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Wednesday, May 27, 2009

Banks Lobby to Game PPIP

by Calculated Risk on 5/27/2009 12:17:00 AM

From the WSJ: Banks Aiming to Play Both Sides of Coin

... 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.
The lobbying push is aimed at the Legacy Loans Program, which will use about half of the government's overall PPIP infusion to facilitate the sale of whole loans such as residential and commercial mortgages.

Federal officials haven't specified whether banks will be allowed to both buy and sell loans ...

Some critics see the proposal as an example of banks trying to profit through financial engineering at taxpayer expense, because the government would subsidize the asset purchases.
"The notion of banks doing this is incongruent with the original purpose of the PPIP and wrought with major conflicts," said Thomas Priore, president of ICP Capital, a New York fixed-income investment firm overseeing about $16 billion in assets.
Hopefully the answer will be a resounding "NO". The purpose of PPIP is to remove the toxic legacy assets from the bank's balance sheet, not to allow the banks to game the program at taxpayer expense.

Either a buyer or a seller be - but not both.