The Public-Private Investment Program (PPIP) was a plan created by the U.S. Treasury Department in response to the financial crisis of 2007–2008 to value and remove toxic assets from the balance sheets of troubled financial institutions. The Public-Private Investment Program's goal was to create partnerships with private investors to buy toxic assets and restart the market for the mortgage-backed securities (MBS), which made up the bulk of those assets. The program increased liquidity in the market and served as a price-discovery tool for valuing troubled assets.
The Public-Private Investment Program can be confused with Private Investment Project Procedure (PIPP), but the latter refers to a different public-private partnership (PPP) that is used for the development of public infrastructure.
Breaking Down Public-Private Investment Program (PPIP)
The Public-Private Investment Program consisted mainly of two parts: a Legacy Loans Program and a Legacy Securities Program. The Legacy Loans Program used FDIC-guaranteed debt along with private equity to purchase troubled loans from banks. The Legacy Securities Program, however, was designed to use funds from the Federal Reserve, the U.S. Treasury and private investors to reignite the market for legacy securities. Legacy securities included certain mortgage-backed securities, asset-backed securities, and other securitized assets that the government deemed to be eligible for the program.
The Results of the Public-Private Investment Program
The program is widely viewed as a success. The Treasury initially committed $22 billion to the program, helping create nine Public-Private Investment Funds (PPIFs). In testimony to the Congressional Oversight Panel in 2010, then-Treasury Secretary Timothy Geithner stated that the market discovery and liquidity aspect of the program helped MBS values increase by 75% in under two years. The institutional investors made money buying the assets for pennies on the dollar, but the Treasury recovered its full stake in the program as well as an additional $3.9 billion in interest. The Treasury was fully paid out in 2014, and the program participants through the PPIFs can no longer make new investments as of 2012, although they were given an additional five years to manage the investments. The program was scheduled to wrap up in December 2017.
The Public-Private Investment Program is counted among the more successful programs within the overall bailout that occurred following the mortgage meltdown. By reintroducing a profit motive to the MBS market and backstopping that market with government guarantees, troubled assets were moved off the balance sheets of the banks and into the portfolios of investors. This allowed the banks to start reissuing credit and, in turn, provided a floor for real estate values in the real world. There is always a question of the moral hazard created by this type of intervention, but of the billions deployed between 2007 and 2009, the PPIP was one of the most effective at actually making a difference.