What to Make of This?

The administration has reportedly reversed course on the issue of whether executive pay restrictions will apply to participants in the PPIP auctions, says the Washington Post:

Treasury lawyers have told the special inspector general for the federal bailout that executives involved with that initiative and another $1 trillion consumer lending program "could be subject to the executive compensation restrictions," according to the report from Special Inspector General Neil M. Barofsky.

The Treasury's general counsel's office said in an April memo attached to the report that pay for employees of the Federal Reserve Bank of New York could also be limited because of their role in running the consumer lending program.

The story reads as if this is a legal matter -- that the Treasury has determined that it is required to obey statutory restrictions on executive pay at firms receiving TARP money -- rather than a discretionary measure. Allison Schrager suggests that this is the end for PPIP; that no firm will participate now, knowing that compensation restrictions will result. I'm not so sure. Most of the the big banks are already subject to the limits based on other TARP money they've received, and the ones healthy enough to pay those loans back are also least likely to need to get rid of their bad assets. And with stress test results soon to be in hand (along with increased equity stakes, one suspects) the government will have as much leverage over potential participants as ever. What will be interesting to learn is whether the limits will apply to the fund managers and non-bank investors (and whether they'll be able to find ways to get around the rules).

Hopefully, this won't constitute a serious problem for the plan, but these policy u-turns are never particularly encouraging.

Oh, and markets are apparently up today on Tim Geithner's statement that the "vast majority" of American banks have more capital than needed (take that Hal Turner!). IMF report? What IMF report?