The Public-Private Investment Program is a plan established by the United States in 2009 to help relieve some of the economic pressure placed upon financial institutions by providing liquidity to banks that invested in defunct markets. Organized by the Federal Deposit Insurance Corporation (FDIC), Federal Reserve and the United States Treasury, the Public-Private Investment Program for Legacy Assets is part of the Troubled Asset Relief Program (TARP), a 2008 government program passed to relieve the pressure caused by the subprime mortgage crisis.
In 2006, subprime mortgage lending peaked in the US and declined rapidly after. Due to the fact that these mortgages were set up with adjustable rates, they had low costs at first, but quickly increased as they reset. As delinquencies increased among the public, the financial institutes that issued the loans lost much of their value, resulting in a tightening of credit. It also resulted in a major drop in the stock market as many large banks collapsed in early 2008.
To combat these problems, the federal government, under the administration of President George W. Bush and the US Congress, passed the TARP program. This originally called for $395 billion US Dollars (USD), by 2010, it was estimated to only cost $89 billion USD. The companies issued the funds, such as General Motors, Citigroup and American International Group, received loans from the US Treasury to pay for the losses. Each of these companies then needed to pay back the money. In all, TARP equaled approximately one percent of the gross domestic product in the US.
Despite these actions, liquidity in the credit market was still frozen. Consumers and small business owners were finding it challenging to obtain loans to help regrow the economy, creating a credit crunch because of these so-called “toxic assets.” Secretary of the Treasury Timothy Geithner worked with a variety of officials to create the Public-Private Investment Program. The goal was to provide some of the TARP funds to help financial institutions provide loans and credit to individuals and businesses.
In all, up to $100 billion USD is used by the Public-Private Investment Program. According to the program, it maintains three principles that help generate capital and capital investments. Using private funding matched with taxpayer dollars, the program better utilizes the strong factors in the US economy. It also provides a shared risk, meaning that if it fails, both the public and private sector will have losses. Finally, to ensure that fair pricing is established, the government will allow rival companies to set prices for projects using the Public-Private Investment Program, a way to create competition.
