The PPIP Is Dead!

timgeithner wideeyes tbi

We’ve had a deathwatch on Tim Geithner’s Public-Private Investment Partnership practically since it was first announced.

The whole program — which was just another giant subsidy to the banking system — was always riddled with controversy, and though there were always plenty of buyers eager to use government cash to lever up purchases of toxic assets, there has neverĀ  been an eager seller.

Now it looks as though a substantial part of the program will be killed, while another part will be scaled back. The part that’s being killed is the Legacy Loan Program

WSJ: The Legacy Loans Program, being crafted by the Federal Deposit Insurance Corp., is part of the $1 trillion Public Private Investment Program the Obama administration announced in March as a way to encourage banks to sell securities and loans weighing on their balance sheets to willing investors.

But prospective buyers and sellers have expressed reluctance to the FDIC about participating for fear the program’s rules will change in a political atmosphere hostile to Wall Street. In addition, some banks that might have sold troubled loans into the program earlier in the year have become less eager as they regained a sense of stability.

As for the other part, which was being run by the Treasury and focused on securities, that is expected to be scaled back significantly. Again, we imagine many of the would-be players have concerns about the political risks, and since so many banks have shown they can raise private capital, there’s just not much reason to exposure your hand by participating in the program. Much like the original TARP, it would only work if everyone were forced to be a seller.

As we said yesterday, the only way this is really going to happen is if it’s crafted in such a way that allows the banks to game it from both ends, as buyers and sellers. Basically, the banks don’t want to participate in a program that merely would let them sell trash assets. They want to buy them on the cheap as well. Having no shame, it would seem, the only way the PPIP appeals to them is if they can use it for straight-up money laundering.

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