Why Do We Need Private Investors

Felix Salmon asks why we need to cut private managers in on the deal when all of the risk is systemic. What good does it do to have the best bond pickers out there when all the bonds will rise and fall together.

My Answer: Political Cover.

Most of the public is under the notion that the government is incompetent. Even when the government is staffed with former CEOs of major financial firms there is a sense that once they become employed by the government they loose all of their former skills and knowledge.

So, how to get around people saying "See, I knew the government would screw this up?" Pull Bill Gross and Warren Buffet into the deal. If it goes bad, Obama just stands back and points at Buffet and says "how could we have done any better, even the master was fooled"