Saturday, March 21, 2009

Sam needs You to want Him

(Here's a strange thought experiment. Is Barry's reluctance to liquidate insolvent banks in part because he can't apply the 'only Nixon could go to China' rationale? Would there in fact have been a higher probability that tougher measures would have been taken faster under a McCain Administration? Conversely though, he should be in a better position to mitigate the 'bonus outrage.' Of course if McCain had become President the 9 scariest words -'I'm from the government and I'm here to help.' would have been transmogrified into 'Hi, I'm Sarah Palin , where are the launch codes?' -AM)

March 21, 2009
By Jennifer Ablan and Kristina Cooke

The lack of big investor interest in the debut of the Federal Reserve’s consumer lending program is heightening fears private capital will also shun the government’s toxic-asset plan amid public outrage over outsized executive bonuses.

The Fed’s new program to resuscitate consumer credit, the Term Asset-Backed Securities Loan Facility, or TALF, received only $4.7 billion in requests for loans out of $200 billion on offer.

What’s more, big money stayed away. Applications came from just 19 hedge funds and firms that manage between $3 billion and $5 billion, fewer and smaller than expected.

The lack of investor appetite could also be a problem for the U.S. Treasury’s public-private investment fund plan, which will aim to buy up to $1 trillion in assets by leveraging taxpayer and investor capital with government loans.

“If populist furor over bonuses and related issues fades in coming days, TALF may yet achieve its potential,” said Dino Kos, who ran the New York Federal Reserve Bank’s markets desk before William Dudley, now the New York Fed’s president, and is now at research firm Portales Partners.

Many big private investors are getting cold feet over the government funding plans in the wake of the public and political outrage surrounding American International Group (AIG.P), fearing that an irate U.S. Congress is more likely than ever to change the rules of engagement — possibly retroactively.

“If that furor continues to rise, TALF and for that matter, the nascent private-public investment program will prove to be white elephants,” Kos said.

One high-level private equity investor who asked not to be named said private capital was more cautious and wary about investing in the Treasury public-private investment fund because of what has unfolded with AIG.

Another private equity official said the government hasn’t consulted much with the private-equity industry. That official cited concern that details of private equity firms’ proposals and future returns could be made public.

“The climate is rather treacherous as investors do not necessarily trust that the government will not change the rules or create retroactive measures — particularly as it relates to clawbacks,” said Greg Peters, head of global credit strategy at Morgan Stanley in New York.

Potential investors in the public-private investment fund “worry about getting involved with the government and then having congress try to dictate how to run your business,” Peters said

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