Ezra Klein: Geithner's Plan (PPIP) Is Dead

Geithner's Plan Is Dead
The toxic assets portion of Tim Geithner's Public Private Investment Program looks to be officially dead:

The Federal Deposit Insurance Corp. indefinitely postponed a central element of the Obama administration’s bank rescue plan Wednesday, acknowledging that it could not persuade enough banks to sell off their bad assets.

In a move that confirmed the suspicions of many analysts, the agency called off plans to start a $1 billion pilot program this month that was intended to help banks clean up their balance sheets and eventually sell off hundreds of billions of dollars worth of troubled mortgages and other loans.

Many banks have refused to sell their loans, in part because doing so would force them to mark down the value of those loans and book big losses. Even though the government was prepared to prop up prices by offering cheap financing to investors, the prices that banks were demanding have remained far higher than the prices that investors were willing to pay.

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...this is either a sign that all is right with the world or all is much worse than Geithner thought.

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If the toxic assets are still an anchor around the banks' neck, the banks will keep a freeze on lending, which will keep the recession lasting longer. If the banks bet that the value of the toxic assets will rise later and decided to hold onto them praying that their values rise, they banks will keep a freeze on lending, which will keep the recession lasting longer. We seem to be where we started in the first place.

Wonder what Geithner will try next?

Nationalize the banks, make them profitable and then sell them

And I'm not about to suggest that he isn't a pretty darn large slice of that feces tart, but clearly this is a cold statement from the banks:

"We want to profit from this recession and we will because you're keeping us afloat."

It seems that, even though banks and their lending practices are an enormous reason why we find ourselves in this mess, they seem to want to assume no (unprofitable) role in the long-term solution. On paper, at least, those toxic assets still have that good old "banker's value" that led them to be created in the first place. So long as they're not going under BECAUSE of these toxic assets, and they won't because of all of the bailout money they've been given, they'll still treat this like a seller's market. Does anyone question for a minute that if we had not been given bailout money, they'd be itching to get rid of these assets?

From my perspective, they've made it clear they want to break even, if not profit, from these investments.

Despite the fact that the Treasury is empty, I'm not too hopeful that the banks will get to eat those bad investments - Geithner is likely to borrow more against our future to pay them off. After all, aren't Wall St. and the bankers the heroes in this story?

After all, some are still paying out money, and while others depend on the market price of houses it's likely that in foreclosure they'll get more than from the government.

There's no way of coming up with a book value for them, so if the banks are content to sit on them and wait, let them.

I mean both commercial and, say, residential mortgages with the traditional kinds of requirements for borrowers to meet. Not subprime or alternative mortgages.

We had no trouble getting a mortgage, at least not so far. We expect to close on Monday--and that's only our paperwork was held up because the broker's "final documentation" office was backlogged. Then again, we have sufficient documented income, the house is appraised for at least the amount of the mortgage, and we have good credit scores--i.e., the traditional requirements for borrowers to meet.

I was beginning to worry.