If the government subjectively determines leverage ratios
for private parties to borrow from taxpayers to invest
are they not indirectly setting prices
given the loans are nonrecourse?
A…nonrecourse loan…is secured by a pledge of collateral
typically real property
but for which the borrower is not personally liable
If the borrower defaults, the lender/issuer can seize the collateral
but the lender's recovery is limited to the collateral
… non-recourse debt is typically limited to 80% or 90% loan-to-value ratios
so that the property itself provides "over-collateralization" of the loan
The purpose of non-recourse debt is to require lenders
to underwrite their loans on a sustainable and prudent basis
since the lender is in the first-loss position with these loans
not the borrower
If the PPIP creates artificial demand
which would most likely be lower
if Treasury had offered half as much incentive
how could auction prices for debt not be intentionally inflated?
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