Duncan snidely references this Bloomberg article without noting it refutes and frankly shows up as ludicrous his and Krugman’s predictions on the Treasury PPIP program.
When PPIP was announced, both Krugman and Atrios joined the crowd who explained through hyperventilation that the whole thing was another Timmy Geithner scam to give money away to “banksters” etc. In the event, the scam they described turned out to be nonsense. Yet, instead of admitting that he smeared the Obama administration without a basis in fact, Duncan cites the Bloomberg article as if it confirmed his arguments.
Here’s Duncan in March (referring to my comment at Boomantribune as “crap”)
The issue isn’t that they’re worthless, the issue is that they aren’t worth nearly as much as the financial institutions are pretending they’re worth. Sellers have a huge incentive to not sell at lower prices because lower prices will potentially reveal that they’re insolvent/essentially bankrupt. As for this comment (crap, heading into Someone On The Internet Is Wrong territory), the reason that the big players can make money while the gov’t loses money is because of the no recourse loans, and the asymmetric upside/downside of the Geithner plan. They’re buying shitpile mostly with gov’t loans, and if there’s money to be made they and the gov’t benefit. But if the asset is shit, they don’t have to pay back the loan, just hand over the asset. All this encourages institutions to overpay, so we get to pretend shitpile isn’t so shitty until the gov’t eats the losses.
The Krugman/Atrios theory was that investors would scatter over-priced bids randomly over these assets, using the government backing to shift the losses to the feds. All of the assumptions that they used were based on shaky to ridiculous readings of the PPIP documents. In particular, Krugman and Duncan and others made the peculiar assumption that the Feds were going to insure individual assets separately rather than in pools as was plainly the intent. And Bloomberg describes the PPIP working as predicted by us “apologists” for the Obama administration and nothing like what the bankster-theorists predicted.
Four of the nine PPIP managers missed the original Sept. 30 deadline for raising the minimum $500 million by more than a month. One manager, Marathon Asset Management, was allowed to make its initial closing after raising $400 million.
“If you were looking at returns in the high teens to low twenties in PPIP, now you’re looking at the low-to-mid teens,” said Joel Paula, senior analyst at Cambridge, Massachusetts- based NEPC LLC, which advised Connecticut’s state pension board on its decision to invest $200 million with three PPIP managers.
Higher prices are also slowing the pace at which PPIP managers can and want to buy, because they must be more careful when examining securities and their underlying collateral, NEPC’s Paula said.
“If you do your homework, you can still find value, but you’re not getting 20 percent for doing nothing anymore,” Paula said in an interview.
None of that resembles in the slightest the scenario that Krugman/Atrios forecast. The PPIP investors are investing in a small number of pools and the managers are examining the underlying collateral (not using some economist “expected value” nonsense) – and most of all, investors are, unfanthomably, looking for profits, not an expected break even which maximizes bank profits. It’s almost as if hardworking government public servants were looking for a way to do their jobs instead of looting the public and as if investors were motivated by profits not by ways to screw the public.
Under PPIP’s terms, investors are locked in for eight years and managers have up to two years from their initial closings to invest the money, giving them time to wait for prices to drop.
“Managers are trying to figure out whether the rally in residential mortgage-backed securities is sustainable, or if there will be some sort of pullback,” Papier said.
Of course, from a “left wing” point of view, there is plenty to criticize in the Geither PPIP plan and the Obama economic process in general. But the “bankster”/rip-off argument of “progressive” blogs, in which one starts with the assumption that the Administration is collaborating in open theft and then distorts the evidence to fit the narrative, is not really a left-wing critique. Instead it is a continuation of MSM standard themes about how democrats are weak and corrupt.
