The Public-Private Investment Program (PPIP) was launched in 2009 as a response to the financial crisis. It aimed to restore solvency and stability to financial institutions, with resources divided into two channels: the Legacy Securities Public-Private Investment Program (S-PPIP) and the Legacy Loans Public-Private Investment Program (L-PPIP). The causes of the crisis were cheap credit, deregulation, and loose lending practices, leading to a housing boom and the availability of subprime mortgages. The PPIP raised funds from TARP and private investors to free up banks to lend to consumers and businesses. By the end of 2009, the markets had shown signs of recovery.
The Public-Private Investment Program (PPIP) was launched on March 23, 2009 by the United States Department of the Treasury, the United States Federal Deposit Insurance Corporation (FDIC), and the United States Federal Reserve. . The PPIP, launched under Treasury Secretary Timothy Giethner, was designed as a response to the 2007-2008 financial crisis. The objectives established for the PPIP include the restoration of solvency and stability for financial institutions, especially those that carry so-called toxic or legacy assets on their balance sheets, with the ultimate goal of making the credit lines once again available to businesses and consumers. . The resources for the PPIP were divided into two channels: the Legacy Securities Public-Private Investment Program (S-PPIP), which was designed to re-stabilize the financial market, and the Legacy Loans Public-Private Investment Program (L-PPIP). , which was tasked with restoring liquidity to banks by buying up toxic assets.
The causes of the financial crisis that led to the creation of the PPIP date back to 2000 and 2001, when the US Federal Reserve lowered interest rates 11 times (from 6.5 percent in May 2000 to 1 .75 percent in December 2001), providing cheap credit which, when combined with deregulation and loose lending practices by banks, created a housing boom. As lenders sought more customers, deposit requirements were relaxed, credit checks became less thorough, and subprime mortgages became available to those with lower incomes or poor credit scores. These subprime mortgages, which in 2007 had an estimated value of $1.3 trillion US dollars (USD), were repackaged, re-evaluated as low-risk investments, and sold to other financial institutions.
In 2007, the crisis had come to a head, loans began to fail, and banks suddenly ran out of funds. When the bubble burst, some of the world’s largest financial institutions, including Goldman Sachs, Merrill Lynch, Lehman Brothers, Bear Stearns, Morgan Stanley, Fannie Mae, and Freddy Mac, faced bankruptcy. With no money to lend, consumers and businesses suddenly found themselves without capital, in what became known as the credit crunch.
Congress responded by passing the Toxic Asset Relief Program (TARP), charged with bailing out institutions deemed too big to fail, in October 2008 as part of a broader economic bailout bill. The PPIP, which raises funds from TARP and capital from private investors, was tasked with freeing up banks to again lend to consumers and businesses. Three guiding principles guided the design and development of the PPIP: combining public and private funds for maximum purchasing power, that private investors share the potential risk and reward of investment, and that competition in the private sector will set the price of acquired loans. . By the end of 2009, the markets had shown signs of recovery, and the value of the securities financed by PPIP was approximately $3.4 billion.
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