[lbo-talk] Wapo: Economists Question Basis of Paulson's Plan

[SA]

Doug Henwood wrote:
>
> On Sep 27, 2008, at 1:14 PM, SA wrote:
>
>> It's not that "hold-to-maturity" prices are the "wrong" prices, it's 
>> that they're subsidy prices.
>
> Not necessarily. These securities may pay off 85 cents on the dollar 
> if held to maturity. But with mark-to-market accounting, they have to 
> valued at their present market price - and whatever that is, exactly, 
> it might be 20 or 30. But no one's really buying. If the gov sets a 
> floor under the price, the m-t-m price will go up - and the gov could 
> make money on the deal too.
>
> Not saying that this will happen, but there's a reasonable chance it 
> could.
>

Wow. "Not necessarily?" You have amazing faith in the probity of Hank 
Paulson. I know he's not a yahoo from Kentucky, but did you notice he 
tried to railroad through a three-page bill that prohibited any review 
by a court of law? Does this look like a plan intended to minimize the 
chance of paying subsidy prices and maximize the chance that the 
taxpayer will get a large return? If that were the purpose, why didn't 
Paulson just propose buying stock in companies, as even ultra-neoliberal 
economists, flabbergasted at the venality of this bill, have been 
urging? The whole thing is so opaque - needlessly opaque - that it only 
makes sense to assume the intention is to pay subsidy prices.

And by the way, even if the government makes money - a possible but 
doubtful proposition - that doesn't mean it's not a subsidy. Any bailout 
plan that succeeds will cause the prices of many assets, including 
financial stocks, to rise. In order to not be a subsidy, the plan has to 
let the taxpayer *fully* participate in that rise, not just do better 
than break even.

SA