Money management giant Bridgewater Associates will not take part in the new Treasury plan designed to get private investors to buy up toxic bank assets, the New York Post reports.
According to the Post, Bridgewater founder Ray Dalio told investors in a note that the plan offered no significant leverage and, in his view, the government’s strategy is rife with conflicts of interest.
Bridgewater Associates manages $71 billion and is exactly the kind of private fund that Treasury Secretary Tim Geithner must convince in order to make the plan work.
The plan is expected to help banks overcome the weight of their toxic assets by giving hedge funds and mutual funds leverage — that is, to magnify the value of their investment — via government support.
"When the program was first announced, we were originally interested," Dalio told his investors, the Post reported.
"However, as things now stand, very little leverage is actually being offered” on the older, toxic instruments on bank balance sheets. The leverage offered for so-called “legacy securities,” the note said, is 1-to-1. Other parts of the plan offer leverage of up to 12-to 1, of which Dalio was less critical.
Dalio also questioned the plan to hire five managers to run everything.
"The managers are clearly in a conflict-of-interest position because they have both the government and the investors to please and because they will get their fees regardless of how these investments turn out," Dalio wrote.
Banks might find their damaged assets more attractive than just a few days ago. This morning the Financial Accounting Standards Board voted to loosen mark-to-market accounting rules, which required the banks to value assets daily according to market conditions.
The collapse in the financial system meant many of those assets were, in theory, worthless, regardless of the eventual real value of the home loans backing them up.
The rule change allows banks to presume that the assets underneath the toxic mortgage bonds they hold will be sold in an orderly fashion. The new rules will begin immediately.
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