By Jim Wiandt
I got to thinking that it seems like the world could use saving. And ETFs just might be the ticket.
Ever since Matt Hougan posted his blog "Can An ETF Save the World?" I've been thinking, "Hey, I know we've been talking about how much we love ETFs. But think how much we'll love them if they saved the world."
Since that idea caught my fancy, some concepts for that Master Plan have begun to circulate, and we've been hard at work looking at different structures and possibilities—first with PowerShares, who as far as I can tell, had the original idea—and then further afield, talking to fixed-income, real estate and ETF experts from around the world.
First, let's look at a very simple plan to save the world using ETFs: Simply have the government buy up billions of dollars' worth of ETFs to prop up the stock market. The Japanese government is discussing just that. It wouldn't be the first time this has been done. The Hong Kong TRAKRs (which at one point were I believe the world's largest ETF) were actually the way that the Hong Kong government packaged up and sold back to its public the $5 billion in equities that it had bought at one point to prop up the market there. You can't get more straightforward than that.
But a broad-based equity investment is not what's needed here. The U.S. plan to have ETFs save the world is a bit more complicated. It involves government and banks putting together toxic assets & being issued ETF shares in return, and then selling those shares for cash on the secondary market. The idea is to build liquidity and transparency in the market for the illiquid, subprime securities that are clogging up the world's financial system, and to do it in a way that brings in the U.S. investing public and puts public and private investment dollars working together, side by side. It's a Save-the-World effort that could play not only on patriotism (like the TRAKRs did in Hong Kong), but potentially also on the allure of 30% yields. But it is very, very messy.
Here's an initial televised debate on the plan. We wondered where Bob Holderith had gotten to! (We'll make sure it's Matt Hougan doing the TV spot on this next time, so keep your eyes open.)
There's some real possibility here. With a little luck and some creative thinking, maybe ETFs can indeed save the world.