24 Mar 2009

Yesterday the Treasury Department finally released details of their Public-Private Investment Program designed to create a market for the “toxic” assets that have been weighing down our banking system. The stock market liked what it saw, and Bill Gross of PIMCO called it the first win-win-win proposal during this crisis. Taxpayers leverage their dollars with private capital, banks clean up their balance sheets, and there is a good chance of recovery for the taxpayer and even old-fashioned profits for the private investor.

Last September, after the collapse of Lehman Brothers, then Treasury Secretary Paulson proposed the original Troubled Asset Relief Program (the TARP). The original idea and goal was to rid banks of their mounting pile of bad loans and securities that were created by the housing bubble and Wall Street’s debt and securitization binge.

The original TARP turned into direct investments in the banks, with the hope that providing some capital support would clean up the problem. This morphed into investments into insurance giant AIG, and eventually loans to struggling automakers, GM and Chrysler. Along the way the Federal Reserve lowered interest rates several times, eventually to zero percent, the lowest ever. The Fed also bought commercial paper from America’s corporations and created several other funding programs designed to get credit flowing again.

All of these efforts helped to stabilize the bond and credit markets but the bad loans still remained. Finally, we are back to where we started, cleaning up the bad loans and getting the banking system healthy again. We see light at the end of the tunnel!

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About the Author
Bob Klefsaas


President, CFP, AIF, Founder and President of All Star Financial, Bob began his career in money management in 1983... Read Full Bio >

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