- The Treasury white paper makes it clear that they want mutual funds to participate
- Mutual funds are only allowed to lever up to 1/3 of their assets, which is going to make the deal substantially less tempting than for less regulated entities.
Copyright © 2009 by The Atlantic Monthly Group. All rights reserved.
I dunno, I kinda think it's a good thing mutual funds can only lever up to 1/3 of their assets. Mutual funds leveraging most of their assets is one of the reasons the bubble was created and the Dow was at the ridiculous level it was at. By only leveraging a portion of their assets, there will be less risk and less artificial highs.
Why would mutual funds regulation and restriction have anything to do with any other investment group?
And won't it depend on the individual assets? I guess I'm not sure how they're to be packaged, but there's got to be some way to gain an idea of the contents of any particular package that you're bidding on; with pkgs of mortgages from MA worth more then CA, for example, because the housing prices haven't dropped as much and there have been fewer foreclosures in MA.
But perhaps, as usual, I'm missing something?
To take an example from the 'back scratch' law of Senator Dodd: the Senator got, via his friendship with President Clinton, another friend pardoned from a federal crime which would be a benefit in terms of avoiding social and legal disabilities the negative reference would have continued to give him. Later, the pardoned man, 'indebted' to the Senator walked away from his interest in a house in Ireland leaving that interest to Senator Dodd. So are we, the taxpayer, expecting something from Bank of America for whom the U.S. disposes of the toxic assets? The alternative, nationalization, might bring us back to 'breaking the buck' or something similar. How about option 3?: Bank America limps along. Well if there is money out there, the Chinese have it, DeutscheBank has hinted it is getting a @5% return on equity this quarter, then presumably that money can be moved to optimal use and lent. That is sort of what happens when someone gets a high SAT score and someone a low, the former gets to move on and develop their intellectual capital and the latter has a harder time of it.
I'm unclear about a point here.
Do you mean that the mutual fund can only invest 1/3 of its total assets in toxic securities? Or that the mutual fund is limited to 3-to-1 leverage on whatever amount it chooses to invest in toxic securtities (i.e., the USG will only match the mutual fund on a $3-for-$1 basis)?
The former seems arbitrary. Couldn't mutual funds be formed with the explicit intention of investing 100% in toxic MBS?
And a last question. Since this is all about protecting the [largely unidentified] bondholders, why siphon more money away to the financial intermediaries the USG intends to partner with in buying the toxic MBS? Why not just offer the deal directly to the bondholders in accord with their primacy of claims since they are, in fact, the ones who would have first claim on proceeds from asset sales if the banks had to declare bankruptcy?