Almost every outside who’s taken a look at Tim Geithner’ Public-Private Investment Partnership (PPIP) has come to the same conclusion: That it’s a sham being foisted on taxpayers for the benefit of the banks and certain select investors.
Now Inspector General Neil Barofsky — who, like Elizabeth Warren, has been a fierce sceptic of the bailout schemes — has come out with an official report slamming the bailout scheme.
AP: Overall, the report said the public-private partnership — using Treasury, Federal Reserve and private investor money — could total $2 trillion. “The sheer size of the program … is so large and the leverage being provided to the private equity participants so beneficial, that the taxpayer risk is many times that of the private parties, thereby potentially skewing the economic incentives,” the report stated.
In particular, the report cited funds that would be used to purchase troubled real estate-related securities from financial institutions. Under plans unveiled by Treasury, for every $1 of private investment, Treasury would invest $1 and could provide another dollar in a nonrecourse loan. That money could then leverage a loan from another government fund backed mostly by the Federal Reserve, a step that Barofsky said would dilute the incentive for private fund managers to exercise due diligence.
Barofsky recommended that Treasury not allow the use of Fed loans “unless significant mitigating measures are included to address these dangers.”
It’s great that someone in government is airing these complaints. We doubt anyone will really listen to him, though perhaps the good news is that few institutions seem all that interested in PPIP. The one bank that said it would be a seller sounded extremely tentative about it, while others just said outright that they had no interest.