We had hoped that the Public-Private Investment Program, the so-called PPIP, would wither on the vine and die a quiet death. Call us crazy, but a plan to spend a trillion dollars to grossly overpay for deteriorating assets choking banks’ balance sheets didn’t strike us as the best use of the government’s money.
Well, it didn’t exactly die, but what’s been loosed upon the world is a shadow of the original plan. And that’s a good thing.
When it was first announced, the PPIP was envisioned as a major program, as in $500B-$1 trillion major. But the version that was announced yesterday will see the Treasury Department contribute “only” $30B (roughly what they threw at GM.) The reason is, simply, lack of demand. But the reasons behind that reason aren’t so simple.
“The willingness of banks to sell toxic assets to investment funds has been killed by decisions of accounting authorities and banking regulators,” Harvard Law School’s Lucian Bebchuk wrote at WSJ.com’s Econ Blog. Bebchuk says:
The policies adopted by accounting and banking authorities strongly discourage banks from selling any toxic assets maturing after 2010 at prices that fairly reflect their lowered value. As long as banks don’t sell, the policies enable them to pretend, and operate as if, their toxic assets maturing after 2010 haven’t fallen in value at all.
A separate mystery is why the bond-fund manager Pimco abruptly opted out of the plan. After all, the firm’s Bill Gross loudly proclaimed the plan a “win-win-win.”
Maybe the decision has less to do with Pimco and more about the government’s ability to change the rules on a whim. “It seems that Pimco decided that the government has been too unpredictable, changing directions a number of times,” John Carney writes at Clusterstock. “They just didn’t want to play a game where they couldn’t rely on the rules staying the same.”
Or maybe the diminished plan is only a win-win, or heaven forbid, just a win, which simply isn’t good enough for a playa like Pimco. But if you ask us, this denuded program – given Washington’s penchant for spending money it doesn’t have – is the closest thing taxpayers are going to get to any “win-win-win” these days.
(Steven Russolillo contributed to this post.)