Thursday, February 12, 2009

Geithner's Plan: We'll Just PPIF, PPIF It Away

As you may have heard, the markets were not impressed with the "plan" outlined on Tuesday by Treasury Secretary Geithner. The audience was equally difficult later in the day, when legislators openly laughed at his presentation.

Secretary Geithner is committed to expanding federal guarantees and spending by trillions of dollars. One area of major concen-tration is what he termed a Public-Private Investment Fund, tasked with spending up to a trillion dollars purchasing consumer loans from banks and other lenders. His goal is to reinvigorate secondary markets, thereby lubricating financial markets.

Let's see, federal bureaucrats will be picking and choosing among a dozen types of loans, millions of individual transactions and an almost infinite number of pricing possibilities. These are the same folks who, according to the auditors, already wasted nearly $80 billion (out of $300 billion) in just a few dozen bank bailouts in November.

And who are the feds going to partner with on this, according to Mr. Geithner's plan? Well, the most experienced people in the world at doing this sort of thing are the folks working at investment banks, hedge funds and private equity firms on Wall Street.

Now, if you were a betting person, which team would you bet on to most likely walk away with the marbles? Tim's clerks at Treasury or the folks at Goldman, Blackstone and KKR?

  • First, it will not achieve it's stated purpose.
  • Second, it will interfere with the market's own recovery process, already underway.
  • Third, a significant percentage, a hundred billion dollars or more, will dribble out into the grasping fingers of the players.
PPIF, piffle.

This is the only man who can rescue the markets?

Maybe in the old Soviet system. In America, we can do better. Just let the market itself lead the process.

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