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What Yves said



Banks Aiming to Play Both Sides of Coin -- Wall Street Journal. A more accurate title would be "Banks Shamelessly Ask Permission to Game PPIP in the Open." After all, if they did it through friendly intermediaries, it just reduces the subsidy to the banks, which was the whole point of the exercise, right?

Bingo. And as Krugman has argued from the beginning.

Surprise, the Big Shitpile really is shit.

NOTE Calculated Risk:

The purpose of PPIP is to remove the toxic legacy assets from the bank's balance sheet, not to allow the banks to game the program at taxpayer expense.

Oh, really? Read the comments, they're priceless.

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Submitted by jawbone on

At least it removes the need for the banks to collude with one another...which is, well, illegal and thus entails that nasty possibility of incarceration or heavy fines.

You would think that the government would slap down this idea in a second. But here’s the FDIC spokesman on the issue: ”It’s an issue that’s been raised and an issue we’re aware will need specific guidelines.”

Now, even if banks aren’t allowed to buy assets directly from themselves, there are still reasons to be worried. If you think of the banking sector as one big entity, then it’s obviously in the interests of that entity to buy assets from itself exactly as described above – only with Bank A buying from Bank B and Bank B buying from Bank A (or more complicated permutations as required). In other words, there is a massive incentive to collude. Now, collusion is illegal. So the question is whether the banks can get themselves into an equilibrium where they all overpay for each other’s assets – thereby benefiting everyone – without actually conspiring to do so. This is like when one airline raises prices and immediately every other airline follows suit – there’s nothing illegal about it, even though the end result is the same as if they had colluded.

But let’s not make it easy for them. If this proposal has any chance of going anywhere, then Tim Geithner or Sheila Bair should come out and reject it right now.

Have either Geithner or Bair said anything yet? Time for a Statement Watch....