the PPIP (public-private investment program) is designed to take toxic assets off the books of banks. i'm not even sure this is a severe issue for the banks anymore, but let's just assume it is.
one thing a bank could do is bid on its own assets. let's say a bank offers to buy its own asset at t $84 million. by putting up just $6 million in risk, (with the government putting in the other 6 and borrowing 6 to 1), they could buy the asset from themselves. if the real value of the loan of the asset is anything less than $78 million, it's in a bank's best interest to do this.
in this scenario, let's say the $84 million asset would have gone for $50 million in a real auction - well that would be $28 million less ($84 million - $6 million they had to put up - $50 million that it is worth) than what they got by buying it from themselves. further, to show the silliness, they could actually bid $840 million, putting up $60 million (which they would lose) but still getting $780 million net up front.
i have no doubt that there will be rules in place such that a bank cannot bid on its own assets however to think that there will not be related party transactions among these clearly morally corrupt institutions is silly.
so the banks get made more than whole, the taxpayer loses a ton and the dumb hedgefunds / banks who bought up the assets, salivating at the 13 to 1 leverage lose a bit too (though i'd bet that anyone who is putting up real money is going to get a kickback along the way from the banks that foist the toxic assets on them).
once again, goldman sachs wins.
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