The U.S. Treasury Department's anticipated public-private partnership to dispose of toxic assets from the subprime mortgage crisis is finally up and running, and government officials think the program will establish realistic market prices for the old loans, according to a report in Business Week.
The report, by Theo Francis, said that billions of dollars of bad assets are finding a home, as private-asset managers working with government bureaucrats are purging the assets from the balance sheets of major banks.
The Public Private Investment Program (PPIP) aims to establish a $2 trillion secondary market for these securities, and free up banks to lend to consumers and businesses rather than remain fearful of another financial crisis.
Banks and buyers are reaching agreements based on mathematical values of the likely percentage of bad and good assets in a particular bank's securities portfolio, according to the report.
The program was announced back in March, but it took time to get accounting rules in place and to find buyers willing to take a leap of faith on the securities.
"Instead of trying to arrange public-private partnerships to buy whole mortgage loans at large in the market, the FDIC will use it to help investors buy loans from already failed banks and thrifts," according to the report.
The Los Angeles Times reported that fund managers are required to invest at least $20 million of their own money, and each manager will have up to 12 weeks to raise at least $500 million from private investors. Treasury officials expect the managers to raise as much as $10 billion altogether, the newspaper reported.
Nine firms were chosen by the Obama administration to run the program, including BlackRock, AllianceBernstein, Oaktree Capital Management, Invesco, Angelo, Gordon & Co., Marathon Asset Management, RLJ Western Asset Management, the TCW Group and Wellington Management Company.
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