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Wednesday, July 8, 2009

The PPIP and My Favorite Latin Phrase

Back in April, the Department of Treasury released this statement about the criteria they were looking for in determining companies that would be eligible to compete to be bidders in the private public investment partnership. (PPIP)

The Treasury Department today announced the receipt of more than 100 unique
applications from potential fund managers interested in participating in the Legacy Securities portion of the Public Private Investment Program (PPIP). A variety of institutions applied, including traditional fixed income, real estate, and alternative asset managers.

Successful applicants must demonstrate a capacity to raise private capital and manage funds in a manner consistent with Treasury's goal of protecting taxpayers. Treasury will also evaluate the applicant's depth of experience investing in eligible assets. Finally, the applicant must be headquartered in the United States.

The PPIP is the program that Treasury Department created to try and remove the so called "toxic assets" from the books of the banks. As the readers can read, the Treasury Department had plenty of interest in private firms wanting to partner up with the government in order to buy these toxic assets currently held by banks. Furthemore, the criteria the Treasury used implies that companies chosen would be of the highest financial shape.

Here is the statement listing the companies chosen. This PPIP was always a dubious program. PPIP attempted to try and maximize the dollar amount that companies would pay for these "toxic assets". In so doing, they gave a very good deal for any company chosen to be a bidder. The companies would only have to come up with one twelfth of the money. The rest would be loaned by the government. Furthermore, the government would forgive the loan if the investment turned into a loss. As such, any company participating in the auction of these assets, from the buying side, saw plenty of potential upside with little downside.

It should surprise no one that the Department of Treasury received an overwhelming amount of applications. There's more. Initially, the program was supposed to be $1 trillion. Now, it's only $30 billion. At $1 trillion, it was frightening. At $30 billion, it's worthless, at least to the overall economy. After all, it isn't as though we are going to see much difference in lending by removing $30 billion in toxic assets. Estimates put the total toxic assets as much as $5 trillion.

So, why have a PPIP program at all? Well, one of the companies chosen for this program is GE Capital. Wait a minute. GE Capital was itself the recent recipient of a bailout. If GE Capital is the recent recipient of its own bailout is it really one of the ten best companies that can "demonstrate the ability to raise private capital" and "manage these assets in a manner consistent with the goal of the Treasury to protect the tax payer". If they could easily raise private capital, they wouldn't have needed a bailout not but two months ago. If their fund management skills were congruent with protecting the tax payer, THEY WOULDN'T HAVE NEEDED A BAILOUT.

Well, of course, GE Capital just happens to be owned by GE. GE also owns NBC, MSNBC, and CNBC, the three networks that have been the most overwhelmingly pro Obama. So, what do we have? We have a program so scaled down that everyone should question why we even bother moving forward with it. One of the companies chosen appears terribly dubious and not in line with the standards the Treasury is supposed to maintain. That company just happens to be owned by the same company that has provided the President with his most favorable coverage. Resp Ipsa Loquitor. (the facts speak for themselves)

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