Bailout Honchos Weigh Toxic-Asset 'War Bonds'

Treasury's new idea would allow private investors to profit from bailouts

By Clay Dillow, Newser Staff

Posted Apr 9, 2009 8:11 AM CDT

(Newser) – Responding to charges the bank bailout privatizes profits while socializing losses, the Obama administration is exploring creating mutual-fund-type instruments that would allow private citizens to invest in toxic assets. The bailout funds, akin to war bonds, would allow the taxpayers who funded the bailout to profit along with Wall Street, the New York Times reports. "It’s giving the guy on Main Street an equal seat at the table next to the big guys," said a money manager.

The idea is fraught with risk. If the assets appreciate, that would quiet accusations that the bailouts benefited only the gilded few, including many who contributed to the economic crisis. But if the funds lose value, both the economic and political ramifications would be dire. The Treasury is seeking about five fund managers initially, and investors could participate for as little as a few hundred dollars.

[Images (2)]

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Treasury Secretary Timothy Geithner appears on CBS's "Face the Nation." The Treasury's latest plan would allow Main Street investors to put money into funds composed of troubled bank assets. (AP Photo/CBS Face the Nation, Karin Cooper)

President Barack Obama, right, and Treasury Secretary Timothy Geithner react, during the Plenary Session at the G20 Summit at the ExCel centre in London, Thursday April 2, 2009. (AP Photo/Anthony Devlin/PA)

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If this turns out to be great but you have kept it away from Mom and Pop and the rich are favored, that looks bad, but it’s also bad if you have people who are burned.
- Jay D. Grushkin, partner at the law firm of Milbank, Tweed, Hadley & McCloy

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Bailout Honchos Weigh Toxic-Asset 'War Bonds'