The PPIP, if you can remember, is the US government's plan to provide liquidity for banks' toxic assets -- distressed RMBS and the like -- by encouraging firms (via a subsidy) to buy the stuff. When the plan was first announced in March, the Treasury said the programme could end up purchasing $1,000bn worth of toxic assets. That projection has since been downgraded to about $40bn for various reasons, one of which is the supposedly improving economy. http://ftalphaville.ft.com/blog/2009/11/09/82201/ppiped/
I dunno, to me there is a big difference between $40B and $1T, but it might be chump change to you.
In short, the scheme does not necessarily remediate US Treasury exposure to underlying asset default or UST beta -- Rather, and evidently, US Treasury committed and tendered RFO 180% the cost of capital to dilute 20% of the risk of selected collateral.
Now. FTalpha's so-called downgrade of total possible US Treasury exposure admits nothing but "for various reasons" PWG intentions to retreat from front-running open market vulture funds' trading volume. What remains is the illiquid book value of US Treasury assets, i.e. what has not been either accounted, sold, or extinguished. Accordingly, FTalpha/Mother Jones "narrative" is $1T upper limit, $40B is lower limit of SECURITIES AVAILABLE FOR SALE.
That's a balance sheet item, dude. Diversity is the key to economic and political evolution.
Statement by Timothy F. Geithner before the Senate Banking Committee, May 20, 2009
FRB: H.4.1, 21 Jan 2010
Related news:
Toxic Asset Mountain Toxic-Asset Plan to Start in Six Weeks Geithner Calls for `Very Substantial' Change Dear Timmy Banks Aiming to Play Both Sides of Coin Bailout pledges reduced to $11.6trn
etc etc Diversity is the key to economic and political evolution.
To explain how the PPIP works,the FT had a really good little video back when Geithner's Treasury came up with it.
I think you may be confusing the upfront matching equity contribution the Federal gov't has put up (roughly 30bn to date) with the FDIC and Treasury financing of the purchasers of the assets being bought.
If those toxic assets turn out to be worth far less than the bidders have paid for them, the debt issued by the FDIC and the Treasury will likely be worth far less than par, and the US taxpayer will be on the hook, and for far more than the 30 bn. The real exposure is potentially up to the amount of the Federal outlays for upfront equity contributions (never authorized to be more than 75 bn if I am not mistaken) as well as the loans made by the FDIC and the Treasury (implying Fed guarantees, of course) for the purchase of the assets by private investors (the total of which was not to exceed $1tn.)
Of course, no one knows how much exposure there is, because Treasury is not giving any data out, which is a big complaint folks have about this (not the only one, but a big one). But, it is more than 30bn, and likely numbers in the hundreds of billions (though again, nobody really knows, probably not Geithner either though I bet he's very worried about it..)
At this point, with housing prices (an underlying for much of the toxic assets) resuming their downward slide, it's probable the exposure is heading up. But it is probably less than the 14 trillion in toto than the informative Mother Jones graph was indicating. And if Mother Jones is too lefty for you, you might consider what Bloomberg was saying right around the same time - nearly 13 trillion.
The latest figure I've seen in the Financial press was from Bloomberg in the $11-$12 trillion range. And, a bipartisan watchdog group headed by former congressmen Stenholm (D-TX) Penny (D-MN) and Frenzel (R-MN) is indicating a similar figure of $11.7 billion...and note, if you look at the table here, you are talking about "spent amounts" while Cat is talking about "Max" amount...i.e., how bad thing can get is the assets the Feds are on the hook for do not improve in value. Fai de bèn a Bertrand, te lou rendra en cagant
As you have said elsewhere, it depends on the US economic situation which is of course up in the air.
I do, for my family, feel relatively safer where I sit today (France) than where I sat three years ago (the US) but, that's just a personal judgment, I guess. Fai de bèn a Bertrand, te lou rendra en cagant
It will probably land somewhere in between, though precisely where is impossible to forecast with any degree of precision.
You are right, of course, that in the event of a total collapse, the fact that the Treasury is on the hook for a trillion North American Pesos won't matter. But there's quite a broad range there. An order of magnitude and a half, in fact. So there's plenty of room for it to go plenty wrong even if the real economy only collapses a little bit.
- Jake If you only spend 20 minutes of the rest of your life on economics, go spend them here.
To this I will add: PPIP not only established equity fund managers (plus investor loss guarantees), it established the Legacy Loan program administered by FDIC to dispose of receivership assets ("structured loan sales" plus investor loss guarantees). Diversity is the key to economic and political evolution.
