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Another taxpayer rip-off courtesy of Tim Geithner.
- The government’s return on its contribution to PPIP is around 5.6 percent when including the debt financing it provided and considering only realized returns, said Linus Wilson, a finance professor at the University of Louisiana, in Lafayette. Officials shouldn’t have allowed the funds to make $159 million in equity distributions based on paper profits.
- “This is irresponsible when taxpayers will be lending $14.7 billion of extremely low-interest loans” to the funds, Wilson said. “Dividends SHOULD NOT be paid until the private investors’ debt to taxpayers is paid in full.”
Besides being a taxpayer-leveraged gift to banks as their balance sheets improve with the artificial Geithner rise in MBS pricing, there is another more egregious downside, articulated yesterday by the anti-banking badass of the moment, Bill K. Black...
The fraudulent CEOs looted with impunity, were left in power, and were granted their fondest wish when Congress, at the behest of the Chamber of Commerce, Chairman Bernanke, and the bankers' trade associations, successfully extorted the professional Financial Accounting Standards Board (FASB) to turn the accounting rules into a farce.
The FASB's new rules allowed the banks (and the Fed, which has taken over a trillion dollars in toxic mortgages as wholly inadequate collateral) to refuse to recognize hundreds of billions of dollars of losses. This accounting scam produces enormous fictional "income" and "capital" at the banks. The fictional income produces real bonuses to the CEOs that make them even wealthier. The fictional bank capital allows the regulators to evade their statutory duties under the Prompt Corrective Action (PCA) law to close the insolvent and failing banks.
The inflated asset values allow the Fed and the administration to ignore the Fed's massive loss exposure and allow Treasury to spread propaganda claiming that TARP resolved all the problems -- at virtually no cost.
William Black Calls on FDIC to Seize Bank of America
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DB here again. Now, on to the 1st-year success story of the P-PIP. It's a relatively small program and it's hard to imagine how it could have taken a loss with easy-money Bernanke, in the background, buying more than a trillion of MBS paper (it wasn't all Treasuries) over the last 18 months.
The problem, the fine print, has been made bold below.
“The first year has been out of the ballpark,” Jeffrey S. Phlegar, who heads the PPIP fund run by New York-based money manager AllianceBernstein LP, said yesterday in a telephone interview.
The Treasury is an equal equity partner in each of the funds and provided debt financing for the $29.4 billion program. The government has gotten $215 million of interest, dividend and other payments, and the funds have more than $1.5 billion in unrealized gains.
The PPIP fund managed by GE Capital Real Estate had the best return at 52 percent, the Treasury said. Oaktree Capital Management LLC, based in Los Angeles, had the lowest return at 19 percent.
The government’s return on its contribution to PPIP is around 5.6 percent when including the debt financing it provided and considering only realized returns, said Linus Wilson, a finance professor at the University of Louisiana, in Lafayette. Officials shouldn’t have allowed the funds to make $159 million in equity distributions based on paper profits, he also said.
“This is irresponsible when taxpayers will be lending $14.7 billion of extremely low-interest loans” to the funds, Wilson said. “Dividends should not be paid until the private investors’ debt to taxpayers is paid in full.”
The eight fund managers raised $7.4 billion from private investors, which was matched by the Treasury. Government debt financing totaled $14.7 billion.
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PPIP Explanation.
Tim Geithner stars in Leverage Me Tender -- demonstrating the danger of reliance on frog-backed securities. Very well-done Geithner comedy. Runs 1 minute..
Remember Geithner's famous P-PIP rescue program for toxic assets:
- "Along comes Timmy with a plan. He's the new kid America loves to hate. Some call him Socialist pinko punk. Others call him compromised, corporate shill."
More detail on the P-PIP:
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