Andrew Sorkin had an interesting piece this morning in the NYT where he discusses Sheila Bair’s zero risk estimation for insuring the Private-Public Investment Program [PPIP]. Here are few excerpts.
In the fine print of Treasury Secretary Geithner’s plan (PPIP), you’ll find some details of how the F.D.I.C is trying to stabilize the system by adding more risk, not less, to the system.
[The F.D.I.C.] is going to be insuring 85 percent of the debt, provided by the Treasury, that private investors will use to subsidize their acquisitions of toxic assets. The program … is the equivalent of TARP 2.0. Only this time, Congress didn’t get a chance to vote.
Somehow, in the name of solving the financial crisis, the F.D.I.C. has seemingly been given a blank check, with virtually no oversight by Congress.
The F.D.I.C. is insuring the program, called the Public-Private Investment Program, by using a special provision in its charter that allows it to take extraordinary steps when an “emergency determination by secretary of the Treasury” is made to mitigate “systemic risk.”
..[H]ow much does the F.D.I.C. think it might lose?
“We project no losses,” Sheila Bair, the chairwoman, told me (Andrew Sorkin) in an interview. Zero? Really? “Our accountants have signed off on no net losses,” she said.
By this logic…the F.D.I.C. appears to have determined it can lend an unlimited amount of money to anyone so long as it believes, at least at the moment, that it won’t lose any money.
Here’s the F.D.I.C.’s explanation: It says it plans to carefully vet every loan that gets made and it will receive fees and collateral in exchange. And then there’s the safety net: If it loses money from insuring those investments, it will assess the financial industry a fee to pay the agency back. [via NYT]