The real bailout? PPIP? Oh yes, here's how it worked:
1) Bank owns asset of dubious value, classifies it as "Level 3 Assets" which allows it to value it using an undisclosed method that has no correlation with the reality of a burst housing/credit bubble. This also allows the bank to hide its true financial state by escaping writedowns.
2) Market for these assets is dead, especially since government bailed out Fannie and Freddie, driving investors to a new "low-risk" market (government backed mortgage securities) and away from non-government backed securities.
3) Fed offers PPIP to buy up this trash. As a side effect, this effectively lowers the risk of these dubiously valued securities
4) Security of dubious value increases in value, is sold to Fed for profit (sometimes even twice its original level 3 valuation, which already had nothing to do with reality). Fed purchased security using mix of private investor and US Taxpayer funds (such as the Treasury)
5) Fed refuses to reveal the method of valuation for securities, preventing people from knowing how much profit the banks made, and how much the Fed lost out (including US Taxpayer money)
Conclusion: Fed now owns toxic security, bank escapes consequences of poor decisions and/or fraud, Taxpayer money is wasted buying assets for a heck of a lot more than they are actually worth in the real market, barring a resurgence of the housing bubble.
Yes, PPIP did begin. What I didn't realize is that a lot of this profit came from derivatives, not sales of the assets themselves. The actual program size was $40 billion, which is still a good amount of money but less than the original $1 trillion planned. So money was made without as many assets changing hands as the Treasury anticipated... I guess that's an even worse outcome?
1) Bank owns asset of dubious value, classifies it as "Level 3 Assets" which allows it to value it using an undisclosed method that has no correlation with the reality of a burst housing/credit bubble. This also allows the bank to hide its true financial state by escaping writedowns.
2) Market for these assets is dead, especially since government bailed out Fannie and Freddie, driving investors to a new "low-risk" market (government backed mortgage securities) and away from non-government backed securities.
3) Fed offers PPIP to buy up this trash. As a side effect, this effectively lowers the risk of these dubiously valued securities
4) Security of dubious value increases in value, is sold to Fed for profit (sometimes even twice its original level 3 valuation, which already had nothing to do with reality). Fed purchased security using mix of private investor and US Taxpayer funds (such as the Treasury)
5) Fed refuses to reveal the method of valuation for securities, preventing people from knowing how much profit the banks made, and how much the Fed lost out (including US Taxpayer money)
Conclusion: Fed now owns toxic security, bank escapes consequences of poor decisions and/or fraud, Taxpayer money is wasted buying assets for a heck of a lot more than they are actually worth in the real market, barring a resurgence of the housing bubble.