Aside from the ridiculously bad fundamentals of the Treasury’s Public Private Investment, what other long-term risks are we looking at? First of all, let’s think about where these assets will go, and who will ultimately “buy” them. Restrictions mean that only a handful of big-baller firms will be able to participate, even after revisions. In every scenario I can think of, we end up with a bunch of politically-connected investors sitting on a pile of dirt-cheap distressed assets. What could possibly go wrong?

If the loans in these securities default at less-than expected levels, PPIP investors will reap huge benefits (50% of profits, 8% of the risk). But even these government-subsidized bets could go wrong if things get much worse. So is there anything these investors could do to improve their odds? Probably. Think about how Freddie Mac and Fannie Mae were manipulated by lobbyists and special interests. Vehicles like these could easily steer assistance to PPIP investors.

We already have plenty of corrupting influences in Washington. Shifting these loans to yet another group will almost definitely make things worse. Freddie Mac on Steroids, anyone?