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| U.S. to Invite The Wealthy To Invest in The Bailout |
| 2009-03-09 |
| This is quite amazing: The government is seeking to resuscitate the nation's crippled financial system by forging an alliance with the very outfits that most benefited from the bonanza preceding the collapse of the credit markets: hedge funds and private-equity firms. The initiative to revive the consumer lending business, outlined by officials this week, offers these wealthy investors a new chance to make sizable profits -- but, thanks to the government, without the risk of massive losses. The idea is to entice them to put their huge cash piles to work to stimulate the financial system. They would be invited to buy up recently issued, highly rated securities. These securities finance consumer lending, such as credit cards and student and auto loans." In the past, hedge funds and private-equity firms have not been major buyers of the securities that provide financing for credit cards and other consumer loans. But the government is turning to these investors in part because traditional buyers, such as retirement funds, mutual funds and university endowments, have fled the markets. Many are deep in the red and reeling from past forays into buying complicated debt securities. Moreover, many pension funds have rules that ban them from borrowing money to make investments, which is an essential ingredient in the government's program. So many pension funds will not be able to participate. Federal officials, however, have not given up on the traditional investors and are considering setting up investment entities that would allow pension funds to get a piece of the profits. Officials said pension officials have expressed strong interest in this idea. Well, that's nice of the Feds, to give the screwed a chance to get something back. Not too much of a chance, of course.... And they can always tax the profits ... Here's how a typical TALF deal would work: A hedge fund uses $1 million of its own money and gets a $9 million loan from the Fed, payable after three years, to buy a $10 million asset-backed security, which finances consumer loans. Hoping that the market for these assets recovers, the hedge fund would hold the asset for three years. If the security rises in value to $11 million, the investor would keep the profit, essentially doubling the initial investment. The government, meanwhile, would consider the deal a success because consumer lending was spurred. If the value fell below $9 million, the hedge fund would lose its down payment but nothing more. The Treasury, using bailout funds approved by Congress, would cover the next set of losses, with the Fed ultimately on the hook for anything more. So the government essentially is going to be in the hedge fund business. And we all know how good government is at picking winners and losers. If the asset-backed security really is AAA-rated the hedge funds won't need Obama dollars. If it isn't, they won't pony up the original $1 million in the first place. Steven Schwartzman, chief executive of private-equity giant Blackstone, said the program is "highly attractive" because of the government financing. So the entities that skinned us on the upside now get to buy deeply undervalued assets at 10 to 1 leverage, with a government guarantee of no downside risk. Cute! Now, if the government were to set up a fund with this kind of deal that ordinary citizens and taxpayers could buy shares in, there would be an enormous outpouring of money from the mattresses. But no, a deal like this has to go to the 'professionals'. Makes you want to believe the conspiracy theorists. Jeeze. |
| Posted by:KBK |
| #5 I wonder if they pay for bullets too? |
| Posted by: newc 2009-03-09 23:17 |
| #4 They always said they'd sell us the rope. Now it appears they will buy the rope for you... |
| Posted by: tu3031 2009-03-09 11:44 |
| #3 BUY OBAMA BONDS Predicted here weeks ago. China must have told the Beast to pi** off. They'll have control over whats left of our IRA's and 401k's before it's over. BUY OBAMA BONDS |
| Posted by: Besoeker 2009-03-09 08:31 |
| #2 Privatizing the profits and socializing the losses. Just like Fannie Mae and Sallie Mae already f'ed up. Danger, Will Robinson. Also a nice back-door way of destroying the pensions of even more americans, ultimately making them more dependent on gov't fiat. |
| Posted by: Seafarious 2009-03-09 08:25 |
| #1 Soros.... |
| Posted by: Bunyip 2009-03-09 01:05 |