Thursday, April 23, 2009

PPIP Death Watch, Installment #382

More evidence the PPIP will fail: a similarly designed plan is floundering. The Washington Post reviews the Term Asset-Backed Securities Loan Facility (TALF) program and finds it wanting:
In its first two months, the government's signature initiative to support consumer lending has fallen well short of expectations, deploying only a fraction of the amount officials had hoped to extend to stimulate auto loans, student loans and credit card lending.
The TALF structure, through partnering private and public investment, was supposed to support as much as $1 trillion a month in new lending. However, in April it backed only $1.7 billion in loans, about a third of March's total.

What's wrong? Problems include (1) Private investors see the government as an unreliable partner that could suddenly turn around and change terms or impose restrictions on them (2) The brokerage houses, the key intermediaries that arrange the lending transactions and hold assets as collateral, are being unduly cautious. They're afraid of making mistakes that will incur Congressional or media wrath.

The money graph:
... the challenges in getting TALF running at full speed show the difficulties facing the Treasury and the Fed as they design new programs to try to deal with the financial crisis. The Public-Private Investment Program, designed to buy loans and securities from banks, is structured similarly to TALF.