The PPIP Reading List
I can't exactly explain why I am so fascinated by the Treasury's PPIP plan, but I am. I was also fascinated by the RTC back in the day but had no involvement with it. I love the idea that one man's toxic asset can be another man's (or woman's) gold.
Yesterday, I asked everyone for their opinions on this plan and I got a bunch in the comments. We also heard from JLM, who called it "Dr Tim's Excellent Elixir". I promised that I would publish links to posts everyone liked and I got a ton of them.
So here are some highly recommended posts from the AVC community. Just in time for your Sunday morning reading pleasure.
Umair Calls It A "Financial Coup D'Etat
Simon Johnson, former chief economist of the IMF, wrote the post that inspired Umair
Brooks Jordan Says It's Political Problem
Mark Sigal Outlines The Juxtapositions
Whitney Tilson Talks About the ARM Issue
Joe Nocera Says The Plan Could Work
Krugman Thinks It Is "More Of The Same"
Rortybomb on "Looting The FDIC"
Kid Dynamite on "seller financing"
Jeff Sachs on the "perils of price discovery"
I am sure I'll get more links sent to me and I'll try to post them here.
There is a detailed and great blog from Mike at http://rortybomb.wordpress…. . We also put that on our tumblelog.CheersPaul
Interesting Sunday morning reading, Fred. There is no shortage of people to criticize the administration’s plan. While educational, it moves us not one step closer to a workable solution.I ask that you invite the same reader brain trust for THEIR PLANS on how to move us from where we are to where we need to be (or would like to be). With no less the detail provided by the Treasury in the press release you linked in this post.That’s what I want to read…and the critiques of those plans. In fact, just for kicks, maybe you or a brilliant intern could sift through those plans and resultant critiques and assemble a collaborative “Franken-Plan” that pulls together the best of the best that a majority of Frad Nation can support (or at least live with for now).
I kind of like the PPIP plan myself but don’t understand why its limited to five funds. It seems to me the more buyers the better.I also think the leverage being offered is awfully generous.My hope is this is a beta test and the treasury will learn from this and evolve and expand the program
I also think the five fund limit on the Legacy Securities portion of the PPIP (or more specifically the limit to funds that can raise $500M and have $10B of these assets under management) doesn’t make much sense. There are a number of potential buyers who are capable of underwriting and managing these assets (to the extent that anyone can) and have capital. The government often crafts the requirements for all sorts of things where the terms of the requirements are chosen to “pick” the winners, that is clearly the case here.The Legacy Loans part of the program is much more open and not limited to 5 funds.It seems to me that the high leverage + very low interest rates is an attempt by the Treasury to recreate the cost of capital environment when most of these loans were first underwritten and thus achieve pricing high enough to make the banks sellers (with some prodding from the FDIC etc.). The problem is, of course, even if you bring back the old cost of capital environment, the fundamentals underlying these securities have deteriorated so much since then.
how the geithner plan like its predecessors further fuels inflation:http://www.ianwelsh.net/gei…http://jsmineset.com/index….
I am not Marxist, but here is some food for thought. Someone sent me this by email, and I don’t know the specifics of the source.Karl Marx 1867: “Owners of capital will stimulate the working class to buy more and more of expensive goods, houses and technology, pushing them to take more and more expensive credits, until their debt becomes unbearable. The unpaid debt will lead to bankruptcy of banks, which will have to be nationalized, and the State will have to take the road which will eventually lead to communism.”In order to avoid this outcome, and perhaps in response to Mark Olson who asked for proposals, I believe the solution is not so much technical as it is cultural. The focus of our economy, society, educational systems, and even arts (i.e. Hollywood) for at least the last 50 years has been on consumption and the encouragement of it. The focus has to shift to creation, production, etc.One of the main impediments, but one that has to be overcome, is our diminishing attention span and increasingly short-term orientation. Creativity takes time and patience, whereas consumption is instant. The Geithner plan, I think, is more of the instant gratification variety, and is designed to stimulate consumption.The two sides go hand-in-hand, I understand that, but it’s a matter of balance, and I think for a long time the balance has been skewed. Perhaps the responsibility is with our schools… I don’t know… the issue is so complex.
I am curious what you think of kurt andersen’s cover piece in this week’s time magazine. I’m on an airplane on my bberry and can’t provide a link but I did tweet the linki this morning
Coincidentally, Mrs. K_K was reading the same article last night and showed it to me. I agree with the general theme, but particularly like the author’s view about the rise of entrepreneurship and the role of venture capital in this environment. That would be good on many levels, I hope he’s right.
don’t want to self promote, but my post on seller financing in the PPIP is a simple explanation of a point others are missing.http://fridayinvegas.blogsp…-KDp.s.: i have three other posts on the PPIP last week which i think are accurate and informative
Thanks for the reading list, I’ve found the blogosphere and related comments particularly helpful in understanding the PPIP and its implications.Below are links to two posts that focus primarily on the leverage issue (comments are also interesting in both):1) Mike at Rortybomb’s “Modeling an FDIC robbery”: http://rortybomb.wordpress…. (seconding Higgop’s recommendation)2) Nemo/ Self Evident: The “Geithner Put” part one and two: https://self-evident.org/?p… and https://self-evident.org/?p…Agree with Mark Olson that there should be more alternative suggestions put forth (one of the things I very much appreciate about @infoarbitrage).Look forward to reading others’ suggestions and recommendations!
ThanksI think I now have them on my reading list as I just updated it
Gary Becker and Richard Posner just posted their thoughts on this issue as their weekly topic:http://www.becker-posner-bl…
Ooh. I am going to read it now. I love BP
It’s poorly conceived and won’t work as constructed. Here are a few reasons why:(1) Banks won’t sell at a loss, especially ones that need to, because the government now has guaranteed pieces of their balance sheets. Citibank is a prime example.(2) The stigma attached to those that participate will further weaken stock prices of sellers.(3) There are too few buyers to really make a market.They need to do some more tinkering. Obama let Geithner go live with a plan that is DOA. Let’s see how the second version fares. My guess is that we will begin to hear about proposed improvements, etc.