The U.S. Government’s Trillion Dollar Hedge Fund

Here is a look at the Government’s presence (or investment) in various companies due to bailouts, rescues, etc.

Graphic courtesy of the WSJ

When you look at the potential losses the FDIC had to take on in order for Citigroup (C) to buy Wachovia (WB), it’s laughable that the Government is trying to make the claim that Wachovia wasn’t a bank failure, at the end of the day the government stepped in, agreed to take on losses and brokered the bank’s sale to Citigroup. If that doesn’t spell F-A-I-L-U-R-E, I don’t know what does, it seems to me that the only difference is that Wachovia was sold AS it was failing and Washington Mutual was sold right after. Regardless at the end of the day the FDIC’s exposure to the Wachovia deal is far greater than its exposure the WAMU failure, so trying to classify Wachovia as anything other than a failure is rather silly.

Looking at the government’s growing de facto hedge fund (or private equity) portfolio, you have to wonder who in the government is going to be responsible for managing these investments, what sort of oversight will be involved, who will be making managerial and strategic decisions, accountability back to the taxpayer, etc, etc. After all it’s not like the government has significant experience in these areas or a great track record with respect to its own finances.

Just think about it: the same government that is going to managing (in all likelihood) well in excess of $1 trillion in private sector investments, is the same one that failed to step in and revamp the Mortgage GSEs after both of their accounting scandals in the early 00s, and instead allowed them to expand their investment activities after they began reporting losses last year.

I don’t know about you but thinking about the government’s failure with the mortgage GSEs doesn’t exactly fill me with confidence around their ability to manage their new round of investments.

Disclosure: at the time of publishing the author didn’t own a position in any of the companies mentioned in this article; the ideas expressed are solely the opinions of the author and shouldn’t be viewed as financial or investment advice.

Subscribe by RSS Subscribe by Email