According to the Journal, the banks are lobbying the FDIC for a shot at participating in the Public Private Investment Program (PPIP)--the program that will extend government financing to investors interested in buying toxic loans and securities from ... the banks. Which is to say, the banks want to be able to use government financing to buy their own assets.

Interestingly, the banks are hinting that letting them participate is essentially the price of admission: If they can't join in the buying, then maybe they don't want to sell either, which would kind of derail the whole plan:

"Banks may be more willing to accept a lower initial price if they and their shareholders have a meaningful opportunity to share in the upside," Norman R. Nelson, general counsel of the Clearing House Association LLC, wrote in a letter to the FDIC last month. ...

The banking industry's lobbying is meant to overcome a hurdle facing PPIP: unwillingness by banks to sell assets at steep discounts.

I've argued before that allowing the banks to game the PPIP this way isn't the worst thing in the world--it would be unfair distributionally (that is, a big transfer from taxpayers to banks), but it could succeed at recapitalizing banks, which seemed pretty urgent at the time the program was conceived. But now that the banks are increasingly able to raise money on their own (i.e., from investors), and now that Treasury and the Fed increasingly believe most banks can earn their way out of their balance sheet problems, it seems pretty egregious to transfer taxpayer money to them in this way.

For that matter, if the banks are able to raise money from investors and earn their way to good health, do we even need the PPIP at all? It's not obvious to me that we do. If you have enough capital lying around, as the stress tests suggest the banks do (or at least that they will within a couple months), you can probably afford to hang on to some depressed assets and see if they recover.

--Noam Scheiber