Barry Ritholtz has an amusing post that looks at the bailouts of AIG, GM, Chrysler, Citigroup, and Bank of America from the point of view of an investment counselor looking at the portfolio of some new clients:
George and Martha, a wealthy older couple, comes into my office. They are not happy with their current stockbroker. Concerned about their future, they ask if I would have a look at their portfolio.
Certainly, we do these reviews all the time. As it turns out, this review would be very different from what I am used to. We sit down to discuss their investments, and perusing their 12-figure account, I almost fall out of my seat. The portfolio is festooned with every risky stock of the past five years. I have to restrain myself from sarcastically asking “What, no Facebook IPO shares?”
Instead, I simply say “Please tell me a little bit about yourselves.”
“We grew up hardscrabble, were self-reliant, always helped out our neighbors.” They are hard working people, and their wealth was accumulated after the war. They tell me they diligently built a portfolio of hard assets – gold, real estate and bonds. They took appropriate risk, were frugal in their spending, and diligently saved money.
It was perplexing. What they were describing about their approach to saving and investing was nothing like the portfolio mess I was looking at.
And oh, what an unholy mess it is: Many of the highest risk, lowest return assets ever to grace a broker’s pitchbook fills their portfolio. Sketchy private equity deals, dubious preferred stock, low rated corporate bonds.
Read the whole thing.
Of course, the bailouts weren’t executed as prudent investments seeking return but to prop up failing companies for fear that their failure would take out other, healthier companies along with them. Minimizing loss rather than maximizing gain.
I do think that the firm of Paulson & Geithner Capital Management has a lot to answer for. Were the claims of imminent disaster exaggerated? (That’s what Sheila Bair says.) Most importantly, was the means selected to bail out the various companies the only or even the most efficient? Judging by performance I don’t think that the strategy that was pursued was sufficiently tailored to the nominal objectives, particularly in the cases of GM and Chrysler. It’s a persistent belief of mine that human beings are complicated but that you can make reasonable inferences about somebody’s relative priorities based on what they’re willing to settle for in a deal.
What does that say about the objectives of the Bush and Obama Administrations in bailing out the two auto companies? Obviously, it wasn’t getting a financial return on the investment. Equally obviously it wasn’t securing the interests of investors or preserving employment in the industry, either.