B.M.

Murky Objectives of the PPIP

Put Problem: I call this the Red 36 example. People who own CitiGroup shares or AIG shares are like people that put a $1 chip down on Red 36. They fully realize it's a longshot, but they also realize it pays 35:1 if they win. So if you are watching some one do this, and you offer them 50 cents to not make that bet, THEY WON'T TAKE YOUR OFFER EVEN THO IT'S A 50% RETURN. Why? Because they are not investors but speculators, looking for volatile "action". Same goes for a C or AIG investor. Tell them they can get a return on their speculation, and they turn away in disgust. They are betting for the longshot, not a small return.

Or think about it another way. If you are crazy enough to own AIG or C stock, you still aren't crazy enough to put your entire net worth into it. You invest maybe 1% of capital. If your ship comes in, you can make an "easy" 35% while the other 99% of your portfolio adds the rest of your performance. But if someone offers you $1.50 for your $1 speculation, you finish the year 50 basis points, or 0.5% better off. Who cares about that? If you cared about that, you wouldn't have invested in a risky stock like C or AIG in the first place.

So this author is dead-nuts accurate when he says the taxpayer will have to MASSIVELY overbid for the equity owners to agree to selling toxic assets.

Great article Linus Wilson.