Courtesy of Mish
Some banks are prodding the government to let them use public money to help buy troubled assets from the banks themselves.
Banking trade groups are lobbying the Federal Deposit Insurance Corp. for permission to bid on the same assets that the banks would put up for sale as part of the government’s Public Private Investment Program.
PPIP was hatched by the Obama administration as a way for banks to sell hard-to-value loans and securities to private investors, who would get financial aid as an enticement to help them unclog bank balance sheets. The program, expected to start this summer, will get as much as $100 billion in taxpayer-funded capital. That could increase to more than $500 billion in purchasing power with participation from private investors and FDIC financing.
Allowing banks to have it both ways would give them added incentive to sell assets at low prices, even at a loss, the banks contend. They claim it also would free up capital by moving the assets off balance sheets, spurring more lending.
Bair Says Banks Can’t Buy Own Assets in PPIP Auction
The PPIP is a big enough scam as it is. Fortunately Bair Says Banks Can’t Buy Own Assets in PPIP Auction.
Federal Deposit Insurance Corp. Chairman Sheila Bair said banks involved in the U.S. Public- Private Investment Program won’t be permitted to buy their own impaired assets as a way to cleanse their balance sheets.
“There should be no confusion: Banks will not be able to bid on their own assets,” Bair said today at a Washington news briefing to discuss first-quarter U.S. bank earnings. There is “no structure” for such purchases, she said.
Banking groups and the Clearing House Association LLC, a group of 10 lenders including JPMorgan Chase & Co. and Bank of America Corp., are pressing the FDIC to let them use the program to buy their own troubled assets, the Wall Street Journal reported today.
Bair said other issues could discourage participation in the program including “discomfort” among potential buyers and sellers that Congress might change the rules.
As an example, Bair cited an amendment Congress approved this month after the program was introduced that would require the government to impose conflict-of-interest rules on managers of public-private investment funds to ensure that securities are bought by the funds in “arms-length” transactions.
The measure “created some uncertainty,” Bair said. “The Treasury will need to issue regulations, I think, to clarify those issues before we will have comfort by market participants.”
Either a buyer or a seller be – but not both.
Yesterday in Banks Lobby to Game PPIP Calculated Risk came up with a catchy phrase "Either a buyer or a seller be – but not both."
Unfortunately, as it sits, the PPIP is still a fraudulent system. I do not care who bids or does not bid, what I care about is the public (taxpayers) are putting up 93% of the funds, and taking 93% of the risk. It is amazing how greedy these banks are, asking to bid on their own assets.
The fear now is that Bank of America bids on Citigroup assets (wink wink) if Citigroup bids on Bank of America assets. The whole process is nothing but a massive transfer of bad assets to taxpayers and the purpose is to bail out bondholders. Please see Geithner’s Plan Can Succeed for details.
Geithner and Bernanke keep insisting that banks are now well capitalized. I say prove it by halting the PPIP. Alternatively, let anyone and everyone bid on everything as long as the public is not involved. That way we would have a true idea of what those assets are worth.
"Either a buyer or a seller be – but not both." is insufficient to address all the ill’s surrounding this fraudulent taxpayer ripoff.