MetroTrade Monthly: Uncle Sam, Equity Investor

MetroTrade Monthly is a monthly newsletter from David Klotz, President of MetroTrade, with thoughts, updates, and reflections from around the company and industry.

A recent Wall Street Journal piece on the administration’s flirtation with a Spirit Airlines bailout[1], which was ultimately unsuccessful, got me thinking about something that has been quietly happening in the background of our markets for the better part of a year now: the United States government has become an equity investor. Not in the 2008 TARP sense, where Treasury took warrants in distressed banks and unwound them as conditions stabilized, but in a more durable way that does not require a crisis to justify it.

Per the Council on Foreign Relations, the federal government has accumulated stakes in more than a dozen companies in the last year, totaling north of $20 billion — the largest US acquisition of private equity stakes since World War II.[2] Intel, MP Materials, Lithium Americas, Trilogy Metals, Vulcan Elements, ReElement Technologies, US Steel (via a “golden share”), and, reportedly soon, a basket of quantum computing firms.

For an industry that lives and dies on the regulatory boundary between private capital and public oversight, this is a meaningful shift. So, this month I want to walk through three questions: what is the precedent for this, how is the executive branch doing it without a Congressional vote, and where is the money coming from?

Precedent: Older Than You Think, Rarer Than You’d Hope

The reflexive response to government equity stakes is to call them un-American. The reflex is wrong on the historical facts. Per Peter Harrell, writing in Lawfare, the federal government held a minority stake in the First and Second Banks of the United States in the early republic, purchased a railroad company outright in 1903 to build the Panama Canal, and through the Reconstruction Finance Corporation owned stakes in roughly half the nation’s banks during the Great Depression.[3] The RFC didn’t just hold passive shares either — it voted those shares to replace management and cut banker pay.

Closer to our era, TARP in 2008 had Treasury take preferred stock in banks and equity in GM and Chrysler, and the CARES Act produced warrants in major airlines as part of payroll support. In both cases, the stakes were emergency measures, congressionally authorized, and intended to be temporary.

What is genuinely novel about the current wave is that the companies involved are not, by and large, in financial distress. Intel had problems, but was not a TARP-style emergency. MP Materials was profitable. The quantum firms reportedly in talks are publicly traded and capitalized.[4] Since the 1950s, federal equity in private firms has been the exception reserved for distress. There is precedent for the government owning shares; there is much thinner precedent for the government owning shares in profitable, going concerns simply because the executive branch has decided it should.

How Without Congress: “Other Transaction Authority” and Friends

The Intel deal is the cleanest case study. In August 2025, after the President publicly called for CEO Lip-Bu Tan’s resignation, then walked it back following an Oval Office meeting, the Commerce Department announced it had purchased 433.3 million shares of Intel common stock at $20.47 per share – a 9.9% stake – plus a five-year warrant for another 5% if Intel ceases to own at least 51% of its foundry business.[5]

There was no separate vote of Congress to authorize this. There was no new appropriation. The administration’s legal theory rests on two pillars. The first is that the CHIPS and Science Act of 2022 (which, in an ironic twist, was enacted by the previous Democratic administration), while it does not explicitly authorize equity purchases, also does not prohibit them. The statute directs Commerce to provide “Federal financial assistance” to semiconductor firms (50 U.S.C. § 4652) and grants the department broad “other transaction authority” for contracting with recipients. The second pillar is consent: Intel, formally speaking, agreed.[6]

This is a creative reading. During the original CHIPS Act debate in 2022, Senators Sanders and Warren proposed an amendment that would have required Commerce to take warrants or equity from recipients. It failed. The Biden Commerce Department concluded that taking equity was not the intent of Congress and would likely have driven chipmakers offshore. The Trump Commerce Department reached the opposite conclusion using the same statute — a useful illustration of how much latitude executive interpretation has when Congress drafts in broad strokes.[7]

For deals outside the CHIPS Act, the administration has leaned on the Defense Production Act. The MP Materials transaction – a $400 million convertible preferred equity investment from DoD, a $150 million loan, a ten-year warrant taking DoD to 15%, and a multi-year offtake commitment plus price floor for rare earth magnets – was structured under DPA Title III. Executive Order 14241 made the Presidential Determination that critical minerals qualify, and Section 303 of the DPA explicitly contemplates subsidies, purchase commitments, and broad contracting flexibility, including exemptions from the Federal Acquisition Regulation.[8]

The legal architecture, such as it is, looks like this: take a statute that gave the executive broad contracting authority for a specific policy goal, interpret “flexible” to include equity, get the company’s formal consent, and structure the stake as “passive.” The Intel deal explicitly carries no board seats and commits the government to vote with management on most matters.[9] The “major questions doctrine”, the Supreme Court principle that agencies need clear congressional authorization for decisions of vast economic significance, looms over all of this. But courts are unlikely to weigh in because the companies are consenting parties. Senator Warren has been pressing Commerce for legal justification since September and is, predictably, still pressing.[10]

Where the Money Is (and Isn’t) Coming From

Here is where Spirit becomes useful as a counterexample. For Intel and MP Materials, the administration didn’t need a new appropriation because the money already existed, it was just sitting in a different bucket.

The Intel stake was funded by converting $5.7 billion in CHIPS Act grants previously awarded but not paid out, plus $3.2 billion earmarked for Intel under the DoD’s Secure Enclave program. Total: $8.9 billion, exactly the headline purchase price. In return, the government waived existing claw-back and profit-sharing provisions on Intel’s prior $2.2 billion in disbursed grants, along with conditions on labor agreements, stock buybacks, and Intel’s $100 billion capital commitment. Whether American taxpayers got a good trade, grants with strings, replaced by shares without them, reasonable people are still arguing. With Intel having rallied on a recent Apple manufacturing deal, the position is now worth multiples of its cost basis on paper, which is doing a lot of work in the administration’s defense of the structure.

MP Materials worked similarly. The DoD funded the $400 million preferred equity purchase and $150 million loan from DPA Title III appropriations, H.R. 1, the 2025 budget reconciliation bill, included roughly $1 billion for DPA activities, and the administration directed a sizable share toward critical minerals.[11] The Nvidia and AMD “15% of China chip sales” arrangements appear structured as conditions on export licenses, different mechanism, same idea.

Spirit Airlines failed precisely because there was no existing pot of money to repurpose. Per CNN reporting, Transportation Secretary Sean Duffy told colleagues the government “doesn’t have a half a billion dollars laying around in a spare account.”[12] The administration considered invoking the DPA, but DoD rejected it, a budget airline doesn’t fit the national security framework that justified MP Materials. Officials floated forced mergers with JetBlue, Frontier, and others. Ultimately, with no funding mechanism and bondholders unwilling to subordinate, Spirit liquidated.[13]

The lesson is instructive. Government equity stakes are not constrained by congressional appropriations in any meaningful sense, but they are constrained by whether an existing authority already has the money attached. CHIPS Act funds, DPA Title III, and CFIUS leverage all qualify. A general fiscal request to bail out a budget airline does not. Senators Cruz and Cotton publicly objected to the Spirit bailout, suggesting the political constraints, if not the legal ones, may be tightening.[14]

What This Means For Us

From a futures market’s perspective, two issues stand out. First, the government holding equity in publicly traded names creates the kind of information asymmetry the STOCK Act was, in theory, designed to prevent – “passive” ownership is doing some heavy lifting in the administration’s framing.

Second, if the federal government is the largest shareholder in a critical minerals producer and is also setting a price floor for that producer’s output,[15] the implications for any future cash-settled or physical critical minerals contract are non-trivial. Price discovery works better when the government isn’t simultaneously a buyer, a regulator, and the largest equity holder.

Wrapping Up

The state-as-shareholder model isn’t new. What’s new is its application as a peacetime industrial policy tool, executed without fresh congressional authorization, funded by repurposing money already in the executive branch’s hands.

Whether you view this as overdue strategic competition with China, a worrying step toward state capitalism, or the natural consequence of giving executive agencies broad contracting authority and then expressing surprise when they use it, the trajectory looks set for the foreseeable future.

Spirit Airlines was the first time this administration ran into the limits of its own authority. It won’t be the last.