ETF Plans To Ease Credit Crunch Take Shape

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April 24, 2009 11:03am ETF BASIC NEWS

toxicWith trillions of dollars in U.S. government funding already committed to combating the worst recession since the Great Depression, regulators are increasingly enlisting private sector support.

Along those lines, lawmakers and Treasury officials are reportedly listening to—and in some cases soliciting—outside views from key leaders in the financial sector.

Asset managers focusing on exchange-traded funds are being included in this movement to broaden the scope of U.S. economic recovery plans. As detailed in an analysis of key developments in the effort to thaw credit markets, large ETF sponsors as well as small-yet-influential players are involved.

(The full 21-page Special Report, three months in the making, can be viewed here.) 

Two ETF Plans Emerge

At the heart of the issue is resolving so-called “toxic” debt related to mortgage-backed securities. That alone is estimated to represent more than $1 trillion of regulators’ efforts. MBS markets are made upon debt obligations that “represent claims to the cash flows from pools of mortgage loans, most commonly on residential property,” according to the Securities and Exchange Commission.

The Treasury’s plan to breathe new liquidity into this market is called the Public-Private Partnership Investment Program, or PPPIP. While the Treasury was developing the PPPIP program, which was unveiled in March, ETF companies began working on an alternative.

Over the past two months, two plans have emerged: One from Invesco PowerShares and the other from Murray Stahl (CEO of Horizon Asset Management) and Robert Holderith (CEO of Emerging Global Advisors).

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