Montreal, Canada

No sooner after my commentary yesterday on the poor reception of the Public-Private Investment Program (PPIP) do we learn of the fresh round of financing raised for this government-sponsored plan.

The Wall Street Journal this morning reports that $1.13 billion dollars has been raised thus far for PPIP from two U.S.-based investment companies – Invesco Limited and TCW Group. That's peanuts compared to the size of toxic assets still sitting on bank balance sheets – mostly marked higher following the Financial Accounting Standards Board (FASB) rule change in May allowing bank CFOs to unilaterally decide what these securities are worth.

Basically, accounting changes last spring gave CEOs and CFOs the authority to decide how and where to mark these assets – something not exactly consistent with accounting in the first place. Still, there are takers as some savvy investors place big bets alongside government capital anticipating a major recovery or bounce.

The size of the mortgage-backed securities market is a whopping $1.64 trillion dollars. The government hopes to raise at least $40 billion for PPIP but since its initial introduction in February many investors have balked at participating because they fear the government might change the rules on financing terms. The U.S. government is throwing in a "kicker" as every dollar raised is matched by the Feds plus debt financing or a.k.a. leverage.

Just what these securities are truly worth is anybody's guess. Still, some managers believe mortgage-backed securities have been marked too low and at some point will post a significant recovery. And with signs of housing stabilization appearing since June, these distressed securities might find more bidders before the end of the year.

Some mutual fund houses like Blackrock – the biggest in the world – are launching funds dedicated to PPIP and distressed mortgage-backed securities.

Credit analysts concede these securities don't have to reach pre-2007 levels for new investors to make money; most mortgage-backed securities trade anywhere between $0.20 cents to $0.60 cents on the dollar and can double from current levels.

Combined with leverage, that's a pretty exciting return – if the market recovers.