I wonder if we will get a look at these agreements.

According to the WSJ, hedge funds aren’t exactly lining up around the block to participate in the first round of TALF financings. In fact, there appears to be more than a little concern about the risks of participation.

The main question many hedge funds are weighing is whether the potential upside of participating in the first round of funding outweighs some of the still-unknowns, according to fund managers, lawyers representing both funds and dealers, and others involved in the talks.

Dealers, mostly Wall Street banks, are in the program acting as the lender, using financing provided by the Federal Reserve through a master loan agreement. It is the dealers’ job to select eligible investors. The dealers have set Friday as a deadline for investors to decide whether they want to apply to participate in the first round of TALF-funded deals.

At issue still are terms in the agreements between dealers and funds that hedge funds say would expose them to losses greater than what they invest in the program. Dealers are saying they have to protect themselves from potential losses.

Well, losing more than your investment is not usually a downside that most relatively savy investors would accept so it’s not surprising that there are second thoughts. And, I guess I haven’t followed this really closely, but isn’t there a minor conflict with the Wall Street banks running this at the same time they are the ones trying to dump their bad assets into this program. What gives? Please tell me if I misunderstand this.

TALF always sounded weird. Without some transparency it is open to all sorts of shennigans. Given the tone of the negotiations so far, it sounds like they’re well underway. This comment makes me very nervous.

“I expect a number of big investors will wait and participate in the April funding rather than the March funding,” Paul Watterson, a fund lawyer with Schulte Roth & Zabel in New York. “There’s a big gap between what the primary dealers want in the customer agreement and what the big investors in this market were expecting.”

The mood in the country is not exactly amenable to a giveaway to hedge funds or any other well healed investors. I hope that this is not going to become another in which FOIA has to be invoked to find out what the government is doing with our money.