Friday, March 27, 2009

Pssst: Wanna Buy Some Toxics?

From the Wall Street Journal:

Fund Firms Look to Offer a Toxic Taste

Toxic assets nearly sank U.S. banks, until taxpayers bailed them out. Soon, some taxpayers can buy some of those toxic assets themselves.

At least three mutual-fund providers are aiming to launch closed-end funds to take advantage of various parts of the Obama administration's toxic-asset program -- BlackRock Inc., Allianz SE's Pacific Investment Management Co. and Legg Mason Inc.

Individual investors, whose portfolios took a beating in the financial crisis and whose tax dollars propped up 512 banks, would be able to get in on the action by buying shares in the planned closed-end funds. The closed-ends, which would likely be limited to wealthy investors, could potentially purchase assets including the banks' soured loans and mortgage-backed securities.

"What's really going on here is that taxpayers are underwriting risk," says John Baker, a lawyer with Stradley Ronon Stevens & Young LLP in Washington, who is advising fund firms on the government programs. "If these assets are mostly good assets, the federal government and the investor will do fine."

Call It the 'Toxic Asset Fund'

  • The Fund. Lets individual or "retail" investors buy toxic assets from banks.
  • Investment Objective. Make money from the loans and securities now poisoning financial institutions.
  • Leverage. Oodles of it for some, just like what got the banks in trouble to begin with.
  • Risk Factors. The bad assets could keep getting worse.

There is political utility in enlisting Main Street investors. It could quell criticism that the government is giving a gift to hedge funds and other Wall Street titans, which helped spawn the financial crisis in the first place and which are now being tapped by Washington to help buy toxic assets....MORE

HT: DealBreaker who end their comment with:

...This looks quite a bit more like an opportunity for funds deeply under their high watermarks to extract some management fees from the public. Like the reason California managed to raise anything near (much less over) their $4 billion target. Like we are going door to door asking people to buy war bonds.

Call us cynics.

And from The Big Picture:

Dilbert, 2 days in a row:


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