"Inviting the Public to Play"
As I’ve said before, I think there are at least three different dimensions along which you need to try to evaluate the Geithner Plan. One is political feasibility. Two is likely efficacy in terms of recapitalizing banks. And three is fairness/justice. I think the plan does great on number one, less well on number two but not terrible, and quite a bit worse on number three. After all, why can’t I get a generous non-recourse loan to leverage my investment in toxic assets? It hardly seems fair. And, indeed, unlike the Wall Street big boys I’d be happy to accept a $250,000 a year maximum salary from my employers. Jane Hamsher writes:
Do you get a chance to make money in this “off-the-charts good” investing opportunity? Noooo, these loans that nobody has to pay back aren’t being offered to the public.
To be fair, you do need to pay the loan back if you make money. But it’s a loan that sharply limits your downside risk and gives you some shot at a substantial payoff. It’s not a good investment for everyone, but I would say that for a lot of people who are in a position to be fairly risk-friendly with their money (the youngish and employed, basically) it’s a good deal.
A Baseline Scenario correspondent proposes:
If Geithner’s taxpayer subsidized toxic public/private plan goes forward, I think it would be fair if the federal government allow non-institutional investors to participate via a no-fee investment vehicle. I think if Americans had the option of investing in this program (without having to pay the egregious fees to the investment advisors/PE shops), it would be much easier to swallow since they would at least get the same deal the sharks are getting. There is probably more money on the sideline with individual investors than all these institutional investors. Maybe they could set up some ETF equivalent for it. I think the willingness of the administration to do such a thing would tell us a lot about whose for whose interest they are really looking out.
I’m pretty sure, though, that the public actually can come to the party. It says in my fact sheet, “A broad array of investors are expected to participate in the Legacy Loans Program. The participation of individual investors, pension plans, insurance companies and other long-term investors is particularly encouraged.”