So Thursday morning we get the list of PPIP "managers", and guess who's missing?
The U.S. Treasury Department picked nine money managers yesterday for the Public-Private Investment Program, or PPIP, including BlackRock Inc. and Invesco Ltd. Pimco, which in March announced plans to apply, said it withdrew its application in June because of “uncertainties” about the initiative’s design.
And why?
The government’s plan is a scaled-down version of a program that was once envisioned to buy as much as $1 trillion in devalued real-estate loans and mortgage-backed assets. Pimco’s reversal raises questions about the complexity and potential returns from the program, said Eric Petroff, director of research at Wurts & Associates, a Seattle-based consultant to institutional investors.
Scaled down?!
Uh, folks.
We're talking about a program that was announced as a $1 trillion dollar initiative, financed mostly by the government. The announcement was responsible for a monstrous stock market rocket-shot, if you remember, on the day it was first "announced."
Now the program looks to be a tiny little $40 billion dollar pipsqueak, or about 1/25th of its original announced size!
In other words, it means exactly nothing.
A big part of the reason for the "scaling down" is this:
The program will start out targeting commercial mortgage- backed securities and non-agency mortgage-backed securities issued before 2009, with an initial rating of AAA or its equivalent, the Treasury said.
There aren't many "AAA" CMBS securities out there, you know. Oh, and did you see that "initial" rating? Yep. Guess what - this means that they "may" have been fraudulently rated originally, using the same bad assumptions made on "home loans", and now they're trash!
The other problem is getting banks to sell these so-called "assets". As I've written about repeatedly, the banks are holding these loans on their books at entirely-unreasonable (and nowhere near current market) values - a pure accounting fiction. Should they sell, they're forced to recognize the actual sale price as the value, creating enormous and immediate charges - perhaps enough to put capital ratios in jeopardy (or even trigger bankruptcy.)
I said at the time it was announced that PPIP was a joke and would never do a thing to solve any of the problems. Geithner, in contrast, testified before Congress that "there is no backup plan" to this program, because, as he said, "it will work."
Now, six months later, the proof is on the table.
Score another one for Tickerguy, and another flat miss for Geithner and the administration.
