In a recent Slate column, Daniel Gross asks,
Why can't individual investors get the sweetheart deal Geithner's plan is offering to hedge funds?
The answer is, "We can." All we have to do is buy shares in the companies that are allowed/able to participate in the deal. I realize that if I have $5000 to speculate with, I might not be able to place it with as major hedge fund. But I can place it with a fund that invests with a fund that invests in some major hedge funds. Gross further laments,
But it wouldn't be hard to arrange for small-fry investors to participate in the bailout. The government could partner with investment-management firms—especially well-regarded investment-management firms such as Vanguard and TIAA-CREF—to create mutual-fundlike vehicles in which individuals could invest as little as a few hundred dollars in the effort to stabilize the banking system. The feds could even offer such an investment as a check-off on tax returns. Or we could present it as an allocation choice for federal employees' retirement accounts. Legacy loans and legacy assets could be offered as an option for state-sponsored 529 college savings programs, in which investors typically commit to lengthy holding periods. Or they could be made part of the universal savings accounts that Obama supports.
Of course it doesn't require PR savvy for firms to do this. If the transaction costs of making these arrangements are low, firms will put together and market these packages for small investors. If there is any problem with relying on private investors to put these packages together, it is time. The gubmnt seems hell-bent on making near-instant infusions and bail-outs. And it is pretty difficult to understand what they are doing, much less put together and market a new investment package for small investors all in a week or two.
Gross's lament sounds very much like the complaint people make about oil company "windfall" profits any time the price of oil spikes upward. I've heard people say such things as,
Which is sheer nonsense. If people want to share in the returns (and risks) earned by oil companies, all they have to do is buy shares in them. Similarly, if people want to share in the returns (and risks) of firms who can easily buy subsidized toxic assets, they can look for ways to buy into those firms. And if there aren't any funds like this available, and if entrepreneurs think there's a market for them, they will emerge. There is no reason for the gubmnt to try to create these funds, especially when bureaucrats have different incentives and seem so busy these days trying to intervene so much in so many aspects of the economy.