Posted on 03/23/2009 10:33:49 AM PDT by mojito
$500 Billion to $1 Trillion Plan to Purchase Legacy Assets
Overview
Troubled real estate-related assets, comprised of legacy loans and securities, are at the center of the problems currently impacting the U.S. financial system. The Financial Stability Plan, announced on February 10th, outlined a broad approach to address this issue via the formation of Public-Private Investment Funds (“PPIFs”). Today Treasury is announcing the Public-Private Investment Program under which it will make targeted investments in multiple PPIFs that will purchase legacy real estate-related assets.
Addressing the problems created by legacy assets should help to improve the health of the financial institutions where they are held, leading to an increased flow of credit throughout the economy, and helping improve market functioning in the near-term. Investments made by Treasury under the Public-Private Investment Program are intended to complement the other components of the Financial Stability Plan that have been announced, including the Capital Assistance Program, the Homeowner Affordability and Stability Plan, and the Consumer and Business Lending Initiative, continuing the Obama Administration’s efforts to improve the stability and functioning of the financial system.
(Excerpt) Read more at treas.gov ...
‘Public-Private Investment Program’
Lol. Aka, the Fed.
Bad Asset Relief Fund (BARF)
Katie, bar the door!
The Politburo’s new five year plan.
“To start the process, banks will identify to the FDIC the assets, typically a pool of loans, that they wish to sell. Assets eligible for purchase will be determined by the participating banking organizations, including the primary banking regulators, the FDIC, and the Treasury. In order to protect taxpayer dollars from credit losses, the FDIC will employ contractors to analyze the pools and will determine the level of debt to be issued by the PPIF that it is willing to guarantee. This will not exceed a 6-to-1 debt-to-equity ratio. An eligible pool of loans, with committed financing, will then be auctioned by the FDIC to qualified bidders. Private investors will bid for the opportunity to contribute 50% of the equity for the PPIF with the Treasury contributing the remainder. The winning bid for this equity stake together with the amount of debt the FDIC is willing to guarantee (based on a predetermined debt-to-equity ratio), will define the price offered to the selling bank. The bank would then decide whether to accept the offer price.
Once the initial transaction has been completed, the private capital partners will control and manage the assets until final liquidation, subject to strict oversight from the FDIC. The FDIC will play an ongoing reporting, oversight and accounting role on behalf of the FDIC and Treasury. The exact requirements and structure of the Legacy Loans Program will be subject to notice and comment rulemaking.
Example:
If a bank has a pool of residential mortgages with $100 face value that they are seeking to divest, the bank would approach the FDIC. The FDIC would determine, according to the above process, that they would be willing to leverage the pool at a 6-to-1 debt-to-equity ratio. The pool would then be auctioned by the FDIC, with several private buyers submitting bids. The highest bid from the private sector – in this example, $84 – would define the total price paid by the private investors and the Treasury for the mortgages. Of this $84 purchase price, the Treasury and the private investors would split the $12 equity portion. The new PPIF would issue debt for the remaining $72 of the price and the debt would be guaranteed by the FDIC. This guarantee would be secured by the purchased assets. The private investor would then manage the servicing of the asset pool and the timing of its disposition on an ongoing basis – using asset managers approved and subject to oversight by the FDIC. Through transactions like this, the Legacy Loans Program is designed to use private sector pricing to cleanse banks’ balance sheets of troubled assets and create a more healthy banking system.”
The Public-Private Investment Program is designed to draw new private capital into the market for these assets by providing government equity co-investment and attractive public financing.
Tell me, after last week, any person, or company in their right minds would "partner" with the Obama government?
If the funds fail, they can look forward to bus tours of activists visiting their homes. If on the other hand they succeed, and actually make money, they can look forward to Congress taxing their profits at 90%.
You are so correct, Heads I win, tails you lose!
There goes another trillion down the rathole folks. Our government at work!
The issue seems to be can the banks themsleves bid on the toxic assets, so as to “give” their loss to the taxpayer? So far, it is unknown. The FDIC has a vague list of types of investors.
I honestly do not understand why the market is up on this. Seems to me it’s a lose, lose type of smoke and mirrors scheme. Take a bad debt package and re package it as bad debit package. UH? Same old problem with the same old packaging just with a pretty ribbon on it. Still going to cost mega bucks! Can you say INFLATION!
They will gladly print up 20 for every dollar of your own you put in. I would not give em a penny.
Info...
It looks like the private "partners" will be able to purchase packages of bad debt at something like 1/12th of whatever value is eventually agreed upon, with taxpayers on the hook for the rest.
So PPIP is issuing a trillion in debt to finance this. Where is that money going to come from? Is the Fed going to print money to purchase PPIP paper? That's what it sounds like to me.
Thanks for the ping.
I wonder if there is anything to keep the banks from bidding up their assets?
Collateralized Relief Asset Program (CRAP)
From the treasury: "...the FDIC will employ contractors to analyze the pools and will determine the level of debt to be issued by the PPIF that it is willing to guarantee."
Then an auction will be held. Bubble forces would result in over valuations abd bids.
Thanks very much. This is mostly over my head.
As is this discussion:
http://www.nakedcapitalism.com/2009/03/investor-on-private-public-partnership.html
Don’t know if you’ve seen it, or would care to, but it’s a discussion about gaming the program.
The intent of the PPIF program is for the govm't/taxpayer to reduce the legacy(toxic) assets held by banks to open up credit availability. Those assets are effectively tied up potential credit funds and losses.
The analyst at the site was wrong about what the economic loss was. In the end, the bank lost $14m, instead of $30m, but would have gained from the $50m available to loan out again. There was also no money laundering as they put it. Another entity, the buyer, made a $4.5m profit on $2.25m invested. All that additional economic activity will be had amongst those that were able to borrow from the bank and they all be paying taxes back to the treasury.
I don't see that the PPIF program as inflationary by itself, because there's a significant recession due to tough credit. What does need to be done is to prevent speculation and other activities that generate housing bubbles. I don't see them focusing enough attn on those housing bubble factors. That lack of concern and attention is what caused the problem in the first place.
Thanks very much, that helps. I appreciate all your effort.
By housing bubble, I’m assuming you mean housing price bubble. Which if I’m following was caused (primarily?) by legislative and lending policies.
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