the PPIP is a giant scheme

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.

this isn't going to work

the fed's plan seems simple enough. according to the US treasury, the plan works like this:

A Sample Investment In Toxic Assets
Step 1: A bank has a pool of residential mortgages with $100 million face value that it's seeking to divest. The bank would approach the Federal Deposit Insurance Corp.

Step 2: After conducting an analysis, the FDIC would determine that it would be willing to leverage the pool at a 6-to-1 debt-to-equity ratio.

Step 3: The pool would then be auctioned by the FDIC, with several private sector bidders submitting bids. The highest private bid — in this example, $84 million — would be the winner and would form a Public-Private Investment Fund to purchase the pool of mortgages.

Step 4: Of this $84 million purchase price, the FDIC would provide guarantees for $72 million of financing, leaving $12 million of equity.

Step 5: The Treasury would then provide half of the equity funding, or $6 million, and the private investor would contribute $6 million.

Step 6: The private investor would then manage the servicing of the asset pool and the timing of its disposition using asset managers approved by and subject to FDIC oversight Source: U.S. Treasury

this isn't going to work for a whole host of reasons. basically it's a shell game where you take assets from one group, have the US taxpayers take on most of the risk, and give it to another group. you've done nothing to solve the problem. further, while banks may carry the value of the assets on their balance sheet at 100 million, this exercise will force them to mark the assets to something more reasonable (but not the actual cost since only a truly free market mechanism would achieve that).

ultimately, no shell game solves this problem. this problem is jobs. until the job situation is fixed or at least there's a path to fixing it, our economy will continue to decline. it's nice the stock market rallied on the news, but i think when earnings come out in april, we will set new lows.