Want to leverage a 5% investment with the potential to control double-digit interest and with a guarantee to limit your losses? Normally one would have to look for a "too good to be true" spam offer to find such an opportunity... but apparently now we can look to our government instead. After all, incredible returns with minimal downside risk in a bearish economy is entirely possible when taxpayers are footing the bill.

http://www.nytimes.com/2009/02/20/business/20lend.html?_r=1&hp

The Obama administration hopes to jump-start this crucial machinery by effectively subsidizing the profits of big private investment firms in the bond markets. The Treasury Department and the Federal Reserve plan to spend as much as $1 trillion to provide low-cost loans and guarantees to hedge funds and private equity firms that buy securities backed by consumer and business loans...

Depending on the type of security they are borrowing against, investors will be able to borrow 84 percent to 95 percent of the face value of the bonds. Investors would not be liable for any losses beyond the 5 percent to 16 percent equity that they retain in the investment...

Investors who borrow from the Fed could enjoy annual returns of 20 percent or more.

So basically investors will get all the potential upside profits while taxpayers are on the hook for any downside losses.

What I don't understand is if the Treasury and/or the Federal Reserve are going to be funding up to 95% of this and the investors (mostly hedge funds) only have to put up 5%, why don't the Treasury/Federal Reserve just fund at 100% but keep the profits themselves? Why give away the profits to investors when they'd apparently only contribute about 5-15% to the fund?

I guess we can hope it has nothing to do with the fact that hedge fund managers were some of Obama's biggest campaign contributors . I suppose it'd be cynical to consider the possibility that has anything to do with it.