WASHINGTON — Investors want the Obama administration to sweeten the deal before they agree to buy risky debt from U.S. banks as part of the government’s retooled program to rescue the ailing financial industry.
The administration is expected to announce today that the government’s latest bailout strategy will be to entice big investors to buy more than $1 trillion in troubled assets from the banks. The hope is that, free from the drag of subprime-mortgage debt and other bad investments, banks will be more likely to start lending money again and the economy will rebound.
Exactly how the administration plans to persuade hedge funds, insurance companies and private-equity firms to buy into some of the world’s riskiest investments remains unclear. But investors said Monday they were unlikely to buy into the idea unless the government puts up a lot of the money and promises to absorb a lot of the losses if things go badly.
“The first loss has got to be the government’s,” said Wall Street veteran Muriel Siebert, who runs the brokerage Muriel Siebert & Co. “Maybe the first 25 percent of losses. We don’t know what’s in some of those bonds.”
Billionaire Wilbur Ross, who runs the private-equity firm WL Ross & Co., said investors want to know how much risk the government will accept if the investments go sour and how much money the government is willing to put up — likely in the way of low-interest loans.
“And any sort of financing is something I would be interested in,” said Jeffrey Gundlach, chief investment officer of Los Angeles-based money- management firm TCW Group. “There are distressed assets that I would like to buy now, but I can hardly get anyone to lend me any money in the current environment.”
Treasury Secretary Timothy Geith ner will unveil the program in a speech today at the Treasury Department. The partnership with private investors would be just one element of a major overhaul of the troubled bailout program, which has come under heavy criticism for distributing billions of dollars with few requirements on how banks would use the money.
“I want to see the incentives and the restrictions,” said Jacob Benaroya, managing partner of New Jersey- based Biltmore Capital Group, a hedge fund that’s buying up to $100 million in mortgage debt per year.
For example, he said, he’s unlikely to be interested in buying loans that must be held for 30 years.
