In an effort to save the plan, Treasury is making it easier for funds and private investors to participate in its plan to buy up banks' bad assets (PPIP). These rule changes make it clear that interest on the part of large hedge funds is either not big enough, or not wanted.
This should come us no surprise. Asking savvy investors to pay a premium for potentially non-marketable assets goes against the grain of smart investors. Asking hedge fund investors to pay a premium to the market also goes against standard operating procedures at these firms. Other possible hang ups include, the insistence by the Treasury that firms be able to demonstrate the ability to raise $500 million in new capital. And, the limitation that only firms experienced in investing in mortgage backed securities could bid on the distressed assets.
New proposals call for lowering the $10 billion threshold for qualified bidders, and allowing small and women- and minority-owned firms to participate in the plan by partnering with large, qualified, firms. I am scratching my head on this one.
An additional problem could be the current mistrust of the government on the part of financial firms. With the shadow of Congress lurking in the background, investors have to ask themselves--will they change the rules in the middle of the game?
One has to wonder why large hedge funds would want to get involved with the government given the state of affairs in Washington. Funds could be opening themselves to all kinds of problems if they decide to play.
The clearest sign that the plan isn't working is the extension of the deadline to apply by two weeks.
If this plan fails it is likely to lead to a blood bath in the stock market. Investors should recall that the market rallied sharply on both the hints about this plan and after the plan was announced.
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 Bob DeMarco is a citizen journalist and twenty year Wall Street veteran. Bob has written more than 500 articles with more than 11,000 links to his work on the Internet. Content from All American Investor has been syndicated on Reuters, the Wall Street Journal, Fox News, Pluck, Blog Critics, and a growing list of newspaper websites. Bob is actively seeking syndication and writing assignments. |
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