Treasury legacy loan program

Bair, at least, deserves to be somewhat commended. Yes, commended!! The FDIC describes the program in the following manner:. In order to cleanse bank balance sheets of distressed loans and other assets and reduce the associated market overhang, the FDIC and Treasury are launching the Legacy Loans Program. The participation of mutual funds, pension plans, insurance companies, and other long term investors is particularly encouraged..

There is, of course, a possibility that , and if you read the details in the above link that the investors could profit, but the taxpayer will lose for sure. Actually, it is a win-win-lose proposal: the banks win, investors win — and taxpayers lose. Banks got themselves, and our economy, into trouble by overleveraging — that is, using relatively little capital of their own, they borrowed heavily to buy extremely risky real estate assets.

If it loses out, the taxpayer takes almost all of the losses. Now, kudos to Bair for posting what are certainly real letters from the public here. I do NOT want to pay off these thieves. They need to be investigated and prosecuted, not enriched. I'm appalled at how the US government is aiding and abetting failure.

Let's stop touching the pretty, glowing coils on the stovetop. Just plainly call it theft, please. And we are SO sick of the abuse. My favorite is just a bit sarcastic, which makes sense since it was from a Mr.

Benjamin N. Dover, III :. I'm confident that I speak for most Americans when I note that the proposed PPIP is grossly unfair to the banks, investors and asset managers. This sweetheart deal for taxpayers would penalize banks for finding themselves in an unforeseeable predicament for which they bear no responsibility.

It would also require selfless investors and asset managers to bear an unconscionable portion of the risk in return for minimal reward. If we're going to get through this crisis, everyone's going to have pitch in and sacrifice — and that includes the taxpayer. So, unless you want the global financial system to be Lehmaned again, I suggest you change the terms of the program as follows:.

Medicare and Medicaid could also be asked to chip in as necessary — I see no reason why the poor and elderly should not pay their fair share here. Once bought, these assets would then be gifted to large hedge funds and private equity firms. And remember: hold your ground if the investors try to haggle over this. A small number of asset managers should be selected in secret to manage the assets in return for guaranteed fees to be paid by the Government.

That seems fair here. Obviously, you'll need to guarantee all parties that in exchange for rescuing the taxpayer they won't be subject to any Government meddling before, during or after the transactions are completed.

I suggest you lobby Congress to pass a law prohibiting it and all regulators you too, Ms. Bair from engaging in any interference or exercising any oversight over the program or the parties involved. In addition, Congress should grant a pre-emptive amnesty and pardon to all parties for any wrongdoing that they later may be unfairly accused of in connection with the program.

I hope it goes without saying that none of the fees or profits resulting from the PPIP should be subject to any ordinary much less special taxes. One major reason is the problem of legacy assets — both real estate loans held directly on the books of banks legacy loans and securities backed by loan portfolios legacy securities. These assets create uncertainty around the balance sheets of these financial institutions, compromising their ability to raise capital and their willingness to increase lending.

To address the challenge of legacy assets, Treasury — in conjunction with the Federal Deposit Insurance Corporation and the Federal Reserve — is announcing the Public-Private Investment Program as part of its efforts to repair balance sheets throughout our financial system and ensure that credit is available to the households and businesses, large and small, that will help drive us toward recovery.

The Public-Private Investment Program will be designed around three basic principles:. The Merits of This Approach: This approach is superior to the alternatives of either hoping for banks to gradually work these assets off their books or of the government purchasing the assets directly.

Simply hoping for banks to work legacy assets off over time risks prolonging a financial crisis, as in the case of the Japanese experience. But if the government acts alone in directly purchasing legacy assets, taxpayers will take on all the risk of such purchases — along with the additional risk that taxpayers will overpay if government employees are setting the price for those assets.

Two Components for Two Types of Assets : The Public-Private Investment Program has two parts, addressing both the legacy loans and legacy securities clogging the balance sheets of financial firms:. The Legacy Loans Program: To cleanse bank balance sheets of troubled legacy loans and reduce the overhang of uncertainty associated with these assets, the Federal Deposit Insurance Corporation and Treasury are launching a program to attract private capital to purchase eligible legacy loans from participating banks through the provision of FDIC debt guarantees and Treasury equity co-investment.

Treasury currently anticipates that approximately half of the TARP resources for legacy assets will be devoted to the Legacy Loans Program, but our approach will allow for flexibility to allocate resources where we see the greatest impact. Step 2: The FDIC would determine, according to the above process, that they would be willing to leverage the pool at a 6-to-1 debt-to-equity ratio.

Step 3: The pool would then be auctioned by the FDIC, with several private sector bidders submitting bids. Step 6: The private investor would then manage the servicing of the asset pool and the timing of its disposition on an ongoing basis — using asset managers approved and subject to oversight by the FDIC.

The Legacy Securities Program: The goal of this program is to restart the market for legacy securities, allowing banks and other financial institutions to free up capital and stimulate the extension of new credit. The resulting process of price discovery will also reduce the uncertainty surrounding the financial institutions holding these securities, potentially enabling them to raise new private capital.

The Legacy Securities Program consists of two related parts designed to draw private capital into these markets by providing debt financing from the Federal Reserve under the Term Asset-Backed Securities Loan Facility TALF and through matching private capital raised for dedicated funds targeting legacy securities. Step 1 : Treasury will launch the application process for managers interested in the Legacy Securities Program. Step 2: A fund manager submits a proposal and is pre-qualified to raise private capital to participate in joint investment programs with Treasury.

Step 3: The Government agrees to provide a one-for-one match for every dollar of private capital that the fund manager raises and to provide fund-level leverage for the proposed Public-Private Investment Fund. Step 6: The fund manager has full discretion in investment decisions, although it will predominately follow a long-term buy-and-hold strategy.

The Public-Private Investment Fund, if the fund manager so determines, would also be eligible to take advantage of the expanded TALF program for legacy securities when it is launched. About Treasury About Treasury. Policy Issues. Tribal Affairs. National Debt National Debt to the Penny. International Reserve Position. Troubled Assets Relief Program Reports.

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View All Remarks and Statements. View All Tweets. We can do this. Visit Vaccines. Breadcrumb Home News Press Releases. March 23, Archived Content March 23, tg Fact Sheet Public-Private Investment Program The Financial Stability Plan — Progress So Far: Over the past six weeks, the Treasury Department has implemented a series of initiatives as part of its Financial Stability Plan that — alongside the American Recovery and Reinvestment Act — lay the foundations for economic recovery: Efforts to Improve Affordability for Responsible Homeowners: Treasury has implemented programs to allow families to save on their mortgage payments by refinancing, assist responsible homeowners in avoiding foreclosure through a loan modification plan, and, alongside the Federal Reserve, help bring mortgage interest rates down to near historic lows.

Capital Assistance Program: Treasury has also launched a new capital program, including a forward-looking capital assessment undertaken by bank supervisors to ensure that banks have the capital they need in the event of a worse-than-expected recession.

If banks are confident that they will have sufficient capital to weather a severe economic storm, they are more likely to lend now — making it less likely that a more serious downturn will occur. Origins of the Problem: The challenge posed by these legacy assets began with an initial shock due to the bursting of the housing bubble in , which generated losses for investors and banks.

Losses were compounded by the lax underwriting standards that had been used by some lenders and by the proliferation of complex securitization products, some of whose risks were not fully understood. The resulting need by investors and banks to reduce risk triggered a wide-scale deleveraging in these markets and led to fire sales. As prices declined, many traditional investors exited these markets, causing declines in market liquidity.

Creation of a Negative Economic Cycle: As a result, a negative cycle has developed where declining asset prices have triggered further deleveraging, which has in turn led to further price declines. The excessive discounts embedded in some legacy asset prices are now straining the capital of U.

The lack of clarity about the value of these legacy assets has also made it difficult for some financial institutions to raise new private capital on their own. The Public-Private Investment Program for Legacy Assets To address the challenge of legacy assets, Treasury — in conjunction with the Federal Deposit Insurance Corporation and the Federal Reserve — is announcing the Public-Private Investment Program as part of its efforts to repair balance sheets throughout our financial system and ensure that credit is available to the households and businesses, large and small, that will help drive us toward recovery.

The Public-Private Investment Program will be designed around three basic principles: Maximizing the Impact of Each Taxpayer Dollar: First, by using government financing in partnership with the FDIC and Federal Reserve and co-investment with private sector investors, substantial purchasing power will be created, making the most of taxpayer resources.

Shared Risk and Profits With Private Sector Participants: Second, the Public-Private Investment Program ensures that private sector participants invest alongside the taxpayer, with the private sector investors standing to lose their entire investment in a downside scenario and the taxpayer sharing in profitable returns. Private Sector Price Discovery: Third, to reduce the likelihood that the government will overpay for these assets, private sector investors competing with one another will establish the price of the loans and securities purchased under the program.

Two Components for Two Types of Assets : The Public-Private Investment Program has two parts, addressing both the legacy loans and legacy securities clogging the balance sheets of financial firms: Legacy Loans: The overhang of troubled legacy loans stuck on bank balance sheets has made it difficult for banks to access private markets for new capital and limited their ability to lend.

Legacy Securities: Secondary markets have become highly illiquid, and are trading at prices below where they would be in normally functioning markets. These securities are held by banks as well as insurance companies, pension funds, mutual funds, and funds held in individual retirement accounts.

The participation of individual investors, pension plans, insurance companies and other long-term investors is particularly encouraged. The Legacy Loans Program will facilitate the creation of individual Public-Private Investment Funds which will purchase asset pools on a discrete basis. The program will boost private demand for distressed assets that are currently held by banks and facilitate market-priced sales of troubled assets.

The Treasury will manage its investment on behalf of taxpayers to ensure the public interest is protected. The Treasury intends to provide 50 percent of the equity capital for each fund, but private managers will retain control of asset management subject to rigorous oversight from the FDIC. The FDIC will conduct an analysis to determine the amount of funding it is willing to guarantee.

Leverage will not exceed a 6-to-1 debt-to-equity ratio. Assets eligible for purchase will be determined by the participating banks, their primary regulators, the FDIC and Treasury. Financial institutions of all sizes will be eligible to sell assets. The highest bidder will have access to the Public-Private Investment Program to fund 50 percent of the equity requirement of their purchase.

Private Sector Partners Manage the Assets : Once the assets have been sold, private fund managers will control and manage the assets until final liquidation, subject to strict FDIC oversight. Expanding TALF to Legacy Securities to Bring Private Investors Back into the Market : The Treasury and the Federal Reserve are today announcing their plans to create a lending program that will address the broken markets for securities tied to residential and commercial real estate and consumer credit.

Providing Investors Greater Confidence to Purchase Legacy Assets: As with securitizations backed by new originations of consumer and business credit already included in the TALF, we expect that the provision of leverage through this program will give investors greater confidence to purchase these assets, thus increasing market liquidity. Funding Purchase of Legacy Securities: Through this new program, non-recourse loans will be made available to investors to fund purchases of legacy securitization assets.

Working with Market Participants: Borrowers will need to meet eligibility criteria. Haircuts will be determined at a later date and will reflect the riskiness of the assets provided as collateral. Lending rates, minimum loan sizes, and loan durations have not been determined. These and other terms of the programs will be informed by discussions with market participants. However, the Federal Reserve is working to ensure that the duration of these loans takes into account the duration of the underlying assets.

Side-by-Side Investment with Qualified Fund Managers: Treasury will approve up to five asset managers with a demonstrated track record of purchasing legacy assets though we may consider adding more depending on the quality of applications received.

Managers whose proposals have been approved will have a period of time to raise private capital to target the designated asset classes and will receive matching Treasury funds under the Public-Private Investment Program. Treasury funds will be invested one-for-one on a fully side-by-side basis with these investors. Use featured image.