Gov. Advocates Bailout Investment Funds

As part of the administration's plan to involve the private sector in efforts to purge banks of troublesome mortgage assets, government officials are encouraging large investment companies to create bailout funds - what some are calling the financial-crisis equivalent of the Liberty Bonds hawked by the U.S. government during World War I.
_""The New York Times"":http://www.nytimes.com/2009/04/09/business/09fund.htmlx_r=2&th&emc=th_ reports that the idea behind these investments, which are similar to the mutual funds that buy stocks and bonds, is to give ordinary Americans and individual investors a chance to profit from the bailouts that are being financed with their tax dollars. The administration also wants to make it apparent that they are trying to spread the bailout benefit beyond Wall Street to the constituents on Main Street.
These investment bailout funds would buy troubled mortgage securities from banks, many of which are backed by subprime loans, giving lenders the additional liquidity they need to start making loans and rekindle the economy. If all goes well, the funds will eventually sell the investments at a profit. But as with any investment, there are risks, and some analysts argue that because the bailout funds would be dealing with distressed, possibly over-valued, mortgages, the risk to would-be investors could be substantial.
Washington's push to include smaller investors in key recovery efforts underscores concern that further initiatives to stimulate the economy may be hindered by recent backlash such as the public outrage over executive compensation at rescued institutions. According to the _Times_, many Americans say they believe the bailout programs — and the potentially rich profits they could yield — will benefit only a golden few, including some of the institutions that helped push the economy to the brink.
Steven A. Baffico, a BlackRock executive, told the _Times_, ""This is an opportunity to forge an alliance between Main Street, Wall Street, and K Street,"" referring to the Washington address of many lobbying firms. ""It’s giving the guy on Main Street an equal seat at the table next to the big guys,"" Baffico said.
Investment management firm ""BlackRock"":http://www.blackrock.com is playing a central role in the government’s efforts to buy-up distressed mortgage, and is considering creating a bailout fund for individual investor participation, the _Times _said.
The bailout fund idea is still under discussion, and the _Times _reported, is unlikely to be established for several months, if the plan goes through at all.