Public-Private Investment Program: Legacy Securities Program

The Public-Private Investment Program: Legacy Securities Program

PPIP-LSP creates investment vehicles with 50% private money and 50% Treasury money that are then leveraged up to 100% with a Treasury loan, with the gains or losses spread between the private investors and the government. The vehicle purchases commercial and residential asset-backed securities on the entire spectrum of sub-prime to prime ratings, issued before Jan. 1, 2009. The program was originally slated to have as much as $100B in Treasury funds, and then was reduced to $30B has been committed, but Treasury has said this could expand if economic conditions deteriorate. Treasury eventually settled on $22.4 billion as the total amount of equity and loans it committed to the program.

The Treasury is gradually drawing down more money from that as private partners put up more capital. The program is slated to end in the 4th quarter of 2012, for a three year full term.

Funding agency and aid type
The funding agency was the Treasury Department.

Matching money and loans to purchasers of toxic assets.

Who benefits
Banks holding toxic assets.

Background
SIGTARP: "“The Legacy Securities Program continues to develop, and on July 8, 2009, Treasury announced the selection of nine PPIF managers that will receive debt and equity financing of up to $30 billion in TARP funds during the initial capital-raising efforts for the PPIFs. Treasury has stated that PPIP, originally intended to involve up to $1 trillion in total funds, may involve up to $75 billion of TARP funds. ”"

SIGTARP: "“According to Treasury, “the goal of the Legacy Securities Program is to restart the market for legacy securities, allowing banks and other financial institutions to free up capital and stimulate the extension of new credit.” For the purposes of PPIP, legacy securities are ABS supported by real estate-related loans issued before January 1, 2009, and originally rated AAA (or an equivalent rating) by two or more NRSROs. Private investors and Treasury will co-invest in PPIFs to purchase these assets from financial institutions. Furthermore, Treasury will offer debt financing to the PPIF equal to or double the total private equity investment. Treasury, the PPIF manager (which is required to invest at least $20 million of its own money in the PPIF), and the private investors will share in PPIF profits on a pro rata basis. PPIF losses will be shared on a pro rata basis up to each participant’s investment amount. As of September 30, 2009, there were no asset purchases.”"

Related SourceWatch articles

 * SIGTARP Quarterly Report to Congress July 21, 2009
 * Troubled Asset Relief Program