Public-Private Investment Program

Later today, we get the gritty details about the latest bank rescue plan. In the WSJ, Treasury Secretary Tim Geithner details his new toxic asset disposal program.

It is now nearly 18 months since the crisis erupted, and we are several trillion dollars into this, with little to show except a halting of sheer panic. The thought process seems to be, what’s another trillion dollars between friends?

Regular readers know my preferences: Nationalize the banks, eliminate the debt, clear out the toxic assets without saddling taxpayers with absurd costs.

Here is some of the specifics via Geithner:

“The Public-Private Investment Program will purchase real-estate related loans from banks and securities from the broader markets. Banks will have the ability to sell pools of loans to dedicated funds, and investors will compete to have the ability to participate in those funds and take advantage of the financing provided by the government.

The funds established under this program will have three essential design features. First, they will use government resources in the form of capital from the Treasury, and financing from the FDIC and Federal Reserve, to mobilize capital from private investors. Second, the Public-Private Investment Program will ensure that private-sector participants share the risks alongside the taxpayer, and that the taxpayer shares in the profits from these investments. These funds will be open to investors of all types, such as pension funds, so that a broad range of Americans can participate.

Third, private-sector purchasers will establish the value of the loans and securities purchased under the program, which will protect the government from overpaying for these assets.

The new program starts at $500 billion dollar,s and ramps up to $1 trillion dollars. Creating a market for these thinly traded hard to value assets is harder than it appears. Hence, the massive outlay of cash.

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Previously:
Nationalize Now (January 26th, 2009)
http://www.ritholtz.com/blog/2009/01/nationalize-now/

Sources:
My Plan for Bad Bank Assets
TIMOTHY GEITHNER
WSJ, MARCH 23, 2009
http://online.wsj.com/article/SB123776536222709061.html

Details on Public Private Partnership Investment Program
Treasury Department, March 23, 2009
http://treasury.gov/press/releases/tg65.htm

Obama Seeks Investors in Plan to Buy Illiquid Assets
Robert Schmidt and Rebecca Christie
Bloomberg, March 23 2009
http://www.bloomberg.com/apps/news?pid=20601087&sid=aT16m2FlyQRs&

U.S. Rounding Up Investors to Buy Bad Assets
ANDREW ROSS SORKIN, ERIC DASH and RACHEL L. SWARNS
NYT, March 22, 2009
http://www.nytimes.com/2009/03/23/business/economy/23toxic.html

Geithner Banks on Private Cash
DEBORAH SOLOMON
WSJ, MARCH 23, 2009
http://online.wsj.com/article/SB123776474431608981.html

Financial Policy Despair
PAUL KRUGMAN
NYT, March 22, 2009
http://www.nytimes.com/2009/03/23/opinion/23krugman.html