The Public Private Investment Program
About ten minutes ago, Neil Irwin published an article in the Washington Post that pertains to a topic every American is going to want to read. Its no secret that the reason our economy is so fragile right now is because the banks are not able to move any of their overly leveraged mortgage-backed securities, (need a refresher? click here), and the U.S. Government is doing everything it can to lessen this infection. So here is their new plan: allow the wealthier entities buy the toxic assets at auction. Why are they doing this?
The reason why we believe they are doing an auction for these “toxic” assests is because they are nearly impossible to put a current price on. If you think about it, they are compiled of mortgages on homes that are currently foreclosed on and have no real interested buyers. Until the mortgage market picks up, these assets will remain anchors on the banks books. Treasury Secretary Geithner’s plan has the potential to work, and whether you are a fan of him, you should be cheering for him today.
The idea to involve private investors in this mess is a great one and one that had to be done. The American public is tired of seeing their money go to over leveraged financial institutions. This plan allows hedge funds and other investors the option to buy these assets with the Federal Government taking on most of the risk. The private investors are going to have to hold onto these new funds for awhile in order to see a return. But, this buying of “toxic” assets will accomplish three things in our opinion:
1) allow the banks to start acting like banks again, by lending money;
2) pump some private money into a mess that was largely privately created; and
3) put a price on assets that are in terrible need of price discovery.
How well will this work? I don’t know about you, but I hope its a huge success. I think this could be a plan that doesn’t go far enough and the market will react in the same nature, or it could get alot of peoples/investors hopes up. Our hope is that private investors are willing to take on some risk and put some of their money back into the game. If they fail to showup or the comeption is weak, the outcome of this new plan will also be weak. $
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Comments
The video is pretty funny, but considering the house that purchased the bag-o-crap is likely one of the toxic assets and will also likely go up in value–or so he hopes.
PPIP explained with poo poo:
http://www.youtube.com/watch?v=OWLUiT_0ZFw