Summary
The primary function/purpose of PPIP was to provide price support to institutional investors holding structured investments. PPIP was not designed to provide a market bid for "toxic" assets. If it were, the program would have permitted inclusion of all structured assets - not just those rated AAA; similarly the program would have supported the purchase of ReRemics - the true "toxic asset" class.
Analysis
PPIP was designed to provide price support for structured investments held by institutional investors. The ultimate intent was to reduce "unrealized losses" of institutional holders and provide a mechanism for liquidation of positions at reasonable levels. Ultimately this process would help improve capital positions of investors which in turn would allow greater investment activity, tighter credit spreads, and a gradual return to investor normalcy.
PPIP was not designed to establish a true "market clearing price". If it were, subsidized financing would not have been part of the program. Clearly government provided leverage at below market terms was required to kick start investor interest in the asset class. With the rally in all asset classes, and greater risk tolerance by investors one could argue that PPIP would not have been required; however, at the time the program was rolled out not many were predicting the dramatic improvement in equity markets and credit spreads.
PPIP was also not designed to cleanse balance sheets of "toxic assets". If it were designed for this purpose, definition of eligible securities would have been much broader (i.e. would have included ReRemics - the true "toxic asset" class) and would certainly have included securities of all credit ratings, not just those rated AAA at issue.
PPIP has effectively increased investor demand and brought in credit spreads for securities heretofore shunned by institutional investors. Even if amount of investments made by PPIP managers are below expectations, the program has contributed to healthier institutional investor balance sheets and stronger credit markets. Ultimately those are the criteria for which PPIP should be judged.
