PPIP is a pipsqueak

July 8, 2009

The Treasury Department is finally out with its final version of a plan for ridding the banks of toxic assets and you have wonder why the Obama administration even bothered.

Treasury will now fund the program with $30 billion in government money. Back in March, Treasury Secretary Tim Geithner was talking about kicking in between $75 billion and $100 billion into the program.

The reduced government commitment is a sign that Treasury couldn’t convince banks to go along with the idea of selling their toxic securities at a discount–something that would force another round of painful writedowns.

So the toxic assets, for the most part, will continue to sit on the balance sheets of the banks and we’ll continue to delude ourselves that the financial system is on the road to recovery.

Back in June I suggested half in gest that Geithner scrap the PPIP altogether and simply tinker with the tax laws to make it possible for banks to take hefty tax deductions on any CDOs that were contributed to charitable groups.  But after seeing this half-hearted government plan, I think my idea is better.

In my plan, a favorable tax deduction would ease the bite of any writedown a bank would take on a CDO donation. And charitable groups would be able to make some money by selling the ailing mortgage-backed securities if they ever recovered in value.

Compared to Geithner’s lousy plan, CDOs for Charity seems like a win-win.


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