Public-Private Investment Program
Posted by benarmstrong on 3/25/2009 7:46:41 PM.
This policy was first proposed by Tim Geithner, Treasury Secretary.
Level of Government: National
Status: Implemented

Abstract
Background:
As the economy has descended, the Treasury Dept. has inaugurated a set of measures to re-boot the economy. Toxic assets of mysterious origin and value continue to inhibit financial institutions from recovering. The presence of these “toxic” or “legacy” assets on banks' balance sheets discourages investor confidence and stifles lending.  The Public-Private Investment Program outlines a strategy to use the previously-established Public-Private Investment Funds.  Legacy assets are largely the product of repackaging and securitizing subprime mortgages and other risky loans.  
Purpose:
The Investment program integrates direct and long-term goals to promote financial recovery.  Immediately, the program seeks to leverage private money to buy troubled assets from failing banks and, in doing so, clarify the assets’ value.  Understanding the price of “troubled” assets will increase certainty in the status of financial institutions and hopefully, in the longer-term, allow them to raise further private capital and stimulate them to lend.
Plans:
The program supplies government support and “co-investment” for the purchase of troubled bank assets.  It establishes similar programs to facilitate the purchase of loans and securities.
The Legacy Loans Program will attract long-term private investment vehicles to make equity investments in legacy loans.  In order to provide a safe and amenable environment for private investment the Treasury will match each equity investment with TARP (Troubled Asset Relief Program) funds.  A Public-Private Investment Fund will issue debt for each transaction that is guaranteed by the FDIC.  The private actor who purchased the asset will have autonomy to manage it under FDIC supervision and regulations.  The FDIC will also determine which legacy assets are available for purchase.  The assets that are deemed eligible will go up for auction.  Once the auction offer is made and accepted, the Treasury will offer to pay for half of the equity amount (see the full-text proposal for an example).  The role of the Public-Private Investment Funds (PPIFs) is to facilitate liquidity by providing loans to cover the remainder (non-equity portion) of the asset purchases.
The Legacy Securities Program will recruit and deploy Fund Managers to raise private capital and combine it with Treasury Dept. funds to make long-term purchases of vulnerable securities.  The Fund Manager will purchase these securities on behalf of a PPIF.  The eligibility of these securities and the guidelines for their sale will be regulated by the Treasury Dept.  The Legacy Securities Program will also expand the Term Asset-Backed Loan Facility (TALF) with increased funding.  The TALF provides loans that allow private investors to purchase certain legacy assets. 
Resources:
The Treasury Dept. plans to invest between $500 Billion and $1 Trillion in investment dollars and loan guarantees through the FDIC.  The ultimate amount that the Treasury invests will be determined by the participation of private investors and the prices of the legacy assets in question.

Policy Details
This program deploys Treasury dollars in order to facilitate the purchase of toxic assets. The goal is to spend money in order to improve the status of financial institutions’ balance sheets and thus increase market liquidity. With fewer troubled assets to address, banks will be less reticent to make loans and re-energize their operations. The investment is directed to foment the recovery of financial institutions.
 
Related Links
Treasury Dept. White Paper Describing Public-Private Investment Program: This short description of the new program outlines the underlying difficulties of "legacy," "troubled" or "toxic" assets and how the government plans to address these difficulties. It also offers examples detailing how the plan will be implemented.
Brookings Institute Analysis of Public-Private Investment Program: Brookings Fellow Douglas Elliott outlines the crucial components of the PPIP and provides an initial guidebook for tracking its success. The introduction provides an excellent summary of the PPIP's main parts.
Initial News of PPIP (NYT): The New York Times provides the initial description of, context for and reactions to the newest Treasury initiative: the Public-Private Investment Program.

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The following policies address similar issues:
Public-Private Investment Program proposed by Tim Geithner, Treasury Secretary
"Clean Up The Toxic Asset Mess" proposed by Center for American Progress
The Global Plan for Recovery and Reform proposed by The Group of 20
Choice Neighborhoods Initiative proposed by Shaun Donovan, Secretary of Housing and Urban Development