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The Incredible Shrinking PIPP

By Brian | October 6, 2009 | Share on Facebook

Great news! The Obama administration has found a way to cut $488 billion from a government program, and reduce the total projected commitment of that program by a whopping $960 billion! I guess we can pay for healthcare now! OK, maybe not…

The program is the Public Private Investment Plan, or PPIP for short. PPIP was designed to achieve what Treasury Secretary Hank Paulson originally said the TARP money would be used for – buying mortgage-related assets from Wall Street firms in order to expand the power of their balance sheets. Of course, when they actually gave him the money, he decided to use it to buy equity in the banks instead.

That was back in September of 2008, when the worst financial crisis of our time demanded immediate, decisive action. Like suspending the two presidential campaigns for a photo-op at the White House.

Having failed to actually buy any of these so-called “toxic assets,” our government tried again in March of 2009, launching the PPIP program, which intended to use “$75 to $100 billion in TARP capital and capital from private investors [to] generate $500 billion in purchasing power to buy legacy assets – with the potential to expand to $1 trillion over time. “

Because, you see, in March of 2009, the worst financial crisis of our time demanded immediate, decisive action. Like investigating the $18 billion in Wall Street bonuses that were distributed the previous year, and bailing out the auto industry.

In late June of 2009, The U.S. Treasury announced that the PPIP program would roll out sometime this week. At the time, nine private firms had agreed to participate, bringing the total purchasing power of the program to roughly $50 billion (NOTE: That is not a typo).

Because, you see, in late June, the worst financial crisis of our time demanded immediate, decisive action. Like revamping the nation’s healthcare system.

Which brings us to today – early October of 2009. According to the Wall Street Journal, the program now has five participants with a total purchasing power of $12.27 billion, who can “start buying [assets] next week.”

Because, you see, the worst financial crisis of our time demands…ah, nevermind.

So, to recap: the original PPIP program set a goal of purchasing $500 billion in mortgage-related assets, possibly expanding to $1 trillion. If the program actually does kick off next week (we’ve heard that before), it will be almost seven months later, and will be able to purchase just $12.27 billion in securities (2.5% of the plan). Further expansion is, apparently, still expected (despite the consistent shrinkage we’ve seen so far), so Treasury tells us the plan may one day expand to $40 billion.

On the upside, we’re investing $488 billion less than we planned to invest now, and if we hit our (new) expansion goals, our “savings” will total $960 billion!

It seems we’ve managed to save quite a bit of money by our inaction. Kind of makes you wonder how much more we could save if we didn’t enact some other programs as well…

Topics: Money Talk, Political Rantings | No Comments »

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