Best Business Commentary

Weighing the credit-rescue fund

“Treasury Secretary Henry Paulson has acted wisely” in brokering yesterday’s credit rescue fund, says Newsday in an editorial. The $100 billion investment vehicle, through which the three largest U.S. banks are seeking investors to pump up “the moribund credit market,” could help unlock the “crucial” commercial paper market. If companies can’t sell commercial paper, they “could fail—and the economic ripples of the credit crisis could deepen.” So unlocking credit is “essential,” and “assuming investors buy into it, this consortium may well be the best way to do the job.” And Paulson did it without involving “any federal funds.”

That may be true, technically, says The Wall Street Journal in an editorial, but Paulson’s self-promoted “fingerprints” on the deal are a problem. The investment vehicle “seems to involve only private capital.” But if you’re an investor looking at buying the fund’s debt, Paulson’s involvement sure looks like a federal stamp of approval. Maybe the plan will work, but it also seems plausible that Citibank is using the fund to “buy time” to avoid writing down bad assets. Either the fund “won’t find buyers, or it will do so only because Treasury seems to have endorsed the concept.” And given the risks, “the former seems preferable.”

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