The Geithner Plan is out. I don’t have time to look at it in detail, but in the meantime, PK, one of our readers (and someone we correspond with a lot), had an idea: If we’re going to subsidize the private sector, why not let individuals into the deal? In his words:
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.
Capital for the investment funds will come from private fund managers (raising new capital from their limited partners) and from Treasury. Perhaps either a fund manager or Treasury could create an ETF- or mutual fund-type structure, where the government subsidizes the usual management fees, and use that to raise some of the capital. I know that because most individuals aren’t “sophisticated investors” this would subject the fund – or at least the individual part of it – to a higher degree of regulation, but that doesn’t seem like a bad thing.
I think it’s a brilliant idea.
(As far as the plan itself, my first reaction is that the Legacy Securities Program actually doesn’t do enough to attract private sector participation, since the leverage is only 50% or maybe 100% of the capital.)
Update: Matt Yglesias and F. Blair (below) have pointed out the following language: “The program will particularly encourage the participation of individuals, mutual funds, pension plans, insurance companies, and other long-term investors.” I believe that’s from the program for loans, not securities (the latter involves up to five professional asset managers, who generally raise their money only from qualified investors). So maybe there is something there.
By James Kwak