The Obama administration’s complex plan to deal with toxic assets may have answered Wall Street’s questions about shoring up the balance sheets of financial firms but it is raising other serious ones about the government’s approach to funding and oversight.
The plan, known as the Public-Private Investment Program for Legacy Assets, is the latest initiative on the part of the executive branch to rely on loans and guarantees, as opposed to budgeted funding, and also asks the same government entities running the programs, to essentially oversee them.
“They've been extending their authority for the last year,” says Washington-based economist Dean Baker, co-director of the Center for Economic and Policy Research. “This is really a stretch.”
Read The PPIP Fact Sheet
In particular, the PPIP will use a small, amount of money from the second round of the TARP ($75 billion to $100 billion) money approved by Congress and use the Federal Reserve’s emergency lending powers to leverage that by as much as a 6-to-1 debt-to-equity ratio.
Funding Issues
“This is an end-run around Democracy,” Rep. Brad Sherman (D-Calif.) told CNBC.com. “No one even imagined we would see trillions of dollars shifted from Washington to Wall Street that no member of Congress ever voted for.”
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