Saturday, March 21, 2009

PPP FT! Pppft!

Financial public private partnerships (PPP) may be funded with 97% public and 3% private money. Loans would be nonrecourse, meaning Uncle Sam can't do more than pull back the bad assets. With a 3% investment, America's shadow banking system could see considerable green. Hedge funds and private equity firms stand to make yet another killing on the back of taxpayers. Tired of Corporafornication yet?

Recall the same shadow bankers produced the junk, choking the life out of large commercial banks. Private equity underwriters (PEU's) are buying back affiliate debt on the cheap, with a $25 billion Obama stimulus tax break to boot. The NYT reported on Uncle Sam's new partners:

Risk-taking institutional investors, like hedge funds and private equity funds, have refused to pay more than about 30 cents on the dollar for many bundles of mortgages, even if most of the borrowers are still current. But banks holding those mortgages, not wanting to book huge losses on their holdings, have often refused to sell for less than 60 cents on the dollar.

Taxpayer money and public private partnership bidding will bridge the gap of this market conundrum. Another sweet deal for PEU's and their shadow friends! FT!