Stimulus plan, bad assets may inflame risk -Tavakoli

* New bad assets could deepen current recession

* Wrongly spent stimulus packages could backfire

Martin de Sa'Pinto

ZURICH, Feb 19 (Reuters) - Stimulus packages intended to head off the financial crisis could end up creating yet more bad assets that will aggravate future financial risks, structured finance expert Janet Tavakoli said on Thursday.

Tavakoli, founder of Chicago-based Tavakoli Structured Finance, has warned of new dangers as governments move to stave off a depression and clamp down on excessive securitization.

"New bad assets are still being generated, some of them with the blessing of the U.S. Congress, such as no money down mortgages and extension of mortgage loans," she told Reuters, adding this could finish by deepening the recession.

Tavakoli also said banks, regulators and investors had not recognised the current financial crisis developing.

"They didn't appreciate the size or extent of the problem, so they failed to act. But the faster you treat a wound, the more likely you are to be cured -- otherwise you risk blood poisoning, gangrene and amputation."

She said moves by governments or financial authorities, such as the ban on short selling, had only served to intensify investor mistrust of financial institutions and to forestall an all-round financial reality check.

The ban, aimed at preventing runs on financial institutions, had the undesired effect of switching some investors off to the dangers of damaged balance sheets and of excessive risk-taking in investment banking.

"A lot of investors had good reason to be scared by Bear Stearns, and shorting the stock was a rational decision," she said.

"Instead of pushing the Securities and Exchange commission to ban short sales, the Federal Reserve should have been questioning the rosy quarterly statements of many of those banks," she said.

"And as for those institutions extending credit [to the Bear Stearns credit hedge funds], how could they question the value of [manager of the Bear funds] Ralph Cioffi's funds without marking down their own portfolios?" (Editing by Andrew Macdonald)