Damned if you win, and damned if you lose.

Imagine you are the chief executive of a fictional bank—call it Normal Bank & Trust. At regulators' urging late last year, you accepted cheap capital from the Treasury's Troubled Asset Relief Program, even though you felt your bank had sufficient capital to weather the economic storm.

Today you regret that decision. You personally had to spend a day testifying in Congress over what was done with the money. One legislator called you "greedy" on television. Then, as part of the stimulus bill, Normal B&T was forced to reduce bonuses throughout the bank to no more than one-third of salary regardless of how much profit you make for shareholders.

So when the government comes around with yet another offer of cheap capital, are you going to take it? That's the question bankers and legions of investors are working through right now. The government is urging the private sector to get the economy moving by helping defibrillate the securitization markets and buying up crummy assets from banks.

In both instances investors face a dilemma. If they make a killing, they could be lambasted for profiteering at the taxpayers' expense. But if their bets don't pay off, they could be hauled over the coals for losing taxpayers' billions.

Take the $1 trillion Term Asset-Backed Securities Loan Facility, a scheme that's meant to get credit to consumers by making it easier for banks to sell the loans they make to investors. By lending buyers up to 95 percent of the face value of the newly issued securities they purchase, cheaply and on a nonrecourse basis, hedge funds and banks should be able to extract returns of more than 15 percent a year, according to a breakingviews.com analysis. That's probably enough to irk some Congress members, especially if the buyers pay out some of the profits to their staff in bonuses.

But the risks of doing too well (or appallingly badly) are even greater with the administration's second scheme: the $500 billion to $1 trillion Public-Private Investment Fund, a program designed to suck toxic assets off bank balance sheets.

Imagine the case of a fictional hedge fund—call it BSD LLC. Under the emerging outlines of the plan, BSD and the Treasury would invest equal amounts of equity into a fund—say $5 million apiece. The Federal Reserve might then lend the fund $90 million, again on a nonrecourse basis.

Assume the BSD-Treasury fund invests its $100 million in a basket of crummy loans that sells for 20 cents on the dollar. Those assets will never return to par. But they might recover to, say, 40 cents after two years. In that case, the fund would double its money, to $200 million. After paying off the $90 million loan and perhaps another $10 million of interest, there would be $100 million left. Split two ways, that's $50 million for BSD on an initial investment of $5 million.

When BSD's lead partner pays himself 20 percent of that profit—as is hedge fund standard operating procedure—how would politicians react? They might be delighted that the taxpayer has also turned $5 million into $50 million, but don't bet on it. And what happens if, instead, the $100 million turns into $50 million? The investor loses his $5 million, yet taxpayers plus the Fed in total are stuck with a $45 million loss. BSD will probably be damned if it wins—and damned if it loses.

What's more, there is a danger that Congress will be tempted to use the taxpayer financing of these two initiatives as a way to impose greater regulation of the banking and investment industries. This is what it did to TARP recipients. While the Treasury had offered clear guidelines on the requirements for accepting the funds, Congress retroactively changed the rules with its amendment to the stimulus package capping incentive compensation. Anyone tempted by the government's latest offer should bear the capriciousness of this funding source in mind.