The Bailout Index

When TARP WAS initialLY proposed, proponents argued that the bailouts would not only help stabilize the banking sector, but that the government would likely end up even making money on the deal when the depressed securities rallied and the economy improved.

Judging by the performance of an index designed to track the bailouts, that’s looking less and less likely.

The Nasdaq OMX Government Relief Index (QGRI) tracks companies that have received direct investments from the U.S. government in excess of $1 billion. The majority are banks and other financial firms, along with General Motors (GM) and insurance giant AIG (AIG).

So how are the bailouts faring? Well, launched on Jan. 5, 2008, the index has already fallen some 51% in just six weeks. Those losses have intensified in recent days as speculation has mounted that the government might end up fully nationalizing either Bank of America (BAC) or Citigroup (C), a move that would undoubtedly wipe out equity holders.

Nasdaq OMX Government Relief Index (QGRI) - from 1/6/09

Originally intended to calm the markets, government intervention has only served to scare capital away, as traders are hamstrung to game just what Uncle Sam will do next. While the Obama administration insists it stands behind a “privately held” banking system, Senate Banking Committee Chairman Christopher Dodd (D., Conn.) told Bloomberg last week that banks may have to be nationalized for a short time. Combined with the bizarre antics of Congresswoman Maxine Waters (D., Calif.) and other elected officials, the government’s response to the economic crisis seems, at best, like the blind leading the blind.

Many bank CEOs undoubtedly made poor management decisions over the years, for which investors had clearly punished them. But once the the federal government got involved, every taxpayer became an investor, putting us all at risk — even those of us who never wanted anything to do with Citigroup or Bank of America in the first place. As evidenced by the performance of the Nasdaq Government Relief Index, investing simply isn’t the government’s game. It’s just a shame it's making such expensive mistakes on our dime.

Included in the Government Relief Index is General Motors, the troubled auto maker whose stock hit a 71-year low on Friday, tumbling 22% to $1.56.

GM’s market capitalization now stands at $1 billion dollars, somewhat surprising considering the company has received $13.4 billion in U.S. loans and has already asked for $16.6 billion more.

General Motors (GM) - 39 year
Source: BigCharts.com

The government’s auto task force is in the process of reviewing GM’s plan for viability, which must be approved before the company receives billions more in taxpayer dollars. Judging by the price action of the stock, the real market — the free market — has obviously made up its mind.

As long as our own government is pushing toward socialism, intrepid investors might want to investigate a thinly traded Special Purpose Acquisition Company (SPAC) traded on the OTCBB that aims to invest in just such an environment.

BBV Vietnam S.E.A. Acquisition Corp (BBVUF: OTCBB) is a microcap acquisition company intending to acquire an operating business that has its primary operating facilities located in the Socialist Republic of Vietnam. With limited public information available regarding the company, investors would be well served to review the company’s filings with the SEC. Given the small capitalization and low volume, limit orders are a must.