Amid dire warnings of “disaster” if Congress doesn’t approve the $700 billion bailout of Wall Street, folksy billionaire Warren Buffett offered up his own plan.
He wants the government and private investors to go in together on the toxic-debt purchases.
Instead of buying the debts outright, Treasury would lend investors 80 percent of the cost of buying up the distressed assets.
"Now you have someone with 20 percent skin in the game," Buffett said in a speech, reported by CNN.
"Believe me, I won't be overpaying if I'm buying with that kind of leverage. And you have someone [the investors] to manage the assets to the extent they need to be managed."
Investors would get to borrow at Treasury rates, which are lower, and the taxpayers would be in first position on the loan, so any future sale would benefit them first, followed by private investors.
Buyout expert Wilbur Ross offered up a similar idea on CNBC a day earlier, suggesting private insurers cover the new assets to bolster private demand.
Ross fears banks will take the $700 billion and simply apply it to their balance sheet, leaving borrowers — and especially potential home buyers — out in the cold.
“The banks have lost around $130 billion more capital than they raised through the write-offs of lost capital,” reducing lending capability by about $1.5 trillion, Ross says.
“So this is $700 billion of that coming back. I would have preferred some assurance that that money got redeployed into mortgages, and as far as I can tell, there is no actual linkage.”
“It may well strengthen the banks’ balance sheets, but it may not solve the mortgage crisis. I think that’s what we need to deal with,” Ross says.
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