PPIP: Banks 'Making A Killing' On Government Toxic Asset Program

Remember the Public-Private Investment Program (PPIP)? The Treasury Department unveiled the program in March and intended it as a way to help banks unload hard-to-sell (read: often toxic) mortgage securities. In short, private investors partnered with the government to get bad loans off the banks' books -- and everyone, including taxpayers, was supposed to come out ahead on the proceeds of the asset sales.

But, as Bloomberg reports this morning, some of the nation's largest banks have actually bought more risky home loans instead of getting them off their balance sheets.

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.

Per Bloomberg's figures, Bank of America, Citigroup, Morgan Stanley and Goldman Sachs added $2.74 billion of this kind of mortgage debt since March. The value of the debt was up 13 percent from the second quarter. Here's more:

The Public-Private Investment Program was introduced in March by Geithner as a means of helping struggling banks by reviving the market for unpackaged loans and mortgage securities that aren't backed by government-supported institutions, such as Fannie Mae or Freddie Mac. Under the program, asset managers were supposed to raise money from investors and, with additional capital and loans from taxpayers, buy as much as $1 trillion in toxic assets from U.S. banks, freeing up money for lending.

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."

Eric Petroff, director of research at Wurts & Associates, a Seattle-based investment advisory firm, told Bloomberg: "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'."

The PPIP initiative has been widely criticized since it was unveiled last year. In December, TCW Group, was removed as one of the government's program managers after a management shake-up at the firm.

Read Bloomberg's entire piece here

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Comments

[Jim Shaffer]

12:51 PM on 01/06/2010

The communists proved that putting most of their nations resources in public hands is a mistake, The capitalists are clearly demonstrating that having most of the nations resources in private hands is a mistake. The Europeans seem to have figured this out. Unfortunately the inertia in the current economic model of the US is going to drag the entire nation down. Let's hope the USA doesn't end up as bad as the ex USSR. My suggestion to all my fellow americans is - emigrate before it's too late. I sure am glad I did!

[AnnT]

04:13 AM on 01/07/2010

The problem is not the government. The problem is the financial elite, wealthy through ill-gotten gains, corrupting and influencing the government to act in the interest of the corporatocracy rather than the people. That's why health care reform benefits the pharmaceutical companies, and our illegal and costly wars benefit Royal Dutch Shell (which just obtained rights to one of Iraq's largest oil/gas fields).

Our current unconstitutional and immoral monetary system, where the power to create money has been usurped by private interests, is the mechanism by which the financial elite obtain their ill-gotten wealth.

We NEED to take back the authority to create money and issue credit from the private bankers to the people because our money is being siphoned off by the Wall Street financiers and paying the interest on the federal debt will eventually be unsustainable!

Federalizing the Fed and nationalizing the banks, modeled after a system supported by Benjamin Franklin in colonial Pennsylvania, i.e., only allowing national banks to create money, backed by the “full faith of the US Govt,” would put the power of money creation back in the hands of the people and allow the profit of banking (i.e., reaonsable and predictable interest on loans) to fund the government in lieu of an income tax.

[fausto412]

10:04 AM on 01/06/2010

Yes, government is the problem. When private companies get what they want that is...

[AnnT]

02:54 AM on 01/06/2010

Private banks make a killing on COLLECTING INTEREST ($1+ TRILLION per year from the people, local, state, and federal governments) on money they create out of thin air, by bookkeeping entry, whenever anyone, including the government, takes out a loan. (In fact, ALL of our money, except coins, is created this way.) First, the interest the private banks collect is egregious because the private banks did NOTHING to earn it. Second, the credit the private banks extend is NOT the banks' to extend -- the credit is backed by the full faith and credit of the United States and any interest collected belongs to the people!

The authority to create money belongs to the people and should be the sole prerogative of a sovereign government. The US Constitution places this authority in Congress. Money is simply a medium of exchange for exchanging goods and services -- further, it is an abstract social invention that serves the purpose of advancing commerce and trade beyond the barter process. (Money should not be confused with wealth -- wealth is a combination of resources and labor.) The free market then exists within this environment where money, simply a means to facilitate transactions, is created by the government (e.g., via public banks).

For more information, read "Web of Debt," by Ellen Hodgson Brown (www.webofdebt.com). It is an eye-opening book!

[autumncolors]

10:24 PM on 01/05/2010

HCR bill gives a lot of reasons as to why HC taxes are necessary. The congress insists that taxes create responsibility and decreases waste. On the other hand if ethics is the reason for new HC taxes, why does the congress not talk about increasing taxes on millionaires, billionaires and most importantly day trading on WS? Why do poor and middle class are allowing themselves be controlled by punitive measures such as new HC taxes?

[autumncolors]

10:18 PM on 01/05/2010

The more the banks and the government takes(taxes) from we taxes , the people, the less resources we have to deal with problem. It is a vicious cycle feeding upon itself.

[MayorQuimby]

01:09 PM on 01/05/2010

Blatant in-your-face theft and corruption. Blatant. If the sheeple weren't placated with X-Box and NFL, there'd be a revolution. The sheeple have no idea how much better they'd have it if .gov didn't take so much from them.

[autumncolors]

10:20 PM on 01/05/2010

x-box, NFL, and credit all keeping the sheeple happy. There is not a single cable channel which can rival Fixed news in left wing agenda.

[No2bailouts]

11:23 AM on 01/05/2010

once again, another great invention of the ne3con school of economics fails
“hat tip to http://iamned-website.blogspot.com/”

Bernanke, Geithner, Summers, Greenspan

[yourmomscalling]

04:06 AM on 01/05/2010

AS the corruption wheel spins for the rich !!!!

[thnk4selfagain]

02:03 AM on 01/05/2010

PPIP: someone other than the gov't/taxpayer was going to be outrageously enriched. Now the banks have lined up at the trough Geithner set out for them, further endangering the finance system to the still melting down housing market. And taxpayer money enriches Wall Street -- again, in perpetuity.

The situation perfectly represents what is wrong with Obama/Geithner/Bernanke/Summers way of (not) dealing with the Meltdown. Forbearance and give-aways to the banks through plans that mimic the market, a haywire market for that matter that has rational incentives for irrational actors. The Admin never changed the rules of the game, actually it reinforced them.

The American political/economic system is rigged no matter who is in the WH and in Congress.

[sweetnesstoday]

01:37 AM on 01/05/2010

Just another example of how the menage-a-trois of Geithner, Summers and Bernanke lost in their intellectual underwear and conducting monetary masturbation. Easy money has significant consequences.

[beherenowbud]

09:53 PM on 01/04/2010

When the banks make a killing, the other side is DEAD!

[GenosseJoe]

11:29 PM on 01/04/2010

Especially, if they make a killing working jointly with the Government. Note, that killing is made using Government program.

Same government geniuses are going to run your medical insurance, hospitals and doctor offices.

[hulagirrrl]

05:52 AM on 01/05/2010

Aloha Genosse, as a trueGenosse you should welcome the government to run your medical insurance, hospitals and doctor offices. I would.

[Rule Of Law]

07:26 PM on 01/04/2010

"“The MSM has been the serving winch of corporate America for some time. They will not ever get into any details of the economic plundering of this Nation. Even MSNBC will limit their reporting to Fox baiting and occasional pokes at the Wars.

[Rule Of Law]

07:28 PM on 01/04/2010

Olbermann continues to spout the corporate line of it was necessary to prevent something worse. All of this is well over the heads of the average tea bagger so they will continue to hold on to their Confederate Money and Dixie cups. While many of us are incensed over this Government Sponsored Evil we are ignored and marginalized by the MSM as “those on the extreme left”.

[Rule Of Law]

07:29 PM on 01/04/2010

Obama’s policies have stopped the bleeding but without continuing Government aid the economy will falter anew. The last revision of the GDP, down to 2.2%, includes the Cash for Clunkers input of 1.8%. Government revenues are still falling, many States are in the red, they cannot borrow their way out and must cut back services in 2010. Be very careful going forward.

Finally, the Government’s numbers may be less than accurate.”

[joebhed]

06:24 PM on 01/04/2010

I read he B'berg article and still cannot see the exact connection between the bankers' toxic buildup and the PPIP program itself - except that they represent OPPOSITE policy directions.
The bankers are doing what any prudent money-manager would do to protect the interests of their shareholders. Morality aside.
The common tragedy of the Congress, the Fed and the Treasury is that they each and all fail to possess a public-interest position.
Nobody on the Obama team has been capable of mentioning the public interest, slightly excepting Paul Volcker, who should temporarily step in at the helm in Bernanke's place to handle the transition to the coming era of monetary system, financial and banking reform.
The private-bankers' banker-of-last-resort has been parceling out $Trillions of $USD taxpayer guarantees - all because our highest priority MUST BE - now say it in unison, Obamites - to save the banking system. From its insolvent self.
It's time to end the private power of money-creation, and let the bankers get back to banking.
By lending real money.
Like people think they do now.
The Money System Common
economicstability.org

[Rule Of Law]

06:41 PM on 01/04/2010

once more--From a poster I follow who never posts on the main, but should--

"“The MSM has been the serving winch of corporate America for some time. They will not ever get into any details of the economic plundering of this Nation. Even MSNBC will limit their reporting to Fox baiting and occasional pokes at the Wars. Olbermann continues to spout the corporate line of it was necessary to prevent something worse. All of this is well over the heads of the average tea bagger so they will continue to hold on to their Confederate Money and Dixie cups. While many of us are incensed over this Government Sponsored Evil we are ignored and marginalized by the MSM as “those on the extreme left”.

Obama’s policies have stopped the bleeding but without continuing Government aid the economy will falter anew. The last revision of the GDP, down to 2.2%, includes the Cash for Clunkers input of 1.8%. Government revenues are still falling, many States are in the red, they cannot borrow their way out and must cut back services in 2010. Be very careful going forward.

Finally, the Government’s numbers may be less than accurate.”

[xilduq]

11:22 PM on 01/04/2010

I believe there is no way short of a complete collapse to unwind this Ponzi Scam of an economy.

There is no going back in a Ponzi Scam, and the cliff is somewhere ahead.

[RealProgressNow]

05:52 PM on 01/04/2010

Anyone who reads these reports and still believes that Obama is an effective leader has to suffer from the grandest case of cognitive dissonance ever realized by man.

[blueskybigstar]

06:13 PM on 01/04/2010

Have you seen this?

http://www.tomflocco.com/fs/FbiMemoPhotoLinkBushJfk.htm

My only defense of the man is that he is dealing with a very dangerous mafia.

[Rule Of Law]

05:44 PM on 01/04/2010

test

[Rule Of Law]

05:47 PM on 01/04/2010

once more--From a poster I follow who never posts on the main, but should--

"“Here are 2 different articles on the subject.

http://www.economicpopulist.org/content/get-ready-another-wall-street-bailout

http://www.ritholtz.com/blog/2009/12/fannie-freddie-heading-to-zero/#comments

The MSM has been the serving winch of corporate America for some time. They will not ever get into any details of the economic plundering of this Nation. Even MSNBC will limit their reporting to Fox baiting and occasional pokes at the Wars. Olbermann continues to spout the corporate line of it was necessary to prevent something worse. All of this is well over the heads of the average tea bagger so they will continue to hold on to their Confederate Money and Dixie cups. While many of us are incensed over this Government Sponsored Evil we are ignored and marginalized by the MSM as “those on the extreme left”.

Obama’s policies have stopped the bleeding but without continuing Government aid the economy will falter anew. The last revision of the GDP, down to 2.2%, includes the Cash for Clunkers input of 1.8%. Government revenues are still falling, many States are in the red, they cannot borrow their way out and must cut back services in 2010. Be very careful going forward, like I told Bonddad, the obese female may have laryngitis and her Aria might be delayed.

Finally, the Government’s numbers may be less than accurate.”