Toxic assets, anyone?
The Obama administration's plan to help banks unload soured mortgage assets isn't just an opportunity for Wall Street. Individual investors might be able to get in on the action — if they've got the stomach for plenty of risk.
At least three mutual fund companies have already expressed interest in buying the toxic assets and giving fund clients a chance to invest.
"We are intrigued by the potential double-digit returns as well as the opportunity to share them with not only clients but the American taxpayer," said Bill Gross, a founder and co-chief investment officer of Pimco, manager of the world's largest bond fund.
Other fund companies said they're exploring options and awaiting plan details.
The Treasury Department's plan gives the private sector a role alongside government in removing as much as $1 trillion in bad debt from banks' balance sheets. The goal is to restore the flow of credit and foster economic recovery.
Much of the interest in buying banks' soured mortgage investments is expected to come from big institutional investors such as pension funds. Other major players will include hedge funds and private equity firms that generally cater to wealthy investors.
But the interest from mutual fund companies marks a new opportunity for the little guy. Individuals who count their money by the hundreds or thousands, rather than in Wall Street's billions, have frequently been left to feel like outsiders in the government's bailouts.
However, just because regular folks might be able to invest in a fund that buys toxic assets doesn't mean it's a good idea. The only people certain to make money in the government's program are hedge fund managers and private equity firm managers, said economist Peter Morici.
"This is no place for Grandma's money," said Morici, a business professor at the University of Maryland.
Eric Tyson, author of Mutual Funds for Dummies, equated the risks from investing in the soured mortgage assets to buying into a high-yield or "junk" bond fund.
"Any investor would have to be aware that the fund is stretching for high returns by taking on assets where there is a greater risk of default," Tyson said.