Toxic Assets: Get `Em While They`re Hot!

DumpYesterday the Treasury Department released details of its Toxic Clean-Up Plan.

Touted as the “Public-Private Investment Program”, the strategy represents the latest effort on the part of the Administration to purge troubled assets from banks’ balance sheets and free-up credit.

Using $75 to $100 billion in TARP capital and capital from private investors, the Public-Private Investment Program will generate $500 billion in purchasing power to buy “legacy assets”” with the potential to expand to $1 trillion over time.

According to the Treasury Department, the Public-Private Investment Program will be designed around three basic principles:

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.

Second, the Public-Private Investment Program ensures that private sector participants invest alongside the taxpayer, with the private sector investors standing to lose their entire investment in a downside scenario and the taxpayer sharing in profitable returns.

Third, to reduce the likelihood that the government will overpay for these assets, private sector investors competing with one another will establish the price of the loans and securities purchased under the program.
But some investors are coming to the table with a black-eye over the AIG bonus scandal and the government’s reaction, including a bill to tax the companies as much as 90% for some executive pay.

The Treasury indicates that the issues are apples and oranges: Although PPIP investors may be receiving incentives and subsidies to participate in the program, they should not be subject to the same executive pay limitations as companies receiving bailout funds.

For more, see Treasury Plan.

See our feature, New Study Debunks Foreclosure Numbers, Impact.

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