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Distressed-Asset Buyers Biding Their Time

The government bought $350 billion worth of bank equity pretty quickly, but its effort to convince others to shell out big bucks for so-called toxic assets might take a lot more time.

In light of the ever-changing bailout proposals, and the lack of agreement on fair pricing for the troubled assets, some distressed-asset investors say they intend to remain on the sidelines, at least for the time being.

"Banks are still at the same place as before: 'At what price do these get purchased?'" says Kjerstin Hatch, a portfolio manager at distressed-debt investor Madison Capital Management. "We're absolutely waiting to see how this is eventually structured, and whether it fits the risk-return profiles. They're difficult assets to value, difficult assets to manage, difficult assets to price."

The dislocation in the distressed-debt markets is steep and its potential solutions can be summed up with the unanswerable riddle of, "What comes first, the chicken or the egg?"

The market dislocation has spawned fantastically profitable opportunities in the debt markets for some. John Jacquemin, founder of the Mooring Intrepid Opportunity Fund, notes that "there is no dearth of distressed debt buyers," and "plenty of hedge fund and distressed debt fund money ready and willing to buy this debt."

However, while banks are being weighed down by bad assets, they refuse to sell them at the fire-sale prices offered. Instead, they've been hoping that Uncle Sam will purchase the debt at higher prices or that the market will eventually rebound.

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