Private Equity Under Treasury’s Thumb?

T Sec Timmy today asked Congress for authority to take over troubled nonbank financial institutions, so as to preclude future bailout debacles like AIG. As my Reuters colleagues explain:

He said new legislative authority, which requires Congressional approval, was needed to allow the government to make loans to a troubled institution, buy its obligations, take over its liabilities or possibly take an ownership stake in it while it regains its footing.

The government would be able to act as a receiver and, in that capacity, gain sweeping powers like the right to sell or transfer assets of non-bank financial institutions that get in trouble, renegotiate contracts including with employees and stop contracts from being terminated if necessary.

What I’m wondering (aloud) is if private equity firms would fall under the rubrik of such a program? And, if so, would they be required to help pay for its upkeep? After all, Geithner is essentially asking for a nonbank-version of the FDIC, a program that is funded by banks themselves.

My uneducated guess on both counts is a resounding “yes.” And that goes double for firms that get into bed with Treasury on the toxic asset program. After all, just imagine the repercussions if a firm like Blackstone or KKR were to go bust (no, I can’t imagine it either — but that’s what I would have said this time last year about Lehman Brothers). Remember, many of these mega-buyout firms have spent several years adding side businesses so as to more closely resemble investment banks. The result could be that Washington will begin treating them as such.