Hank Paulson wants the private sector to give him a helping hand with his bailouts:
We are carefully evaluating programs which would further leverage the impact of a TARP investment by attracting private capital, potentially through matching investments.
I think this is a good idea, especially in a world where even Las Vegas Sands can attract new equity capital, and where Barclays shareholders are in revolt because they feel they’re being prevented from putting in new money. Clearly, there’s money out there to be invested, and Treasury should take advantage of that fact.
If the private sector does end up being asked to match Treasury cash injections, that would also make explicit any government subsidy. Goldman’s Treasury money was a lot cheaper than the cash it got from Warren Buffett; it’ll be interesting to see whether private-sector funds continue to get a higher return than public funds under this matching program.
There might be something else going on here, though, for the conspiracy-minded. Paulson’s already given out hundreds of billions of dollars of TARP money to his Wall Street buddies at bargain-basement rates. If he doesn’t want similar bargains to be extended to smelly people like General Motors, then one way of ensuring that would be to insist on private-sector matching funds.
If no one in the private sector has any interest in injecting capital into GM — which certainly seems to be the case right now — then oh dear, sorry, we can’t help you. Not our fault, you understand, our hands are tied. Which sounds very much like Paulson’s lame Lehman excuse, so it would hardly be unprecedented.