Geithner Ready To Release Details of Public-Private Investment Fund

After a month-and-a-half-long delay, Treasury Secretary Tim Geithner is finally ready to release the key details of the Public-Private Investment Fund on Monday morning. Geithner has scheduled a press briefing at 8:45 AM Monday to discuss the plan, which will involve the government investing alongside private investors in funds that will provide a market for the legacy loans and securities that currently burden the nation's banks.

According to the Wall Street Journal, the plan will be three-pronged program, creating a series of public-private investments to soak up $500 billion, and maybe as much as $1 trillion, in troubled loans and securities. The government will offer lucrative subsidies and insurance to encourage participation in the program.

Details from the WSJ:

Targeting mortgages that banks no longer want to hold, the Treasury and the FDIC will provide financing to buyers. The FDIC will auction off pools of loans that a bank wants to sell and will become a co-owner by forming a partnership with the highest bidder.

The partnership will then raise FDIC-guaranteed debt to finance a portion of the purchase price, with the Treasury willing to kick in between 50% and 80% of the equity needed to buy the assets. The Treasury will be an equal investor in the partnerships.

To tackle risky securities, such as those backed by mortgages, the Treasury will create several investment funds run by private investors who meet certain criteria, such as experience managing similar assets. Treasury again will act as a co-investor, in most cases contributing $1 for every $1 contributed by the private sector and sharing equally in any gains or losses.

Lastly, the government will expand the Fed's Term Asset-Backed Securities Loan Facility, or TALF, to help absorb older, riskier assets. It was set up to buy newly issued securities backing all manner of consumer and small-business loans. But some of the most troubled assets are securities created in 2005, 2006 and 2007.

Many have been concerned that hedge funds and private equity companies could shy away from the program due to the outrage and backlash against companies that have received government funds. The public outrage was no more evident than in the AIG (NYSE: AIG) bonus situation last week. Following public outrage, the House passed a bill that would tax bonuses at 90% for employees who have household incomes above $250,000 at companies receiving more than $5 billion in government money. Many on Wall Street feel that the rules are being changed in the middle of the game and they may elect not to participate. To encourage participation, the Treasury believes investors in the program shouldn't be subject to executive-pay rules imposed by Congress.

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