Monday, March 23, 2009

The Public-Public-Public-Public-Public-Public-Public-Public-Public-Public-Public-Public-Private Investment Partnership

Timothy Geithner's plan to get money to the banks was released today. One of the guiding principles is:
Maximizing the Impact of Each Taxpayer Dollar: First, by using government financing in partnership with the FDIC and Federal Reserve and co-investment with private sector investors, substantial purchasing power will be created, making the most of taxpayer resources.


But when you get into the details, you find the plan is for 50/50 public/private equity supported by 6:1 leveraged borrowing from the public sector. That means 12 dollars of public money goes in for every 1 dollar of private money, making this the PPPPPPPPPPPPPIP of the title. So, does Geithner actually believe that this is making the most of taxpayer resources? I have to grant that he seems to believe CDO's of mezzanine subprime MBS tranches are "undervalued", which is even less plausible. Foolish or dishonest? You decide.

In the "Legacy Securities Program" Geithner continues to promise he'll develop a plan - someday.

Borrowers will need to meet eligibility criteria. Haircuts will be determined at a later date and will reflect the riskiness of the assets provided as collateral. Lending rates, minimum loan sizes, and loan durations have not been determined. These and other terms of the programs will be informed by discussions with market participants. However, the Federal Reserve is working to ensure that the duration of these loans takes into account the duration of the underlying assetsBorrowers will need to meet eligibility criteria.


Yes, Geithner has known that we have a lot of bad loans since at least the fall of Bear Stearns a year ago. Yes, he has been involved in multiple negotiations trying to save companies loaded with bad debt over the past year. Yes, he has supposedly been working hard on this for at least 4 months.

No, that quote is not from the Onion.

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