Heyer Capital, LLC

investment management and timely advice from a local CPA (Fox Valley, Wisc.)

Public Private Investment Program, a.k.a. Geithner’s Folly

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The best summary of my thoughts on the “toxic bank asset” plan comes from another writer, Tom Fant of Atlantic Advisors Asset Management appearing on Minyanville’s Buzz and Banter. (Minyanville is worth every penny.)


PPIP(Public Private Investment Program)-At first glance this makes very little sense to me. Geithner seems to avoid specifics like income tax. But from what I can tell, this is not going to help much. 

Enticing investors to buy loans that the bankruptcy courts can now modify (Home Affordability Act- see law of unintended consequences!) is a tough sell to begin with, but sweetening the pot with cheap financing is almost ridiculous. Aren’t they asking private investors to do what the banks never should’ve done which is buy bad assets and magnify returns with cheap financing? How can anyone be comfortable levering an asset where the underlying cash flows can be changed in a way that is nearly impossible to analyze? And even if I get lucky and make a huge return, I’m going to partner with a government that might take my bonus back? Not so much. 

Here’s the fundamental problem that the government doesn’t get:  The banks CAN’T sell. There is no lack of buyers for these “legacy assets.” After all, there’s no such thing as bad bonds, only bad prices. The problem is where the bonds are marked relative to where investors will buy. If a bank sells a bond at 50 that they have marked at 95, the losses would pile up pretty quick until they are bankrupt.  (emphasis is from Heyercapital)


Written by heyercapital

March 23, 2009 at 9:43 am

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