Fisher Investments Editorial Staff
US Economy

Wall Street Pros Bailout Government

By, 10/25/2010

Story Highlights:

  • The Treasury reported another crisis-born program turned a profit on Friday.
  •  The Public-Private Investment Program had targeted supposedly toxic assets and was managed by Wall Street professionals.
  • These results add to mounting evidence the assets weren't nearly as toxic as feared, and the government has profited handsomely from the bailouts.

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Friday, the US Treasury reported the Public-Private Investment Program (PPIP) results for the period September 30, 2009 through September 30, 2010. What did the report show? A whopping 36% average gain across the different professionally managed investment funds over the period. That's right—a Wall Street-managed pool of funds returned a big profit to the government.

As a brief refresher, the PPIP was one of an alphabet soup of government programs organized during the recession. It was designed to reinvigorate the secondary market for loans and asset-backed securities and remove so-called "toxic assets" from banks' balance sheets. The federal government offered cheap financing while private sector professionals provided investing expertise to acquire and manage portfolios of bank loans and mortgage-backed securities (MBS) hoping increased demand would give asset prices a boost and infuse banks with new funds to make loans. But the PPIP didn't get off the ground the way Treasury had envisioned—receiving scant few subscriptions from banks initially.

Most banks chose not to participate expressly because they didn't believe these "toxic" assets were poisonous, figuring holding the assets was more profitable than taking low-ball offers at distorted market prices. The PPIP sample size is small at about $29 billion total (roughly $14 billion of government money), but the strong returns logged in the last year are further proof most of these assets weren't so toxic in the first place—the perverse effects of mark-to-market accounting just made them appear that way.

PPIP gains are impressive, but whether the program had the desired effects is debatable. After all, the gains reaped by investors and the government would likely have been realized by the very banks in need of capital the program hoped to help. Combine Friday's report with TARP's better-than-expected results and the Fed's record profits handed to the Treasury in April, and it seems the institution profiting most from the bailouts was the US federal government. In the PPIP's case, those profits ironically came with the help of Wall Street professionals.

*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

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