will have to be private venture capital. Peak Capital Group,LLC, (http://www.peakcapgroup.com) an Investment Fund Joint Venture, had announced last week they had won the bid for the purchase of a large pool of distress notes from one of the recent failing banks.

They actively approach private funds to turn their bad assets into cash and create the liquidity required by their regulators. It is not a matter of choice but a survival mode. In the absence of government support, private funds with the right resources, infrastructure, and financial expertise will absorb at least part of the debt acquisitions so urgently needed to save the economy.

228-205 vote to reject the $700 billion bill leaves financial institutions with very few options to stay afloat. Now the last resort for banks will have to be private venture capital.

Last Monday, The House defeated the $700 billion emergency rescue plan for the nation's financial system. The vote came in spite of dire warnings from President Bush, congressional leaders of both parties and business leaders that the economy could collapse into recession without it. Even both presidential candidates influenced their members to vote for the bailout. Wall Street responded with a nosedive on word of the defeat of the plan.

The bill promoted by the administration would have allowed the government to buy bad mortgages and other distressed assets held by troubled banks and financial institutions. As a result of the real estate market crisis, many of these entities are practically financially up-side-down. Experts believed the bill could turn those companies' balance sheets from red to black, allowing them to lend again in one of the worst credit crisis ever experienced.

As the bill failed in The House, financial institutions will have no other choice but to turn to the private sector. Selling distressed asset portfolios at a discount to private funds might be the lifesaver to maximize their recovery.

Peak Capital Group,LLC, (http://www.peakcapgroup.com) an Investment Fund Joint Venture, had announced last week they had won the bid for the purchase of a large pool of distress notes from one of the recent failing banks. Backed by $12B of capital, Peak Capital Group is a leading principal buyer of distressed mortgage loan portfolios. Gil Priel, the managing director of the fund, believes that private funds will become major players in slowing the financial crisis.

"Banks and Financial institutions are fighting for their existence." says Priel, "They actively approach private funds to turn their bad assets into cash and create the liquidity required by their regulators. It is not a matter of choice but a survival mode. In the absence of government support, private funds with the right resources, infrastructure, and financial expertise will absorb at least part of the debt acquisitions so urgently needed to save the economy."

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Shoham Nicolet
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