Monday, May 18, 2009

P-PIP Hooray?!

Stumbled across a frightening story in the Financial Times (sad when terror can be found in the pages of a financial rag, but these are those kind of days!)

A couple of weeks ago, when writing in FT about the fed's Public-Private Investment Program, Lucien Bebchuk asked this question:

"Should banks with large amounts of troubled assets be allowed to participate as managers or investors in funds set up under the US’s public-private investment programme?"

I'm astonished that such a question is even being asked. Apparently, it is not merely rhetorical.

According to Bebchuck, "media reports indicate that some such banks are considering participating in funds established under the administration’s programme."

I've learned lately that Wall Street is an alternative universe, a place where bonuses are not rewards for successful behavior, but legal obligations bankrupt firms must honor no matter what.

A place where great brains thought it would provide long-term capital benefits to bundle up bad loans into large tranches of bad loans to spread the risk to more of the country than just Wall Street.

A place where the amount of toxicity on the books of these firms dragged the economy down in a rapid and terrifyingly dangerous manner.

A place that needed massive capital infusions from the feds or the global economy would have collapsed (more completely than it has collapsed thus far.)

Now apparently, there are some banks that are considering simultaneously unloading and snapping up the toxic assets, courtesy of PPIP.

All I can hope is that Bebchuk is seriously misinformed about this. The idea that the firms loaded with toxic assets would snap up more of them in an attempt to make money is a reality I simply cannot grasp, living as I do in the universe outside of Wall Street.

And if there is profit to be made from toxicity, let's hope the taxpayers see most of it....

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