Friday, October 03, 2008

I am so dissappointed in you, John Campbell.

The $700 billion figure so often mentioned will not be spent, but actually entirely invested with three different mechanisms to ensure that the taxpayers get all their money back.

First, these "troubled assets" will be purchased at less than the expected net present value of their cash flow. That means taxpayers should make a profit by holding them to maturity.

Second, taxpayers will get warrants to purchase stock in the companies from whom these assets are bought. That is more profit potential if the companies recover.

Third, whoever is president five years from now is required to offer to Congress a proposal to recover from these same companies any net loss incurred by the taxpayers to that point. No investment's return is certain, but this one looks pretty good. It for sure will not cost anything close to $700 billion over time.

Furthermore, you are not bailing out companies when you buy assets from them at 30%-60% of what they paid for the asset. That's a bath, not a bailout.

I'm a little busy today, so let's just start with those last two sentences: If you are buying assets for 30 to 60% of "what they paid for the asset", but the assets are currently worth nothing, that is a bailout. We (the taxpayers) are not buying depressed property that will one day be worth more, we are buying bad debt...the Federal Government does not have the same stomach for collecting debt as does my Uncle Lou.

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