U.S. May Enlist Small Investors in Bank Bailout
April 11th, 2009Buy Obama’s Banker Bailout Bonds! Yes, we can!
Via: New York Times:
During World War I, Americans were exhorted to buy Liberty Bonds to help their soldiers on the front.
Now, it seems, they will be asked to come to the aid of their banks — with the added inducement of possibly making some money for themselves.
As part of its sweeping plan to purge banks of troublesome assets, the Obama administration is encouraging several large investment companies to create the financial-crisis equivalent of war bonds: bailout funds.
The idea is that these investments, akin to mutual funds that buy stocks and bonds, would give ordinary Americans a chance to profit from the bailouts that are being financed by their tax dollars. But there is another, deeply political motivation as well: to quiet accusations that all of these giant bailouts will benefit only Wall Street plutocrats.
The potential risks — politically for the administration, and financially for would-be investors — are considerable.
The funds, the thinking goes, would buy troubled mortgage securities from banks, enabling the lenders to make the loans that are needed to rekindle the economy. Many of the loans that back these securities were made during the subprime era. If all goes well, the funds will eventually sell the investments at a profit.
But, as with any investment, there are risks. If, as some analysts suspect, the banks’ assets are worth even less than believed, the funds’ investors could suffer significant losses. Nonetheless, the administration and executives in the financial industry are pushing to establish the investment funds, in part to counter swelling hostility against the financial industry.
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“This is an opportunity to forge an alliance between Main Street, Wall Street and K Street,” said Steven A. Baffico, an executive at BlackRock, referring to the Washington address of many lobbying firms. BlackRock, a giant money management firm, is playing a central role in the government’s efforts and is considering creating a bailout fund. “It’s giving the guy on Main Street an equal seat at the table next to the big guys,” he said.
But I think politically, at least initially, it’s a brilliant move: Americans want to do something and this is something. And the fact that it conjures up memories of WWII, America’s most beloved war… it’s a stroke of marketing genius.