Last week, I suggested that the treasury (and by extension, the taxpayer) could actually come out ahead in this bailout package. I offered that when the market is so panicked that it cannot price a security, a large profit is there for the taking. Warren Buffet followed this reasoning and put $5 billion into Goldman Sachs.
This week’s Barron’s cover story Making a Mint shares my thoughts. It quotes Pimco’s Bill Gross as saying the Treasury will see a price between par (full value) and a 20 cent on the dollar fire sale. Not every last mortgage is defaulting, and even those that are are not completely worthless as there’s still a house, albiet one which is likely valued at less than the mortgage on it. Gross threw hit hat in the ring and offered to work for the government for free to help value and disposition these purchased loans if other fund managers would do likewise. So much for the overpaid CEOs. One can imagine that the infusion of capital helps to create enough liquidity to help form a bottom in the housing market ($700B can finance 3 million homes with loans of $233K each) and by doing so, help stablize the value of these purchased mortgage pools.
Another vote tonight on this bailout.
Joe
And hopefully it won’t pass either.
It doesn’t matter whether there’s any “profit” to be made or not: money will be siphoned out of Joe Taxpayer’s pockets. Moreover, he won’t be getting shares in an enterprise, rather the profits, if any, will be dolled out to the black hole of the federal budget.
This bailout is not a bailout of the financial sector, but a bail out of Pualson’s and Barnanke’s buddies. Small banks won’t see any of the $700B, just the so-called too-big-to-fail banks, as though such a thing existed.
Fire-sale or not, that’s the value of the commodity at one moment. That’s the market adjusting to given situations, specifically when securities have been overpriced because of the excessive liquidity that has been the case for the past 5 years or so.
Only government can fathom a problem by injecting liquidity into the financial sector and when, the market attempts to correct it, injects more liquidity into failed investments.
Make no mistake, this liquidity is coming from somewhere else. Either through taxation, when it’s going to penalize the other sectors of the economy with healthy liquidity, or through inflation, when it’s going to penalize all Americans by vaporizing the liquidity out of our pockets.
Enough of expert opinion when both Paulson and Barnanke told us that bailing out AIG would be enough. Why listen to these guys about $700B when they don’t have track record to show for?