I have to admit I’m still surprisingly (for me) uninterested in the latest Wall Street crisis, but as a point of interest (I really have no meaningful opinion at the moment) here is an analysis in the Wall Street Journal suggesting that the Paulson Plan to fix it will reap huge profits for taxpayers.
Yep, as in, a $700 billion investment that should bring in trillions in returns for taxpayers.
I take no position on whether the analysis is correct or not.
In the meantime, I found this analysis by the Chicago Tribune about the politicians’ response to be surprisingly level-headed.
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I’m with you.   I’ve basically got my head in the sand (or elsewhere) when it comes to the whole topic.Â
Or in the vernacular of the day, I guess I could say “that’s above my pay gradeâ€â€¦.
It is very hard to tell what is going to happen with this buyout. If the treasury buys these bonds at deeply discounted prices, it may be able to sell them or make a profit on them. The question is what price are they going to buy them at. The rumor seems to be that they are going to buy them a very high prices, where it is unlikely they will ever make money on them, to give the banks that currently own them enough cash to stay solvent. I think this remains to be seen. I would not count on the government making much money on this, but it should get a large faction of the $700 billion back eventually.
I really hope Kessler’s right, because it’s looking like a modified version of the Paulson plan will probably pass.
Good article.
As I said in the other thread: if AIG is any guide, they aren’t so much "buying" companies as they are providing emergency liquidity in return for most of the equity. It’s actually kind of a sweet deal, and fairly likely to be profitable in the long run.
In a liquidity crisis, cash is king, and no one has more cash than Uncle Sam.
As a free marketer, I still think it would be better in the long run to let these companies fail and be replaced by more efficient competitors, but this isn’t as bad as some are making it out to be.
As a free marketer, I still think it would be better in the long run to let these companies fail and be replaced by more efficient competitors, but this isn’t as bad as some are making it out to be.
You are assuming that in peoples panic that it will only be the ‘weak’ competitors that failed and not all of them. Panic induces people to pull assets out of all markets as they can not quickly ascertain who the scumbags are. Remember, only the quick get their money in a bank run.
If people lose confidence in the system, it’s not just the scumbags who take a hit.
As for buying at a high price, that all depends on *when* you value the asset.
If you had an item that was worth $100 yesterday, but due to crisis is only worth $70 today, if I buy the item for $75, the question is not did I pay more that the item is worth. The question is can I afford to ride it out until the item is worth $80.
Most investors are unwilling/unable to ride the risk for 2-4 years. However, due to the US.gov’s size, it could hold on to the assets for 10-15 years quite easily.
On something this size, profit maximization isn’t really important so I’m not too worried if we overpay slightly.
Well, I see David Letterman and Olberman are dumping all over McCain and Olberman comes up with Rep. Rahm Emanuel to encourage that McCain didn’t read the proposal (primarily) because no one else (Congress) did either in that time frame including himself.
Even though its not Friday just yet,McK seems to see this entire scenario as little more than a knee-jerk Whitehouse (Wall street) anxiety attack attempting to coerce an inept but willful Congress to a NEW 700 billion to a probable 3 trillion dollar deficit for the American taxpayers. God bless our govmint.So before everyone bloviates can the average Joe and Jane or Joe and Jack American actually read the three page proposal that’s going to do wonders at the tune of 700 billion to an inexhaustible and endless burden on the taxpayer that seems to require less time than the "Shock and Awe" promised by the recent Mr. Secretary of Defense, whatshisname.
Dean, I am in agreement with you. I have been watching this very closely. I have faith right now.
It probably doesn’t have a chance, but I rather like the House plan, although I haven’t seen the cons.
You are assuming that in peoples panic that it will only be the ‘weak’ competitors that failed and not all of them
It would be. Strong companies with good balance sheets don’t fail. Only companies with liquidity problems have to worry.
News reports tonight seem to indicate that the plan now includes warrants. Companies selling their bad bonds to the treasury will be required to also give warrants. The government may well be able to turn the warrants into stock and sell it in the future to make up for losses on the bonds. There is more of a chance of the government eventually coming out ahead on the bailout.
The original proposal did not include these warrants, but I heard that the current plan does on NPR and PBS, so I think it appears to be in the plan for the moment.
The AIG bailout included warrants.
http://en.wikipedia.org/wiki/American_International_Group
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