AIG uproar rattles private investors
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Kai Ryssdal: As Congress and the White House try to sort out the politics of the bailout, the Federal Reserve is doing all it can to get private companies to take federal dollars and use them to jump-start the credit markets. In fact, tomorrow is the deadline for applications to the Fed’s latest intervention, something called the trillion-dollar TALF, or Temporary Asset-backed Loan Facility. But the commotion over bonuses at AIG may have already scared some of those private investors away as Marketplace’s Jeremy Hobson reports from New York.
JEREMY HOBSON: Let’s start with TALF. It’s a way for the government to kick-start lending to businesses and consumers. It depends on private investors borrowing money from the government and using it to buy debt, backed by credit cards, student loans, auto loans and small businesses. Chris Low, chief economist at FTN Financial, says there’s already some investor trepidation.
CHRIS LOW: Some of the customers that we talk to were planning to participate and at least a couple of them have told me they’ve decided that they’ll wait until the second round, see how the first people are treated.
Low says they’re worried lawmakers could change the terms of TALF and other program retroactively by restricting compensation or demanding a share of the profits. He says the fear is that as it deals with AIG…
LOW: In the process of doing justice, the government is undermining respect for contracts and ultimately respect for law.
The same applies to the public-private partnership to buy up toxic assets. Robert Johnson managed a hedge fund run by billionaire George Soros and was chief economist with the Senate Banking Committee. He agrees the possibility of lawmakers meddling in their affairs has made potential investors nervous.
ROBERT JOHNSON: Well it certainly might deter private sector participants, the question remains whether that is a healthy or an unhealthy development. In other words, if you are handing out candy from the public sector to the private sector, it’s a good thing it’s being stopped.
Unless, of course, that candy is the only thing that makes all this debt sweet enough to swallow.
In New York, I’m Jeremy Hobson for Marketplace.
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