Treasury Secretary Henry Paulson is hiring as many as 10 asset management companies (AMCs) to join the lawyers and bankers he is recruiting to kick-start the government’s new $700-billion, bank-rescue programme.
The Treasury began implementing the plan within an hour of the Congress yesterday giving Paulson the powers he sought to combat the US financial crisis. Paulson is seeking to assemble a team to determine which toxic securities to target, how to value them and how to buy them. BlackRock, Pacific Investment Management and Legg Mason are seeking to become money managers for the programme, people familiar with the matter said.
“This is something that, for a typical company, would take no less than five years,’’ said Lynn Turner, a former chief accountant at the Securities and Exchange Commission (SEC). “Anyone who thinks they can do this in two weeks is insane.’’
Ed Forst, the former Goldman Sachs Group executive Paulson hired to head the transition team, started work last week and is charged with helping establish the new Office of Financial Stability.
“Paulson did not want to lose precious days waiting,’’ said Howard Glaser, a former chief legal adviser of the Department of Housing and Urban Development.
Warren Buffett, the billionaire who spent $8 billion in the past two weeks to buy stakes in General Electric Co and the Goldman Sachs Group, has also offered his views.
Buffett’s counsel
“Any time, I can be of help to the government, in terms of giving advice – I’ve given a little advice, actually,’’ Buffett said in an interview from San Diego with PBS’s Charlie Rose on October 1.
Lobbyists say the Treasury wants to run the programme as much as possible with outside contractors. Career Treasury staff would handle the administrative tasks.
While the department will bypass some government contracting rules, as the legislation allows, it says it plans to put a formal and transparent process in place to hire the private sector help. The department may also tap the Federal Deposit Insurance Corporation to manage the mortgage portfolio.
“We’ve been doing a lot of work getting ready for this,’’ Paulson told reporters yesterday after the House voted. “We’re going to be going out and lining up advisers from the private sector.’’ President George W Bush signed the measure shortly after Paulson spoke.
Recruitment plans
The Treasury plans to hire about two dozen employees along with five to 10 asset management firms. The workers will be a mix of government employees and contractors, with a range of legal, financial and accounting skills.
Financial companies that apply to Treasury will be evaluated based on the cost and scope of services they offer. The department is still working out a conflict-of-interest policy and details for guidelines on compensation.
Officials cautioned it will take at least four weeks to set up the first of the long-sought asset purchases. These purchases will start slowly with a series of pilot programmes.
The Emergency Economic Stabilization Act of 2008 gives Paulson, 62, immediate authority to buy as much as $250 billion in troubled assets from banks and other financial institutions. The White House may expand the programme by another $100 billion, and the Treasury can access the remaining $350 billion with Congressional consultation.
‘Very quickly’
The plan allows Treasury officials to “intervene very quickly if they want to’’, said Vincent Reinhart, a resident scholar at the American Enterprise Institute in Washington and former director of the Federal Reserve Board’s Division of Monetary Affairs. He predicts the Treasury will “act in markets first’’, possibly by working through the Fed.
