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Fill or Kill: Strong Case We Don't Need Geithner's Toxic Debt Scheme

Posted Jul 01, 2009 07:00am EDT by Aaron Task
Related: C, AIG, GE, XLF, SKF, FAS, FAZ
Treasury Secretary Tim Geithner will announce long-awaited details on the PPIP plan Wednesday or Thursday this week, according to CNBC.

PPIP, the Public-Private Investment Program, is the government's controversial plan to spur buying of banks' toxic debt. Since Geithner first floated the scheme in late March, bank stocks have rallied sharply and most big financial services firms have raised capital via equity sales - thanks, in part, to optimism about the PPIP.

The irony, of course, is the plan hasn't gotten off the ground and is hamstrung, most notably, by banks' reluctance to sell their "assets" at what they consider rock-bottom prices.

There's a strong case to be made we don't need the PPIP anymore, says Dan Greenhaus, an analyst in Miller Tabak's strategy group. At the same time, banks are going to be even less willing to participate now, since they've raised capital and the economy has shown signs of stabilizing.

If Geithner's goal was simply to inject confidence into the system so banks could raise capital, then PPIP really was "the greatest program that never occurred," as Goldman managing director Scott Romanoff described it, according to The WSJ. Viewed in this light, Geithner might be wise to kill the program altogether. 

But if Geithner's goal was really to get toxic assets off the banks' balance sheets, the program has failed completely - or merits an incomplete at best. Against that backdrop, it will be interesting to see what Geithner says about PPIP this week, if anything; as of Tuesday evening, a Treasury spokesman had not responded to my requests for comment on the CNBC report, which also states the program is going to be shrunk dramatically from its originally $1 trillion goal.

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