A Few Thoughts On Financial Armageddon
September 25, 2008 § 18 Comments
I think it is more than a bit silly to call this a “bailout”. In point of fact, taxpayers will probably be buying quite valuable assets at bargain-basement discounts. Rather than costing the taxpayers money, this is very likely to earn the taxpayers quite a lot of money, as long as it is managed with a minimum of competence and oversight. In short, I agree with Bill Gross.
Also, much ado is being made of the ‘carte blanch’ authority being granted to the Treasury Secretary under the proposed emergency plan. This ignores the straightforward fact that what Congress giveth, Congress can taketh away; and that the middle of triage is not the time to start brainstorming about detailed health insurance rules.
I don’t blame Main Street for looking at all the hubbub and instinctively seeing “ripoff”. But in reality, taxpayers are being offered a bunch of free money because the financial institutions which made the mess don’t have the liquidity to get themselves out of the hole. Like all cash-rich value-investing bottom feeders, the Federal government stands to make a killing on their misfortune. Why aren’t private investors doing it? Because they are small fry next to the US Government: they just aren’t big enough to make this scale of deal happen. When push comes to shove, cash is king, and the US Government is the guy who can raise all the cash. But on a smaller scale this kind of deal happens all the time, where smart money which can afford to hang on to some illiquid assets for a relatively long period of time buys them dirt cheap from cash-strapped firms in distress.
Ignorance is almost always expensive, of course. In this case, naive Main Street dudgeon could be very, very expensive indeed. There are probably people involved who are guilty of criminal fraud, and they ought to be investigated and prosecuted. But at the end of the day, this looks more like a taxpayer windfall to me than a bailout.
Heck, with enough deals like this the federal government could ultimately fund itself and would not have to levy taxes anymore. Likely to happen in corrupt and financially idiotic Washington? Nope. But a guy can dream.