If this were Bush-Paulson we would be storming Washington. The Times explains it in full here, complete with diagrams, but this is the key:
The Obama administration hopes to jump-start this crucial machinery by effectively subsidizing the profits of big private investment firms in the bond markets. The Treasury Department and the Federal Reserve plan to spend as much as $1 trillion to provide low-cost loans and guarantees to hedge funds and private equity firms that buy securities backed by consumer and business loans.
Now there are two ways that Geitner and Obama could have done this. They could have created a new Treasury Vehicle, something like a Treasury Bill or Treasury Inflation Protection bond (Tips) And they could have auctioned these off to the public, which could have brought in vast funds based on the probability of gain, just like every other treasury vehicle.
This could be done fast, in a matter of weeks, and the auction held. And of course every hedge fund manager would have the same opportunity as you and I to evaluate and purchase it.
But they decided to give this amazing deal only to this small group of people, and quite a group this is as defined in this article. Top Hedge Fund Managers Earn Over $240 Million
Yes, the Democratic administration that we elected is choosing to only allow this to be purchased by a group of people who are defined this way:
To make Alpha’s list, a manager needed to earn at least $240 million last year, nearly double the amount in 2005. That is up from a minimum of $30 million in 2001 and 2002. Combined, the top 25 hedge fund managers last year earned $14 billion — enough to pay New York City’s 80,000 public school teachers for nearly three years.
And guess who is taking 92% of the risk on these new financial entities, well you know the answer to that one don't you. It's we taxpayers, otherwise known as "the treasury."
From today's Times article:
The program also does not try to change securitization practices that, many investors say, spread risks throughout the world and destroyed financial institutions. Policy makers acknowledge that for now, fixing credit ratings, reducing conflicts of interest and improving disclosure can wait.
Under the program, the Fed will lend to investors who acquire new securities backed by auto loans, credit card balances, student loans and small-business loans at rates ranging from roughly 1.5 percent to 3 percent.
Depending on the type of security they are borrowing against, investors will be able to borrow 84 percent to 95 percent of the face value of the bonds. Investors would not be liable for any losses beyond the 5 percent to 16 percent equity that they retain in the investment.
So, that's it. Those who make hundreds of millions, and BTW only pay 15% income tax on it thanks to Chuck Schumer, will get to buy these entities that we guarantee. I wish I could get a few, but it's only for the elite, and I'm not in it.