U.S. Toxic Asset Plan Needs Hedge Fund, P.E. Backing

Mar 23 2009 | 1:57pm ET

President Barack Obama and Treasury Secretary Timothy Geithner today unveiled an ambitious plan for a public-private partnership to buy up the toxic assets that have caused bank lending to grind to a halt. But the hedge funds and private equity firms needed to make the Public Private Investment Program work are expressing misgivings amidst Congressional action to restrict bonuses at companies receiving bailout money.

Geithner’s plan would use up to $100 billion in bailout money to back private investors that buy some of the hundreds of billions of dollars of illiquid assets and loans that have thus far proven resistant to a solution.

“Our judgment is that the best way to get through this is if we can work with the markets,” Geithner told The Wall Street Journal. “We don't want the government to assume all the risk. We want the private sector to work with us.”

Some alternative investment executives were briefed on Geithner’s plan yesterday. They expressed their concern, not about PIPP, but about the American International Group bonus outcry, and legislation that would tax at a 90% rate any bonuses handed out by firms receiving more than $5 billion in government bailout money.

According to The New York Times, those executives said they would only participate in PIPP if Treasury sets no compensation limits. The Journal says Geithner agrees that they should not be subject to the terms of the AIG legislation, should it pass the Senate and receive the president’s assent.

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