PPIP Starting to Die On the Vine

In the immortal words of Lily Tomlin, “Never mind.” That seems to sum up the fate of the PPIP.

The WSJ is reporting that the whole program is stalling and may go into the deep freeze.

A government program designed to rid banks of bad loans, part of a broader effort once viewed as central to tackling the financial crisis, is stalling and may soon be put on hold, according to people familiar with the matter.

The Legacy Loans Program, being crafted by the Federal Deposit Insurance Corp., is part of the $1 trillion Public Private Investment Program the Obama administration announced in March as a way to encourage banks to sell securities and loans weighing on their balance sheets to willing investors.

But prospective buyers and sellers have expressed reluctance to the FDIC about participating for fear the program’s rules will change in a political atmosphere hostile to Wall Street. In addition, some banks that might have sold troubled loans into the program earlier in the year have become less eager as they regained a sense of stability.

This program was probably headed for an early death the moment it was conceived. It smelled like the bad piece of financial engineering it probably was and finding defenders outside the ranks of government was well nigh impossible. Beset by all sorts of efforts to game it as well as an ice cold reception from the supposed beneficiaries, it should have been abandoned some time ago.

The Journal article does hint at a bit of inter-governmental bickering over the program:

Senior Treasury officials weren’t keen on the FDIC’s program because of the large gap between potential buyers and sellers. In fact, some Treasury officials didn’t want the FDIC program to even be created.

That’s encouraging. Two of the key players in working out this mess are sniping at each other about turf or whatever. I could launch into quite a rant over that but I’ll leave it to you to construct one yourself this evening.

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