The New York Times reports that some potential investors fear that the government will regulate the compensation of executives who participate in the plan. Given the outrage over AIG, their concern is legitimate:
[S]ome executives at private equity firms and hedge funds, who were briefed on the plan Sunday afternoon, are anxious about the recent uproar over millions of dollars in bonus payments made to executives of the American International Group.Obama administration officials tried to allay those fears on the Sunday news circuit:
Some of them have told administration officials that they would participate only if the government guaranteed that it would not set compensation limits on the firms, according to people briefed on the conversations. The executives also expressed worries about whether disclosure and governance rules could be added retroactively to the program by Congress, these people said.
Administration officials took to the airwaves Sunday to reassure investors that the public would distinguish between companies like A.I.G., which are taking government bailout money, and private investment groups that, under this latest plan, would be helping the government take troubled assets off the books of some of the country’s biggest banks.Nice try, but . . .
“What we’re talking about now are private firms that are kind of doing us a favor, right, coming into this market to help us buy these toxic assets off banks’ balance sheets,” Christina D. Romer, the White House’s chief economist, said in an interview on “Fox News Sunday.”
“I think they understand that the president realizes they’re in a different category,” she said, adding, “They are firms that are being the good guys here.”
The "good guys" language undermines the government's position that the bailout is policy - not handouts to wrongdoers. It also conflicts with the government's previous opposition to meaningful limits on executive compensation. If the new investors are "good guys," while TARP participants are "bad guys," then the government has a good reason to regulate compensation for the latter.
Finally, I suspect that many of the "good guys" will come from the "bad guys'" industry. The world of sophisticated financial investors is tiny. The people with knowledge, resources, and professional credentials to manage and organize the proposed purchase of troubled assets will undoubtedly have worked in institutions that hold these same assets; they could even have work experience designing and marketing the very securities that have spread so much risk across the market. For this reason, some type of disclosure process seems relevant.
Also on Dissenting Justice:
Tangled Webs: Goldman Sachs, AIG and the Feds
Professor Balkin Defends Constitutionality of Bonus Tax
Richard Bernstein of Bank of America-Merrill Lynch Says: Sell Financial Stocks