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Fallout: The Financial Crisis

Investors may bail out financial system

Dan Grech Mar 6, 2009
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Fallout: The Financial Crisis

Investors may bail out financial system

Dan Grech Mar 6, 2009
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TEXT OF STORY

BILL RADKE: The Washington Post reports this morning the U.S. government is preparing a plan to give wealthy investors the deal of a lifetime: A chance to make a killing, without the risk of massive losses. The program could have the government loaning almost a trillion dollars.

Marketplace’s Dan Grech explains.


DAN GRECH: The government has turned to these wealthy investors for a simple reason — they’re the ones sitting on the biggest pile of cash.

Here’s how a deal would work: A hudge fund ponies up a million dollars. The Fed loans it another $9 million. The hedge fund then uses that $10 million to buy an asset-backed security. An asset-backed security is used to finance things like student loans, car loans and credit cards.

The hedge fund would have to hold on to that security for three years. If its value rises to $11 million, investors get to keep that million dollar profit, basically doubling their money. If the value drops, investors may lose their initial investment, but nothing more. Taxpayers are on the hook for the rest.

The government is considering the sweetheart deal to coax money back into the credit markets. It thinks this may be the only way to do it.

I’m Dan Grech for Marketplace.

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