'Shadow Regulators' Not Thrilled with PPIP

Banks selling bad assets into Treasury's public-private investment funds should be prohibited from investing in those investment funds to prevent abuses, according to the Shadow Financial Regulatory Committee.The panel of finance experts and academics view the Obama administration's plan to cleanse bank balance sheets as ill-conceived. The shadow regulators expect the government will have to "over-pay" to get banks to sell their assets. They also expect the investment funds will be very profitable for investors due to the amount of leverage and low-risk with the Treasury Department providing low-cost financing on a non-recourse basis. As a safeguard, banks selling assets into the program should be "prohibited from turning around and participating directly as investors in any fund formed to buy legacy assets," said professor Edward Kane. The Boston College finance professor also pointed out that distressed institutions with little capital to lose may find PPIFs to be "especially attractive" investments. "It could result in high stakes gambles that may represent for some firms their only hope of repaying government guarantees and other forms of credit support," he said.