Want Some “Toxic” Assets?
Removing toxic assets from bank balance sheets has become all the rage lately, but the latest government intrusion into the free market comes with a “market-based” component called the “Public-Private Investment Program.”
Or at least that’s what the Yo-bama administration wants you to believe.
So … is “P-PIP” really a public-private partnership?
From U.S. News & World Report:
Consider this: 1) Obama-Geithner want to get these so-called toxic securities off bank balance sheets so banks supposedly will lend more; 2) the PPIP plan is predicated on banks agreeing to sell at some price to be determined by price discovery via subsidized private investment funds; 3) Many banks are not going to want to sell this so-called toxic assets which have cash flows and upside appreciation potential; 4) Regulators may push them to sell and take huge writeoffs; 5) This will require further capital injections, maybe $1 trillion; 5) Congress and public opinion show little interest in another ginormous bailout. Indeed, Congress has zeroed out Obama’s $250 billion placeholder in the upcoming budget.
Stocks have been surging in the wake of P-PIP’s rollout, but U.S. News quotes economist Ed Yardeni as saying that the plan isn’t even necessary …
Do we even need the PPIP? Several of the big banks are reporting much better earnings during January and February. Won’t that be enough to make them want to lend again? Could it be that the problem has been solved in the traditional way, with the Fed lowering the federal funds rate well below lending rates? … If FASB relaxes mark-to-market rules on April 2, won’t that make PPIP irrelevant? Banks have already taken large markdowns, and may now be able to mark up the values of their assets. In other words, their toxic assets won’t be so toxic. Their distressed assets won’t be so distressed. They won’t be under the gun to raise capital, or beg for more of it from the government. So they won’t be interested in selling these assets at the discounted prices that buyers are likely to bid even though their debts are non-recourse government-backed loans. It would be a real pity if the government forces the banks to sell their assets at distressed prices just because they fail Geithner’s gimmicky “stress test.”
Could it be that the government is just grabbing up as much of the private sector as it possibly can before the impetus to do so is removed?
Comments
By franksboy on March 26th, 2009 at 8:42 am
Getting rid of Toxic Assets – what a stupendous idea! Hopefully the folks of South Carolina will look at Clemson the same way – Toxic Assets – Barker, Nichols, Steadman, Helms, Sams, Kelly & Associate – now that would be a load of Toxic assets off the book.
Read Barker’s latest Budget presentation – with that array of “cover my rear with ambiguity, generalities, less than half truths – one would hope that the State Gvoernment would see that the man is on an island inhabited by only him and his buddies – an empire that no one will enter, be a part of – impervious to outside influence or the rules that govern the rest of the world. Bringing only children and equally greedy friends into the fold and, living off the labors of good, dedicated, honest and hard working employees who only ask for fair treatment and a somewhat peaceful work environment.