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By Jody Shenn and Rebecca Christie March 24 (Bloomberg) -- Treasury Secretary Timothy Geithner’s plan aimed at ridding banks of toxic real-estate assets may involve U.S.-backed purchases from hedge, pension and mutual funds at higher-than-current prices. All financial market participants will be eligible to participate in the Treasury’s new program for older mortgage- securities, an administration official said. Investment funds will be able to buy and sell into the securities program, which was announced yesterday. The Treasury also unveiled a companion program to finance purchases of whole real-estate loans that will only allow banks as sellers. The distinction may be one of several between the plan to offer Treasury and Federal Reserve financing to securities buyers, to boost market liquidity, and the effort to strengthen banks to lend more by allowing them to sell loans at higher prices to public-private funds with Federal Deposit Insurance Corp.-backed financing. Treasury investments in funds that will buy securities will be restricted to vehicles overseen by only as many as five managers initially, the government said. Those firms each must have at least $10 billion of assets under management; the number and size of managers of the loan-buying funds wasn’t limited. Granting control of the bond-buying to firms with “already oligopolistic-like power” and not limiting sellers to banks raises the risk of abuse, especially in combination, said Graham Fisher & Co.’s Joshua Rosner in an e-mail today. Program Guidelines “Will controls exist to prevent these five managers from buying each other’s bad investments, and make ‘confirming value,’ or excessive, bids to bid up the values of exposures on their books with tax dollars?” said Rosner, an analyst in New York at the investment-research firm. According to guidelines for the securities program, managers of the public-private funds will be directed to only purchase assets from sellers that aren’t affiliates, overseen by other program managers or associated with investors that have put up more than 10 percent of the capital they raise. Isaac Baker, a Treasury spokesman, declined to immediately comment today. The two parts of the U.S. Public-Private Investment Program each involve using a combined $75 billion to $100 billion of Treasury funds from the $700 billion Troubled Asset Relief Program to match equity stakes from private investors in a series of funds that may buy as much as $1 trillion of assets. Thwart a Recession Both are part of larger efforts by governments worldwide to thaw credit markets to thwart a global recession. “While I think highly of the ‘Loan Program,’ I believe the ‘Securities Program’ stinks like a ‘pay for play’ program,” Rosner wrote in a note to clients yesterday. “Once the market and public figures out the truth of this program, whether tomorrow or in a few years, I expect it will become a rightful focus of public outrage on a scale not yet seen.” Geithner wrote yesterday in a Wall Street Journal op-ed column that the public-private funds “will purchase real-estate related loans from banks and securities from the broader markets.” One Treasury statement yesterday said the type of securities being targeted are “held by banks as well as insurance companies, pension funds, mutual funds, and funds held in individual retirement accounts.” Another said “eligible assets may be purchased solely from financial institutions from which the Secretary of the Treasury may purchase assets pursuant to” the TARP legislation passed in October, which has been used to inject capital into banks and for loans to automakers. While “the wording” of Geithner’s op-ed piece and other U.S. announcements yesterday are “ambiguous and could be back- tracked to banks” and savings-and-loan companies as sellers only, “it sure looks like he means to ‘unclog’ pension fund, insurance company and even hedge fund portfolios,” said Anthony Sanders, an Arizona State University professor in Tempe and former Deutsche Bank AG mortgage-bond research director. To contact the reporters on this story: Jody Shenn in New York at
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; Rebecca Christie in Washington at
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