U.S. regulators are encouraging public pension funds that control more than $2 trillion to inject capital directly into the banking system by buying failed lenders, said people briefed on the matter.
This IMHO is a poor plan to "get back to even," something many financial commentators are urging retail investors to do. Getting back to even for most investors who've lost money since the market peak of 2007 really means increasing one's risk appetite. That is probably unwise given the bubble-like rise in equities since March 2009. The FDIC, apparently running out of options after asking banks to prepay three years' worth of insurance fees, has hit on this plan as a way of forestalling the pending collpase of troubled regional banks without resorting to another TARP.
Pension plan administrators may not be the sharpest tacks in the drawer. Many of them followed the Yale model over a cliff; after all, the smartest guys in the Ive League were doing it and no one wanted to miss out on a hot hand. They will continue in this tradition if they follow the FDIC's urging to put their capital into banks sitting on CRE debt waiting to blow up. The last paragraph of the article cited mentions that distressed bank investors often end up on the hook for writedowns of bad loans. I have no idea how pension plans will explain that to their retirees. That's why I'm not buying stock in any shaky banks.
