Let the Private Sector Fix the Economy

by Sal on September 29, 2008

in Economy,Politics

Hat tip to MrsSal for finding this one.  With the $700 Billing Bailout package looming, the Boston Globe reports today that investment firms such as Bain Capital want a chance to bid on the distressed assets that the government is planning to “bail out.“  From the article: 

Boston’s Bain Capital and Bank of New York Mellon, along with major investment firms around the country, want to add a new wrinkle to the $700 billion federal bailout proposal: a chance to buy the same distressed, mortgage-related assets the government is preparing to purchase from troubled financial companies.

The federal bailout would establish a new government fund with authority to buy securities and other assets tied to mortgages, getting them off the books of struggling financial companies and easing the current credit crunch. Ronald P. O’Hanley, chief executive of BNY Mellon’s $1 trillion investment group, is urging the government to make room for private firms to participate in auctions of those devalued assets. Hanley said that would make the process more transparent, and would make the pricing of the assets more accurate.

“We’re suggesting that it’s a way to implement the bailout, to have an auction,” O’Hanley said. “We’re suggesting that it go beyond the Treasury, and that the Treasury right from the beginning invite others in to invest with them.”

O’Hanley said his firm has “money on the sidelines” that it’s prepared to invest in the right opportunities. And industrywide, he said, “There are lots of distressed funds waiting to buy. An auction process will provide a mechanism to bring those players in.” Distressed debt funds are pools of money put together to buy troubled securities in hopes of making a profit later.

At Bain Capital, one of the nation’s five largest leveraged buyout firms with $25 billion in untapped capital, Wall Street’s woes smell like opportunity, according to a person involved in the firm’s plans. That opportunity could take shape in a number of ways: buying troubled financial companies, or pieces of them, cheaply; and in the form of buying mortgage-backed securities at distressed prices, in order to turn a profit on them later.

What this goes to show is that the free market works.  What is one company’s liquidity problem is another company’s bargain.  While Paulson has claimed that the bailout is necessary to give these companies liquidity, this shows that there are plenty of other companies willing and able to invest in these securities at bargain-basement prices, with the idea that most of the assets will eventually rebound.  The bailout package should be reconstituted to allow companies to bid on the assets and give private investment firms first crack at the assets.  A private solution is always superior to a government solution, and should be considered by Congress as an alternative.

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Bailout Fails — What Next? | Axis of Right
September 29, 2008 at 2:40 pm

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Tatiana October 8, 2008 at 5:03 am

Searched the current economy in msn but for some reason found this page.great info


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