CNNMoney.com describes the planned $700 billion bailout as follows:
The plan would allow the Treasury to buy up troubled assets from U.S.-based companies and foreign firms with big U.S. operations. The aim is for the government to buy the securities at a discount, hold onto them, and then sell them for a profit.
Here’s the question: if these troubled assets are so cheap, why doesn’t anyone else besides the U.S. government want to buy them?
There are plenty of hedge funds out there with ample cash. Perhaps, if the assets are such a good deal, some European governments will want to get in on the bargain also, rather than let the U.S. Treasury get all the spoils.
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Come now! This is the Bush administration. What they say is just for public consumption, to justify doing what they feel like.
It’s wrong to tax those that have the most, it’s wrong to regulate companies to stop them from foolhardy steps (like giving loans to anyone who asks for one, no proof of ability to pay required), and it’s right to reimburse them for their losses (but let them keep the bonuses and golden parachutes).
@ #6 – well spotted.
Either CNN has it wrong, Paulson has it wrong, or every economist I’ve read over the last couple days has it wrong. Assets would have to be sold at higher than market prices.
Precisely!
At the risk of defending what is sure to be a boondoggle, the answer lies in borrowing costs and rates of return. The government can pay higher prices because it can borrow more cheaply and requires a lower rate of return than a distressed asset hedge fund. The banks are unwilling to sell because they believe the hold-to-maturity value is significantly above current market prices. However, this requires them to mark their positions to market and impairs their balance sheet. A higher bid from the Treasury would allow banks to either offload their assets to delever or stop the vicious cycle of selling assets to raise capital, those sales putting pressure on the illiquid market prices of other assets and thus requiring more write-downs.
because as usual, there is more to it than we can know. these very questions should trigger a deeper look… (saw article headline that read: AIG bigger than Enron–)
I think you may be the last person on earth to come to this realization. Perhaps you should sit out the current events stuff.
The return of the value investor is nigh!
There are : http://www.chimerareit.com/