No matter how bad the idea, once it’s been given life and funding it seems that in Washington it’s impossible to kill. The case in point tonight is the PPIP. Yes, that program, the apparent death of which a couple of weeks ago caused you to breathe a sigh of relief. Well not so fast, bunky.

MarketWatch reports that Herbert Allison, a new Treasury Assistant Secretary testified to its reincarnation before Congress today:

A public-private government program to take $1 trillion in so-called toxic mortgages and other assets off bank balance sheets has not been abandoned and should be unveiled shortly, a key bank bailout fund overseer said Wednesday.

“We would like to see banks dispose of more of those assets so they can provide new sources of lending to the economy,” said Herbert Allison, the Treasury’s point man for the $700 billion Troubled Asset Relief Fund, in testimony to the Congressional Oversight Panel. “When we announce the program we will make disclosures about the rates we are charging with respect to the structure of these transactions about how they will be done in a way that will stabilize the financial system and protect interest of taxpayers.”

The Treasury has been considering the program in one form or another since October, but after government officials did not release the names of key investors for the program in May, regulatory observers speculated that the program was dead.

Allison, who testified in his first congressional hearing since being confirmed to the position by Congress, also said the Treasury will soon provide details about how another program that seeks to jump start the market for consumer lending will be expanded to include commercial real estate. The program, known as the Term Asset-Backed Lending Program, launched in November.

“It should not be long before we announce the first stage in that program,” Allison said. “Commercial real estate is a key sector of the economy.”

Seems a little strange doesn’t it. The banks are paying back TARP money as quickly as possible, they’ve been very successful in arranging for new equity and debt and everyone from the Fed Chairman to the President keeps telling us that things are so much better with the financial system. I think one of them or one of their lieutenants even pronounced the financial crisis over.

The banks have made no bones about their lack of interest in the program and several have said they have no interest in selling assets into it. The unspoken message is that we think that over time these assets are money good or at least worth more than the market will pay for them now. So, if there aren’t any sellers or at least the big boys don’t want to sell, what’s the point?

Just speculating here but I wonder if there might be one or two big financial institutions (Citi, BofA?) that are just hanging on by their fingernails. Rather than an outright nationalization or major recapitalization from government funds, is PPIP going to be used as a backdoor means of cleaning up localized messes?

Or, again just guessing, are they perhaps planning to go deeper down into the banking system. The smaller regional banks and some big community banks don’t have a lot of CDOs or other exotics on their balance sheets to the best of my knowledge, but they do have a boat load of commercial real estate. Maybe that’s what they will choose to attack with the money.

You probably noticed that he mentioned a TALF expansion to encompass commercial real estate. This has been kicking around for sometime but a lot of people including me have been scratching their heads and wondering how they could make that work in any meaningful way. The problem with CRE starts with a big negative equity problem, particularly in the newer vintage deals. TALF is a lending program so it couldn’t attack that issue but pairing it with some reworked PPIP might be how they intend to attack the problem.

I know a lot of folks, veterans of the last commercial real estate bust, that have been licking their chops over the deals they see coming down the road when the banks start biting the bullet on CRE. They might end up quite disappointed if the Fed and Treasury have other plans. Someone will make big money out of the bust but it might well be the big players. The smaller guys may not get to play this time around.