With its highly touted TALF program to spur consumer lending, the government is undertaking a $1 trillion effort that hinges on the participation of some unpopular outfits: hedge funds and private equity firms. As the Washington Post reports, the Fed and Treasury's "public-private partnership" relies on investment from the only people who still have cash on hand—and could make them considerable profits without much risk.
The Term Asset-Backed Securities Loan Facility will see investors use their own cash plus federal money to buy securities that finances consumer loans for Americans. If the asset appreciates, the investor profits while the government gets cash flowing; otherwise, the Treasury covers the loss with federal bailout money. Steven Schwartzman, CEO of Blackstone, the private equity giant, said the government financing made the TALF program "highly attractive."