PPPF, FDIC, LMNOP…

I’ve been writing about the banking crisis for a while. Feel free to go back and read Bad Bank, Good Bank, Austin Powers or Timothy Geithner, or my most recent posting Pat On My Back (Or Am I Scared) for additional information on my thoughts on this matter.

Where is Jack Bauer when he’s really needed? Who cares about some war in a fake country and what’s happening to the fake country’s citizens? We need Jack to solve the banking crisis in 24 hours!
Today the details about the Treasury’s plan to partner with the private sector to buy toxic assets was released. First of all, while all the articles I’ve read state the details have been released trust me, the details have not been released. Although more information than Secretary Geithner’s original plan of we’re from the government and we’re going to help have been made available, the intricacies remain unknown.

What is known, in summary, banks will sell pools of loans under the Public Private Partnership Fund (“PPPF”). The FDIC will determine its willingness of how much funding it will guarantee (with leverage up to 6 to 1 debt to equity). The loan pool will sell to the highest bidder, with PPPF funding 50% of the equity required for the purchase. The buyer would then issue debt that would be guaranteed by the FDIC. The FDIC will receive a fee for its guarantee and the sold assets will be managed by the private sector. The goal is to sell $500 billion of existing assets that are in danger of default.

In theory, selling toxic assets will allow banks to begin loaning money once again. Unemployment is killing us. A number of my contemporaries have been laid off. They have ceased eating out, buying big screen TVs, and are no longer purchasing 1987 Cabernet Sauvignon. If banks start loaning money, companies can grow and invest, all of which needs people. Employment expands (or at least stops contracting). People eat out again and consumers spend in retail stores. As they said on Seinfeld “yadda, yadda, yadda…”

When the Resolution Trust Corporation was the “in agency”, assets were sold between thrifts (that the government seized) and the public, without government financing. Will the government’s involvement/intervention help or hurt this program? Policy hasn’t been the answer to the problem, and I’m just not sure that the government’s involvement in this issue will be seen as a help, rather than a hindrance. Sure, getting free money is great, but how it will be accessed and whether this program will work is yet to be seen. I’ll remain cautiously optimistic for now.

As the stock market is looking for anything positive, today’s news is perceived as good as it’s now 3:30 p.m. and the Dow is up 5.5%. Let’s hope that when Jack Bauer kills someone tonight, he doesn’t take down Messers. Dow and Jones.

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