Firefighters sometimes start a controlled fire ahead of a raging forest fire. The idea is to have the staged fire burn toward the dangerous out-of-control fire with the goal of stopping its advance by denying it a way to spread toward a protected target. * In a similar move, a new federal program--the $1 trillion Public-Private Investment Program (PPIP)--is designed to use leverage and the lure of very high investment returns (the proximate causes of the financial meltdown) to help begin to undo the damage done to the financial system, to banking and to the mortgage markets.* When Treasury Secretary Timothy Geithner first offered a glimpse of a new strategy back in February (but provided few specifics) the markets reacted negatively and sank to new cycle lows. However, when the secretary announced the broad framework of PPIP on March 23, the financial markets roared their approval by rising sharply. * I think the markets validated the asset purchase program," Federal Deposit Insurance Corporation (FDIC) Chairman Sheila Bair told CNBC's Larry Kudlow, host of The Kudlow Report on March 24. Her view was widely shared among the commentariat. PPIP is jointly sponsored by Treasury, the FDIC and Federal Reserve. It will rely on $75 billion to $100 billion in capital from Treasury through the Troubled Asset Relief Program (TARP), as well as capital from private investors, joined with government loans or government-backed leverage to generate $500 billion in purchasing power for both troubled mortgage loan pools and troubled mortgage-backed securities (MBS). The program has the potential to be expanded to $1 trillion "over time," according to a Treasury fact sheet.
