It is a devilishly clever plan. The federal government proposes to raise taxes on hedge funds and private equity firms. Once that it accomplished, the Administration wants these same firms to invest in securities that need to be establish liquidity and legitimacy by being traded in the open markets.

The plan is simple.

According to The Washington Post, well-heeled investment firms “would be invited to buy up recently issued, highly rated securities. These securities finance consumer lending, such as credit cards and student and auto loans.” The government would loan as much as $1 trillion to these private money managers so that they could buy fairly “safe” paper.

The plan seems a bit off center. If the risk of these investments is so modest, why would the government want to loan out money so rich funds can buy them? If the fruits of the process will be such remarkably high yields why doesn’t the government put up the capital directly and give the anticipated gains to taxpayers?

The other reason the program may meet some resistance is the “class warfare” between the Administration and the wealthy which will cause a much higher tax bite for hedge funds and similar operations. Being beat up by the government and being asked to be its partner at the same time many not go down well with these firms.

Other than that, it is a great idea.

Douglas A. McIntyre

Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.