With the Public Private Partnership Investment Program, the U.S. Treasury has announced the most ambitious component of the multiple pronged attack against the recession in the U.S. economy, which has dragged the world economy into the worst setback in sixty years.
The program to deal with so called "toxic assets," now baptized "legacy assets," is considered essential to unclog the financial system, which in the terms of the U.S. Treasury is "working against economic recovery." The reason is these loans and securities, mainly backed by mortgages with unknown market value, constitute a dead weight in the balance sheets of financial institutions, which is limiting their capacity to raise capital and increase lending.
The achievement of economic recovery requires functioning credit markets, which demands the stabilization and repair of the financial system. In a sense, it is difficult to imagine how to end the recession without the return of credit and a functioning financial system.
The program is based on the creation of Public Private Investment Funds, financed mostly by the government and by private investors, to purchase from financial institutions mortgage-backed and other securities, in auctions that will determine the price of the assets.
With the Public Private Investment Program, as its name indicates, the government has opted for an intermediate path, between the outright intervention of the banks, or letting them continue acting as zombies, or even worse, to let survive only the fittest.
Isaac Cohen is the former director of the Washington Office of the United Nations Economic Commission for Latin America and the Caribbean (ECLAC). He is a commentator on economic and financial issues for CNN en Espanol TV and radio.
