Gretchen Morgenson has an interesting detail in her column today:
What’s more, banks’ costs for working out bad loans — whether mortgages or credit card debt — are rising, Mr. Whalen said. In previous downturns, for example, investors would step up and buy bad credit card debt from banks. Yes, the prices they paid were discounted, but at least the banks could write off the loans and move on.
Now, though, buyers for these hobbled portfolios are so rare, and the prices they will pay so low, that banks are hiring their own workout specialists to recover what they can from troubled borrowers. That costs.
I'd guess the problem is less that banks can't find buyers (there are always buyers if the price is low enough) than that they don't want to book the losses they'd have to book if they sold the debt. If your balance sheet is already pretty weak, the last thing you want is more big losses. It's the same reason a lot of banks will be reluctant to sell their "toxic" mortgages and mortgage-backed securities under the Geithner plan, I think. (Hopefully Treasury can bring a little pressure to bear there...)