PPIPed

Today's the deadline for applying to be one of the five asset managers charged with raising funds for the PPIP--Treasury's public-private partnership program where investors take public non-recourse loans to bet on toxic assets.  As predicted, the funds that are supposed to apply are extremely nervous about the executive compensation restrictions, and broader problems of regulatory risk.

Potential buyers of assets complain that, a month after Tim Geithner, US Treasury secretary, unveiled the public-private investment programme, the authorities have yet to reassure them they would not be subjected to draconian Congressional scrutiny.

The Treasury did say that, aside from the small group of asset managers, investors who receive the generous loans available under the PPIP will not have to abide by restrictions on employees' pay imposed on the banks that got funds from the troubled assets relief programme.

Yet some fund managers fear Congress and the government may change the rules mid-course, as they did with Tarp. Wesley Edens, chief executive of Fortress Investment Group, said: "The most important thing for the government is consistency."

Colm Kelleher, finance chief at Morgan Stanley, which is considering buying some of these assets, said this week: "I don't understand what the implications for corporate governance are ... [The authorities] need to be clear what the implications are."

I think it's very clear what the implications are:  if you take the King's Shilling, the King gets to micromanage your life.  Nor do I see what good it will do to have Treasury clarify its statement.  The government is no longer capable of making a credible committment to keep its hands of firms that participate.  If the voters decide that you make too much money, Congress will move heaven and earth to take that money away from you, plus some extra money, and maybe they'll deny you permission to build that bathroom addition, too.  They also reserve the right to tell you how to run your company.

And in general, I am not against having strings attached to government money.  Congress has a perfect right to exercise its prerogratives--but they are, I think, at odds with the goal of getting experienced managers to donate some money and a great deal of time to pricing all these bad assets.  I think any rational manager right now would note that the better this deal turns out to them, the more likely they are to have a congressional committee breathing down their necks, bad-mouthing them to the press, and working overtime to tax away any profits.  The upside seems limited.  Even JP Morgan and Citi, which ALREADY have oversight busybodies watching their every move, are declining to participate.