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Wednesday, March 04, 2009

Bill Miller: Gov't Doesn't Understand Private Capital

Renowned fund investor Bill Miller released his letter to shareholders earlier this week. His central theme was that the government understand that financial institutions need private capital to return our economy to normal, but its policies are preventing that from happening. A few tidbits:

Federal Deposit Insurance Corporation (“FDIC”) Chairwoman Sheila Bair expressed a view apparently widely held in the government when she said last week, “It is essential to get some private capital back into these banks.” I completely agree with that, but the problem for private capital is there has to be some prospect of earning a return by investing in banks, something the government seems not to understand...

Until policy becomes clearer and more capital friendly, the chances of attracting new capital to banks is nil, in my opinion. ..

We have been investing in banks and other financials for over a quarter of a century, and were involved in putting new capital into them during the last crisis around 1990. That worked out very well. We have also been part of the private capital that has put money into financials in this crisis, and that has been a disaster, for us and for every other investor who has done so. If we are typical, the appetite for private capital to go into banks now approaches zero, unless there are substantial changes in policy that are capital friendly.

Miller, who studied philosophy before managing money, seems to be a bit of a Keynesian at heart. But even he understands that the government's ad hoc policies are killing the markets and the economy.