Public-Private Investment Program

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The Public-Private Investment Program (PPIP) is part of the Obama administration's bank rescue plan unveiled by Fed Chairman Timothy Geithner on February 10, 2009. The rescue plan is intended to stimulate the economy after the first tranche of the TARP failed to get the U.S. economy back on its feet after the 2008 credit crisis. The Public Private Investment Fund is to be run jointly by the U.S. Treasury and the Federal Reserve, with financing from private investors, to buy up hard-to-sell assets that have bogged down banks and financial institutions for the past year. The new fund, which is in lieu of a “bad bank” for holding toxic assets, would start with $500 billion with a goal of eventually buying up to $1 trillion in assets.[1]

Geithner announced the final proposal for the public-private partnership on March 23rd. The proposal marks a revival of sorts for the original asset-buying component of the Troubled Asset Relief Program (TARP). This time, however, money managers and insurers, rather than the government, will buy the assets, with co-investment by the Treasury, cheap loans from the Federal Reserve and guarantees from the Federal Deposit Insurance Corporation (FDIC). For every private dollar invested, the taxpayer will provide a matching dollar of equity and up to $12 of other financing. Investors can walk away from their debts if a deal loses money.

The public-private partnership was largely put on ice in June 2009, when a slight market thaw allowed the healthier banks to raise some capital again, amassing enough equity to get by without having to offload their least liquid assets. [2]

On September 30, 2009, the Wall Street Journal reported that the Treasury was expected to announce that two of the nine investment firms chosen earlier in the year to participate in the program had raised the money necessary to qualify for government financing. The firms, Invesco Ltd. and TCW Group, will get 100% government financing, including a dollar-for-dollar capital match and debt financing, according to the Journal. The remaining seven firms were also expected to qualify.[3]


References

  1. Geithner Details New Bank Rescue Plan. The New York Times.
  2. Repaying TARP money: Hauled to safety. The Economist.
  3. Treasury's Toxic-Asset Program Raises $1.13 Billion. The Wall Street Journal.
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