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Alistair Darling has become a hedge fund manager. That's the implication of his plan to bail out UK banks. His promise to guarantee £250bn of banks' debts - 'on appropriate commercial terms' - means that he is selling default insurance. And his buying of £25bn of banks' preference shares - with the possibility of another £25bn - means that he's borrowing cheaply (five-year gilts yield just 3.9 per cent) to buy higher returning, but riskier, assets.
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These are crude hedge fund strategies. And the trouble is, hedge funds on average have low returns. So what could go wrong with the Darling fund?
One danger is that it might have to pay out on default insurance, if a bank goes bust.
Another problem is that the £50bn capital injection might be too small. It's only 0.8 per cent of the combined assets of the eight banks we are helping.
The third problem lies on the liability side of Darling's fund; the cost of financing it could rise.
The problem isn't the rise in government debt in itself. The amount of £50bn is only 8 per cent of (on balance sheet) public sector debt, and will take the debt GDP ratio to a manageable 47.7 per cent. More relevantly, given that government bond markets are globalised, it is only 0.4 per cent of the debt of OECD governments. None of this is enough to raise gilt yields.
Instead, the danger is that gilt yields, and hence the cost of the fund, could rise for other reasons.
One of these is benign. A return of investors' appetite for risk would cause them to sell government bonds. Another, though, is nastier. A slowdown in the Chinese economy, accompanied by a continued drop in oil prices, would reduce the flow of savings from Asia and the Middle East that has held down global bond yields in recent years.
Mr Darling has, therefore, made UK taxpayers even more dependent on Arab and Chinese money.
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