Well, it looks like Timmy Geithner's first semester project, the "Public Private Investment Program" is getting marked INCOMPLETE and getting tossed in the bin. From Bloomberg News;
The Federal Reserve may not start lending against residential mortgage-backed securities under its Term Asset-Backed Securities Loan Facility, Federal Reserve Bank of New York President William Dudley indicated.
“We’re still in the process of assessing whether a legacy RMBS program is feasible, and if it were feasible, whether it would be significant enough to make a major impact,” Dudley said at a conference in New York hosted by the Securities and Financial Markets Association and Pension Real Estate Association.
His comments today add to signs that Treasury Secretary Timothy Geithner’s Public-Private Investment Program to boost debt prices and rid banks of devalued assets to expand lending is stalling, after helping to spark a rally in stocks and bonds. The Federal Deposit Insurance Corp. yesterday delayed a test sale of bad loans held by U.S. banks that had been billed as a tryout for its role.
If you remember, this was the big plan that helped ignite a huge rally in financials, which in turn aided the quick raising of bank capital. As we said yesterday in The "Bigger Idiot Theory" Is Alive and Well. folks who have thrown other peoples hard earned money at the freak-show that is our banking sector are going to be standing with the same dumb-ass look they had on their mugs last year when they got scammed and did the same thing. You think that Timmy's plan of clearing the banks of their "legacy" loans and securities wasn't already factored in by the investors who just recapitalized the banks? It's a distinct possibility.
The other main factor that got investors to belly up to the bank bar was the "Stress Tests" administered by the Fed. The "Stress Tests" were the mechanism we used to determine how much capital the 19 major financial institutions needed. I wonder what the starting price was for the "impossible" to value legacy assets and what prices were assigned in the "Stress Position"? Ah, details, details. As they said in jolly old Rome, "Purgamentum init, exit purgamentum"
Anyway, PPIP was a bad plan that, coupled with the suspension of mark-to-market accounting, and the warranted mistrust of dealing with the government on the part of investors, assured that NO PARTY WANTED ANY PART OF THIS PLAN. The plan put the FDIC, and hence us, at huge risk without commensurate reward. So what are we going to do with all these putrefying assets clogging up the financial system? Here's FDIC head Shelia Bair;
“Banks have been able to raise capital without having to sell bad assets through the LLP**, which reflects renewed investor confidence in our banking system.”
**LLP = Legacy Loan Program
Remember last year, around September when you felt the world was ending and you wished you had more canned goods, bottled water and ammo? Well, my advise is stock up now because we are gonna blow again.