The Big Picture is asking the question, Why is US Government Subsidizing Chinese PPIP?
This is in reference to the MSM headline, The China Investment Corp. is set to invest up to $2 billion in mortgage-backed securities:
China Investment Corp. (CIC) plans to invest soon in U.S. taxpayer subsidized investment funds of toxic mortgage-backed securities, which it sees as a safer bet than buying into the Federal Reserve's Term Asset-Backed Securities Loan Facility (TALF).
Under the Public-Private Investment Plan (PPIP) launched earlier this year, the U.S. government plans to seed a number of public-private investment funds that would combine taxpayer money with private capital to buy as much as $40 billion in toxic securities from banks.
Note that the PPIP program:
Has the Treasury matches whatever a private investor puts up, then credits 6X as much capital. So if the Chinese are buying $2 billion, the US puts up $2 billion, and then the PPIP allows the purchase of $24 billion of distressed assets in the open market.
All for $2 billion dollars. Oh, and the FDIC would guarantee the debt being issued by the PPIP.
Hence, taxpayer dollars are subsidizing Chinese purchases of U.S. assets at a discount.
This is insanity . . .
It sure as hell is, plus an outrage. China is now 83% of the U.S. non-oil trade deficit. China owns the most U.S. Treasuries.
EP has many posts overviewing the details on PPIP. But to sum up for now, Ritholtz is right, it is a massive rigged game, a guaranteed win for the players and a guaranteed loss for the taxpayers. So it's bad enough the U.S. taxpayer is getting ripped off by this giant ponzi scheme, but to now subsidize foreign nations? Who are also contributing to the destruction of the U.S. economy and have their own state subsidies?
Very good question Ritholtz. So good, I'd sure like to see the House Financial Services committee ask it of Tim Geithner.