Earlier this year, a plan was
devisedto purchase bad assets from banks' books. This was
actually the
original ideabehind TARP, which later changed to simply
purchasing direct equity stakes in the biggest banks.
The plan to buy assets, called PPIP, or the Public-Private
Investment Program, was to marry taxpayer money alongside
private investors, creating a vehicle that could scoop up all
the toxic waste from banks' balance sheets. Because taxpayers
would bear more risk than private investors, there were
handsome incentives for private capital to participate.
Or so the thought went.
The combined funds behind PPIP currently stand at $4.52
billion, with private investors putting up just $1.13 billion
and taxpayers anteing up the rest. This comes after half of
the original plan, run by the Federal Deposit Insurance
Corp., looks like it was
scrapped entirelyearlier this year.
Now, $4.5 billion isn't chump change, but the
original plancalled for $100 billion in private capital
to be leveraged into $1 trillion of buying power. In other
words, six months after the plan was announced, it's not
quite 0.5% of its intended size. Kind of pathetic, if you ask
me.
And kind of irrelevant, too, when you consider the size of
banks' troubled assets. Just looking at level 3 assets --
those assets banks have a hard time valuing because there's
no real market for them -- shows how immaterial $4.5 billion
really is:
Bank
Level 3 Assets
Bank of America (NYSE: BAC)
$122 billion
Citigroup (NYSE: C)
$113 billion
Goldman Sachs (NYSE: GS)
$54 billion
Morgan Stanley (NYSE: MS) Continued... |