Leave a comment

WASHINGTON — A government plan designed to rid banks’ books of the troubled assets that exacerbated the financial crisis will do little to address a fundamental weakness of the industry or the broader economy, analysts say.

WASHINGTON — A government plan designed to rid banks’ books of the troubled assets that exacerbated the financial crisis will do little to address a fundamental weakness of the industry or the broader economy, analysts say.

The Treasury Department this week will announce the names of between five and 10 fund investment firms participating in the multibillion-dollar plan, according to two industry officials who requested anonymity because they are not authorized to discuss the matter.

The plan, known as the Public-Private Investment Program, or PPIP, will leverage private capital with government subsidies so that these investment firms can buy up the soured mortgage-related assets that have clogged banks’ balance sheets and made them reluctant to lend freely to businesses and consumers.

But since announcing the plan five months ago, the government has shelved part of it that would help these firms buy individual mortgages and other loans held by the banks. As a result, some analysts say its impact will be muted.

"The real hit lies in the trillions of dollars in residential home loans and commercial loans banks hold in whole-loan form on their balance sheets," said Daniel Alpert, managing director of the investment bank Westwood Capital LLC.

Fears of a deeper recession, including rising unemployment and falling home values, raise the specter of massive defaults on consumer and commercial real estate loans, analysts said.

But the securities backed by mortgages and other complex assets to be targeted by PPIP are no longer as big a threat to the banking industry’s stability, Alpert and other analysts said. Ten of the nation’s biggest financial companies — including JPMorgan Chase & Co., American Express Co., and Goldman Sachs Group Inc. — last month got the go-ahead to return $68 billion in federal bailout money, a development viewed as evidence that the financial sector was beginning to stabilize after benefiting from the government’s $700 billion financial rescue fund.

Some of the PPIP managers are expected to include Blackrock Inc., Pacific Investment Management Co., and TCW Group Inc., according to the two industry officials. Billionaire investor Wilbur Ross said Tuesday on CNBC that he would use up to $1 billion to participate.

______

To read the rest of this article, subscribe to our digital or paper edition. For previous editions, contact us for details.

Copyright 2009 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

Also On The Chicago Defender:
Chicago is new fashion mecca for ethnic wear
34 photos
comments – add yours
×