Monday, March 23, 2009

Geithner PPP's on Taxpayer

Treasury Chief Tim Geithner announced a three part plan to relieve banks of junk financial products. One strategy establishes public-private partnerships. The plan allows leverage:

6 to 1 on debt

That means the government will provide low cost taxpayer, nonrecourse loans for 85% of the partnership. The remaining 15% is equity. The government provides leverage in the form of:

20 to 1 on equity

Public money could comprise 14.25%, while private investment firms pony up 0.75% of equity. Of course, the numbers could be less/more. How likely is that for the greed and leverage boys? They want to restart the old system to generate big profits. The ratio for splitting eventual profits is:

50/50 split

Wow, taxpayers could provide 99.25% of the capital and garner only 50% of the profits. PIMCO's Bill Gross expects returns in the teens, 13% or greater, from this program. Corporafornication is alive and well. America's shadow banking system wins again. (Note: I've seen numerous articles citing varying percentages. The statistics in this piece came from CNBC's coverage this morning. CNBC's afternoon reporting cites a 50/50 split on equity. That makes the private contribution 7% with public funding 93%. Still heavily skewed in favor of the private investment firm.)