Public-Private Investment Program (PPIP)

Many program-babies were born out of the financial crisis of 2007-2008. One of them, the toxic-waste cleanup program, was called the Public-Private Investment Program (PPIP).

The U.S. Treasury Dept. made PPIP to remove toxic assets from down-in-the-dumps banks. Toxic assets are assets that nobody wants, since they’re money-losers. The term “toxic asset” was actually born out of the same financial crisis. Jolly good time.

Through PPIP, the U.S. Treasury bought the toxic assets. The plan was to clean up the toxic assets, then restart the mortgage-backed securities market to get homeowners, banks, and the economy back on the tracks. The Legacy Loans Program, under PPIP, used the FDIC treasure trove and private equity to buy the toxic waste. Meanwhile, the Legacy Securities Program used Fed and private funds to try to kickstart the MBS market again.

So...how’d it go? All things considered, PPIP didn’t do too bad. According to Treasury Secretary of the time Tim Geithner, PPIP helped MBSs increase their value by 75% in the next two years. Much less ambiguous of a result than some other financial crisis plans.

Still, some criticize this, since it encourages moral hazard. Moral hazard is when you shake hands on a deal, but knowingly mislead the other party in some way about the deal. By the government stepping in and cleaning up the toxic waste from the fallout of irresponsible MBS banking, it encourages them to keep on being irresponsible. It’s okay if they play foul, because the government will kickstart the market if it goes south.