Nicole Gelinas makes a good point; it seems that the Obama Administration is creating the financial services industry equivalent of the caricature of no-bid Halliburton contracts. I think the Halliburton nonsense was always overblown, but those who were made upset by it should get outraged over the Treasury Department’s Public-Private Investment Fund (P-PIP). Gelinas’s policy prescription is a good one–too bad that it probably won’t get any airtime with Obama Administration policymakers:
Instead of P-PIP, Treasury should hold a real auction, in the manner of auctioneers selling off foreclosed houses. It should invite anyone who would qualify as a “sophisticated investor” under other circumstances—usually, anyone with more than a million in the bank—to come to a virtual auction of discrete pools of securities, spend a few days looking them over online to assess their potential worth, and make a bid.
To protect taxpayers further, Washington shouldn’t offer bidders a set amount of federal financing for every dollar of securities that they purchase. Rather, if it continues to insist on providing federal financing for these securities purchases, it should at least ask each bidder to submit a bid based on how much taxpayer financing he would require if his firm were to pay a particular price for a particular security. That way, the government—and the public—could more easily distinguish between the value that bidders are putting on cheap federal guarantees and the value that bidders are putting on the securities themselves.
Washington might argue that the logistics of vetting hundreds of thousands of likely bidders for potential waste, fraud, and abuse would be prohibitive. It’s true that shady characters would slip into a big pool. But so what? Bid rigging and collusion—or, more charitably, group-think—are less likely when you’ve got a crowd of participants from all backgrounds who don’t know one another than when you’ve picked five giants whose executives see each other at fancy restaurants every week. And careful government oversight of just a few contractors has its own dangers: the regulated can easily capture their regulators. Further, minorities and women, still underrepresented at the top of the financial world, occupy greater numbers at the bottom, giving them a chance to participate on their own merits, rather than as members of favored groups.