Of course, there is no shortage of toxic financial assets. They are clogging the financial system and putting incredible pressure on global banks.

Typically, such things get bought up. But, with little visibility and the complexity of modern financial instruments, it's been tough to attract bottom-fishers into the market.

Yet, according to U.S. Treasury Secretary Timothy Geithner, it's important that private operators swoop in.

Lost amidst all of the talk about bank nationalization, capital ratios and executive jets is any discussion about how the free market can help stabilize the faltering banking system. That's until Treasury Secretary Timothy Geithner mentioned it today.

What people forget is that the Troubled Asset Relief Program is supposed to be temporary. Yes, I know $700 billion seems permanent, but it's not. Banks are supposed to pay the government back with interest once the economy improves and their toxic assets become something people want. The only way that this is going to happen is with private money.

Despite the recession and surging unemployment, there are actually some signs that the real estate market is perking up. True, this may be a statistical quirk – but it's encouraging.

But, there is one savvy investor who sees opportunity: Wilbur Ross. He's the financial backer of Home Mortgage Servicing Inc., which is now the #2 mortgage servicing company to third parties.

And, he's boosting things even more. That is, Ross has agreed to pay $1.5 billion for Citigroup's (NYSE: C) servicing rights on 185,000 home loans (these are mostly subprime and "Alt-A" loans). In all, these loans have a face value of about $37 billion.

The latest trend among pundits who want to look like they know what they're talking about is to assert boldly that the Fed's $700 billion purchase of dodgy mortgage assets no one understands or wants poses no risk to taxpayers and will surely make us money!

In an op-ed piece (subscription required) for The Wall Street Journal, Andy Kessler asserts that "My analysis suggests that Treasury Secretary Henry Paulson (a former investment banker, no less, not a trader) may pull off the mother of all trades, which could net a trillion dollars and maybe as much as $2.2 trillion -- yes, with a "t" -- for the United States Treasury."

I don't understand why, if that's true, Warren Buffett, George Soros, Wilbur Ross and Carlos Slim aren't diving in to make a bailout unnecessary. Warren's a nice guy, but I don't think he's passing on all those profits to taxpayers out of the goodness of his heart. Take the hint: taxpayers are not going to get rich paying artificially high prices for assets that the best investors in the world won't touch with a ten-foot pole.

Another thing to remember: we're buying the $700 billion in crap securities on the margin. We're borrowing the money because our federal government doesn't have enough cash to bail out a Subway franchisee without hitting up the debt markets. So any calculation about what kind of return we'll earn needs to include the hundreds of billions of dollars in interest we'll be paying for the privilege of buying those assets.

Wilbur Ross, the world's most famous buyer of bankrupt companies, who is a sage in his own right, attacked the government''s bank bailout plan. Like Warren Buffett and George Soros, the media hangs on his comments. He has made a billion dollar fortune and is, therefore, considered smarter than most people, whether that is true of not.

Ross has a simple message. Savings banks will do nothing if mortgage-holders are not saved in the process. If the mortgage mess gets worse, banks will continue to have trouble over time, even if the Treasury does put $700 billion into the market.

Ross's comment was straight-forward. He told Reuters that "none of the recent actions to stabilize the financial system addressed the root of the problem -- helping Americans make their mortgage payments."

So, why is the government attacking the crisis from the wrong end of the system? The answer probably is that it is easier to save a small number of banks than it is to salvage hundreds of thousand of mortgages. Renegotiating all of those loans, resetting interest rates, and keeping some homes from foreclosure is simply too difficult a task. Many members of Congress do not view it that way. They want mortgage assistance programs added to the bailout bill.

Not matter what the level of challenge, the federal government has to give banks direct incentives to help the mortgage holder. Nothing can save the economy if hundreds of thousands of more home loans go into default. At that point, the real estate market could collapse and not recover for years.

The $700 billion rescue package would only be a drop in the bucket.

Douglas A. McIntyre is an editor at 247wallst.com.

Wilbur Ross knows how to spot megatrends. For example, he built a steel empire – by purchasing bankrupt companies – and made billions. Oh, and he also predicted the current credit crisis.

Well, today Ross was on CNBC and provided some sage advice on the current economic morass. In fact, he discussed his straightforward plan on dealing with the credit crunch (which has been effect for about a year so far).



His proposal is called the "good bank, bad bank" approach. Essentially, it means setting up a third-party entity to take bad loans from Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE). Interesting enough, this was the strategy to deal with the S&L implosion during the early 1990s. And, for the most part, it worked.

According to Ross, the US financial system needs to focus on the good loans – which should stabilize things and lead to more lending. Ultimately, this should spark economic growth and get things back on track again.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements. He also operates MergerBook.com.

Assured Guaranty (NYSE: AGO) is recently down $8.77 to $9.95. Moody's said it placed AGO debt under review for possible downgrade. AGO has a triple-A-rated credit rating.

Wilbur Ross announced on Feb. 29 the agreement to invest $1 billion in AGO, a Bermuda-based holding company that provides credit enhancement products. AGO August option implied volatility of 195 is above its 26-week average of 69 according to Track Data, suggesting larger price movement.

Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com.

Wilbur Ross has made billions by finding opportunities in distressed industries such as steel and mortgages.

So, what's his next target? Well, he has invested $80.4 million in SpiceJet Ltd., a discount carrier in India. The investment dollars come from Ross's fund, WL Ross & Co.

As should be no surprise, SpiceJet is losing money as it deals with high oil prices and heavy competition. Plus, in order to continue growing, the company has a voracious need for capital to take on new planes.

For Ross, this deal is definitely small. But, at the same time, it does reveal some of his thinking.

Think the credit crisis is a bad thing? Well, Wilbur Ross doesn't. He's a maestro restructuring expert – having decades of experience on highly complex deals. In fact, he was prescient with key roll-ups in sectors like steel (where he made billions).

His next stop? He likes US banks. In fact, according to a piece in Bloomberg, Ross is putting together a $4 billion fund to capitalize on the opportunity. Apparently, he's talking to a variety of investors in Abu Dhabi. Hey, sovereign wealth funds have already shown their alacrity for US financial institutions, with investments in mega firms like Merrill Lynch (NYSE: MER) and Citigroup (NYSE: C).

Ross' strategy makes a lot of sense; that is, he wants to buy 100 to 200 banks. Thus, by building some heft, he should realize economies of scale – and ultimately build more value for his investors. Simply put, it's a formula he has refined.

Actually, Ross has already been aggressive in the financial services sector. For example, he recently spent $1.1 billion on Option One Mortgage, which was purchased from H&R Block (NYSE: HRB).

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements. He also operates MergerBook.com.

JP Morgan (NYSE:JPM) may be raising cash it does not need to prepare its balance sheet for more losses. The bank reported a $2.37 billion profit. That was down by half from a year ago, but was still an impressive number. The firm did set aside $4.4 billion for loan losses and took about $2.6 billion of write-downs tied to mortgages.

According to Reuters JPM "results calmed investors, who had hoped the bank would deal with the credit crisis better than some others."

So, why raise the capital? The answer may be in news that Wilbur Ross, billionaire specialist in Chapter 11 investing, is putting together cash from sovereign funds to invest in weak US financial stocks. According to Bloomberg "Ross will talk with Gulf investors in Abu Dhabi next week about 100 to 200 so-called thrift banks."

Now that JP Morgan has acquired Bear Stearns (NYSE:BSC), it is almost a sure bet that JPM CEO James Dimon will go looking for other bargains. He learned the practice under former boss Sandy Weill and his company is the product of a large merger with Bank One.

JP Morgan's likely desire to buy smaller financial firms may be a sign that stocks in banks and brokerages are bottoming. Dimon wants a piece of that. Why should Ross have all the fun?

Douglas A. McIntyre is an editor at 247wallst.com.

Four well known CEOs weighed in on CNBC's Squawk Box, giving their particular insight on economic conditions one day after the Federal Reserve made yet another basis rate cut. Each of the four Chief Executives acknowledged the tough going in the economy, yet each also sought to inject a thread of optimistic patience into their commentary.

Mike Jackson, CEO, Auto Nation Inc. (NYSE: AN), came to the defense of Reserve Board Chair Ben Bernanke. While admitting that the chairman may have crawled blindly into what is now mostly economic turmoil, Jackson stated: "...I think he absolutely has it right now. He's got to be on full flight recession mode, and we'll worry about the dollar, and commodities and inflation later." Personally, I think Benanke should be making moves to protect the consumers and their dollars first, and let inflation take care of itself until the consumer sector is back up to speed.

Wilbur Ross, CEO, W L Ross & Co. Played the most obtuse card stating: "My own opinion is that it's just more of the same volatility." More of the same volatility? Yeah the economy is volatile ... DUH!

Wilbur Ross may like to invest in distressed companies, but it looks like some of the teetering bond insurers may be too much even for him. According to Forbes.com, today he put an end to speculations about shoring up a troubled insurer by announcing he would be investing nearly $1 billion in the relatively stable Assured Guaranty(NYSE:AGO), a Bermuda-based reinsurer.

Some on Wall Street had hoped Ross could put his cash muscle behind on of the insurers that struggling, such as AMBAC Financial Group(NYSE:ABK). But Ross is playing it safer in these turbulent financial markets.

According to Marketwatch, Ross insists that the first $250 million is not "rescue capital". "The idea is to enhance their position for internal growth." he said. So more deals may be in the future.

The markets like the news as shares of AGO are up today a little over 10%.

With shares of Ambac Financial Group (NYSE: ABK) in the toilet amid concerns about the company's credit rating, billionaire investor Wilbur Ross is mulling an investment in the company.

Fortune writer Roddy Boyd sums up his reaction in the headline: "Has Wilbur Ross lost his mind?"

He goes on to say that ,"Here's why Ross's involvement -- if it's real -- seems unlikely to help. The company's stock is issued is by a holding company; it is virtually impossible that Ross would inject capital here, because 'the parent' can only receive cash when its insurance or portfolio management subsidiaries send it dividends. In short, it does no real business. More likely, Ross would invest in or purchase Ambac's regulated insurance subsidiaries, because those are the only parts of Ambac's business that seem likely to generate earning any time soon, if ever."

William Ackman's bearish calls on Ambac and MBIA Inc. (NYSE: MBI) have been spot-on so far -- and I'm a lot more inclined to trust his analysis of these companies than their own executives. Ackman is still banging the drum on just how terrible these two companies are, even sending a letter to the ratings agencies explaining why they should be downgraded.

Ackman has demonstrated a better knowledge of these businesses than anyone else out there. As usual, the Wall Street analysts totally missed this train wreck in the making, and one has now taken the unusual step of blaming naked short sellers.

As long as Ackman is bearish, I'd watch from the sidelines.

Bloomberg News reports on rumors that Wilbur Ross, a private equity investor who's made billions investing in industries like steel when they were down on their luck, will take over Ambac Financial Group (NYSE: ABK). Ambac's market capitalization has fallen $8 billion in the past year, and Fitch Ratings last week stripped it of the AAA credit rating it depends on to guarantee $556 billion of debt.

Why does bond insurance matter? Bond insurers lend their AAA rating to $2.4 trillion of municipal and structured finance debt. Downgrades would throw into doubt rankings on the debt the companies guarantee, including thousands of schools and hospitals as well as collateralized debt obligations (CDOs) owned by banks. CDOs account for $133 billion in write-downs and credit losses since the beginning of 2007 at more than 20 of the world's largest banks and securities firms.

If Ross buys into Ambac, it could be a far more effective solution than the one being discussed a few days ago involving a $15 billion bailout from weakened banks that was being pushed by the New York Insurance Department. I've been hoping that hedge funds or private equity would step into the breech. And if Ross is serious, this could be great news for the market.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in Ambac.

MAJOR PAPERS:

• Liberty Media Corporation (NASDAQ: LCAPA) filed a lawsuit in Delaware against IAC/InterActiveCorp's (NASDAQ: IACI) Barry Diller in an attempt to block Mr. Diller from completing the spinoffs of several units on terms that could dilute Liberty's voting power; the suit follows a suit filed by IAC against Liberty seeking to complete the divestiture on its own terms, the Wall Street Journal said.

OTHER PAPERS:

• The Evening Standard learned that billionaire Wilbur Ross is in takeover talks with AMBAC Financial Group Inc (NYSE: ABK) and that a deal could come within the next two weeks.

WEB SITES:

• According to analysts, TheDeal.com's Dealscape blog reported that the troubles at WellCare Health Plans Inc (NYSE: WCG) could lead to a sale of the company after the departure of the company's three executives.
• Citing a source close to Advanced Micro Devices Inc (NYSE: AMD), CRN.com reported that rumors of a merger between the company and International Business Machines Corporation (NYSE: IBM) "is nothing but speculation." A rumor in Mergermarket, which caused AMD's share price to spike almost 11% on Wednesday, said IBM's microelectronics division could merge with AMD "possibly in the near term."