PIPP: DEAD BEFORE ARRIVAL?
I have maintained since its grand inception, that the PPIP would not work. Bob Pisani of CNBC is now reporting that the plan might be scrapped altogether. He cites stronger markets as the potential reason, but I have an inkling that the Treasury has seen the TALF results and investor demand for the PPIP and concluded that the plan will simply not work. The government induced rally, first quarter earnings and subsequent capital raises have given the banks the impression that they can earn their way out of this toxic asset mess. Thus, they have zero incentive to sell these assets at distressed levels via the PPIP. Especially if they believe the housing market is rebounding.
This is all well and good assuming the U.S. economy is indeed experiencing a sustainable long-term recovery, however, I view this as nothing more than a gamble. The history of consumer based de-leveraging recessions tends to point to very long drawn out recessions as opposed to quick v-shaped recoveries.
In addition, we’re hoping that our banking sector is stronger and different than Japan’s. Despite a relatively short credit crisis, the write-downs in Japanese banks plagued the lending markets and the Japanese economy for years after the actual credit crisis ended. By not forcing these banks to take the write-downs we are at risk of experiencing the same cash flow problems caused by toxic assets that destroyed the Japanese economy for 25 years.
I sincerely hope this recovery is for real, but I would have preferred to see the administration take a proactive response and force these banks to clean up their balance sheets as opposed to risking the potential “lost decade” that Japan experienced. They’ve rolled the dice with our futures. Let’s hope they don’t roll snake eyes….
TPC, awesome site upgrade!!! Well done, bravo. …Have you seen T2′s May 2009 Presentation? I suspect you have, I will forward it just in case you have not. Anyway, I kinda feel the banks are drinking their own Kool-Aid. Reminds me a little of the ramp in steel price stocks in the summer of 2008. Looke at ‘em now, just sayin’.
Thanks Bill. I saw T2′s presentation earlier this week on Mish’s site. Pretty common sense stuff the way he lays it out. This housing market isn’t bottoming like people expect. But the rate of decline decelerating gives people hope. We were down almost 19% last month, year over year and some have the stones to call a bottom soon. That’s almost comedic.
I found that it was pretty interesting over and over again that people cited or implied Japan as the worst case scenario for the U.S.’s future. I believe that people have overlooked a tiny but a critical difference between Japan and U.S..
Japanese government and banks screwed the Japanese economy for decades, but the screw up was funded at zero cost (i.e. zero interest rate paid) by savings from Japanese people. Japanese saved a lot and had to deposit their savings in the banks which paid below zero after banking fees. People got robbed through a) zero interest, a) deflated wages and c) inflation.
However U.S. has to rely on the foreigners to fund its overspending and massive deficits. I am not sure that the foreigners would be as kind to the U.S. borrowers as the Japanese to their own government and banks. Japanese people did not have a choice, but the foreigners lenders do to U.S.
Foreigners may stop lending and/or ask for higher and higher interest rates if they wish. Just watch what the T bond market was doing recently.!