Wednesday, May 6, 2009

Handing Wall Street Yet Another Gift

Our government is trying to buy up toxic assets by giving non-recourse loans to private equity groups that will then buy the pools of assets for pennies on the dollar. Seems unfair that these private groups can buy the assets at a deep discount, primarily with money that you and I loan them and we can not. To counter this argument, the government includes in their solicitation for bids a request for how the private equity groups will allow public participation. Not much of a surprise that they want to package them into instruments which they can sell tot he public and upon which they can collect huge sales and management fees. We do not, however, need to hand wall street a new money maker to allow public participation in the deals.

The New York Times in their reporting on the idea of retail investors participating in buying toxic assets says: "For the investment managers, the benefits are potentially large. These big firms can charge healthy fees to investors for taking part."

The treasury department already sells a variety of notes and bonds directly to the public via it's Treasury direct website. Since, the U.S. government will already be an equity investor in the deals, retaining 50% of each one, they can either sell the public some portion of their equity or some portion of the PEGs equity in each deal directly.

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