Both the New York Times and Wall Street Journal have stories today saying the Obama Administration is planning to overhaul the bank bailout program to bring in private investors to work alongside the federal government. This sounds like an idea that I first heard floated last year by Warren Buffett, in a presentation he made at Fortune Magazine’s annual Most Powerful Women Summit.
Do we really want fat cats participating in (and profiting from) a government program designed to bail out the financial system from Wall Street’s own excesses and stupidity? I’ll leave it to Justin Fox and Barbara Kiviat, our fellow bloggers over at The Curious Capitalist, to tell us how this might work in a technical sense. But I think that if Treasury Secretary Tim Geithner is going to sell this plan politically, it is going to have to have one feature that Buffett mentioned in his proposal: Private investors will not get a penny of their money back until the federal government recoups its own investment, plus some agreed-upon profit.