In March, I pointed out that:
PPIP [the Public-Private Investment Program] is a massive wealth transfer from taxpayers to investors and banks, and that Treasury funds are being used to sidestep Congress and their constituents - the American people...In April, I noted that the former head of structured products at UBS said that game theory exposes PPIP as fraudulent.Also in April, I predicted that the PPIP will not substantially reduce the amount of toxic assets in the system.Citigroup, Bank of America and other players are already gaming the program (and see this), which will create unintended consequences.
It's turned out to be even worse ...
PPIP has actually increased the amount of some toxic assets.
As Bloomberg notes this morning, some of the nation's largest banks have actually bought more risky home loans instead of getting them off their balance sheets.
As Huffington Post puts it:
In other words, the program that was supposed to help banks dispose of these toxic assets instead made those assets so marketable that banks bought more -- which has pushed Wall Street's titans to even greater exposure to the stalled housing market. The banks apparently decided that the government's entry into the mortgage security market was simply a guaranteed money-making opportunity.Bloomberg has some choice quotes:
It’s “absolutely ridiculous” that banks, which were expected to reduce their holding of such volatile mortgage securities, bought them before the government program was running and may now profit, said Michael Schlachter, managing director of Wilshire Associates, the Santa Monica, California- based investment-consulting firm. “Some of them created this mess, and they are making a killing undoing it” ...Well yes . . . isn't that what looting is all about?“Any time the government says, ‘We’re going to buy something in the securities market,’ they’re putting out a sign that says, ‘Free money, come and get it’,” he said.