Tuesday, March 24, 2009

Public-Private Investment Program

On Monday, Geitner and Oobama announced the Treasury's plan to buy US banks’ troubled assets. According to Treasury's press release, they plan on using $75 to $100 billion in TARP capital and capital from private investors to buy legacy assets. They state that this can expand to $1 trillion over time.

The plan is to buy up to $2 trillion in real estate assets that have been weighing down banks, paralyzing credit markets and delaying the economic recovery.

The so-called Public-Private Investment Program is designed around three basic principles:
-- Maximizing the Impact of Each Taxpayer Dollar: First, by using government financing in partnership with the FDIC and Federal Reserve and co-investment with private sector investors, substantial purchasing power will be created, making the most of taxpayer resources.

-- Shared Risk and Profits With Private Sector Participants: Second, the Public-Private Investment Program ensures that private sector participants invest alongside the taxpayer, with the private sector investors standing to lose their entire investment in a downside scenario and the taxpayer sharing in profitable returns.

-- Private Sector Price Discovery: Third, to reduce the likelihood that the government will overpay for these assets, private sector investors competing with one another will establish the price of the loans and securities purchased under the program.
It seems the program is about the same as before, only they use the "private" sector term to spin it. The government lends them the money and they don't have to pay it back. But they can keep the profits. I wonder where they will cap any profits?

It seems to be prudent for the "investors" to get in writting that they will not be taxed beyond normal corporate taxes or capital gains on any profits. If these investments turn out to show great returns, they government has a reputation for passing a law and taxing the beneficiaries at 90-100 percent level.

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