Who Will Manage the Bailout Fund?

The jockeying for who is going to get the mandate to run the government's bailout fund has begun in serious. Bill Gross, giving an interview to the NYT, says he'll do it for free -- which doesn't mean he wouldn't make a lot of money, since the value of all the asset-backed securities his firm has under management would presumably rise substantially. In any case, he's conflicted: he has a strong incentive to maximize, rather than minimize, the amount paid -- especially if he doesn't get any kind of performance fee for running the fund.

Larry Fink, meanwhile, is also pushing for the plan, presumably for the same reasons; he's surely bidding to run it, too, but his conflicts would be no different.

Here, in the comments, dWj proposed another manager:

Somebody asked me a couple days ago whether I would trust anyone with the discretion Paulson has requested, and I couldn't imagine that I could. About 24 hours it occurred to me that there is someone: Warren Buffett. If we can talk him into running the program, I'm a big supporter of it. If not, it needs a lot of procedural safeguards before it gets out of Congress.

Buffett would give the public confidence in the program, to be sure, but frankly I'd be just as happy if the fund weren't outsourced at all, and instead were given to some arm of the FDIC.

But the really important part of the whole deal isn't the manager but the mandate. So far, no one has even come close to proposing the kind of language which would describe whether the government is charged with paying market rates, on the one hand, or its own self-determined fair value, on the other. And the distinction makes all the difference -- much more than the identity of the fund manager.