Obama Wants Private Investors In The Bad Bank


We’ll get the exact details of the new banking bailout tomorrow, but every indication so far tells the same story: taxpayers hosed, zombie banks propped up, hello status quo. One quirk is that the Obama administration apparently wants private sector investors in the so-called bad or aggregator bank.

WSJ: The entity would be seeded with funds from the $700 billion financial-sector bailout fund, but the idea is that most financing would come from the private sector. Some critical elements remained unclear, including exactly how the government would entice investors to participate in the private bank, given that they can already buy soured assets on the open market if they want to. The government will likely offer some type of incentive, such as limiting the risk associated with buying the assets.

Getting private-sector buy-in will make for a nice talking point. Obama and Geithner can talk about a private-public partnership, and say there’s still a market price. But in the end, it’s just a different way for the taxpayers to fund buying assets at inflated prices. Though as we’ve noted, the whole notion of guarantees or insurance is inherently popular to politicians, who might want you to believe you’ll never have to pay out.