mathdummy

The Bailout: Why I Like the Idea But Not the Sales Pitch

Why can't our politicians behave more like the smart money?

When this crisis started, plenty of financial institutios needed cash. So, they went to the smart money. Of course they would have loved to sell the snart money their distressed assets at a reasonable price. But, the smart money being smart money said no and instead traded their cash for a slice of equity.

You see, the smart money knows nothing about esoteric mortgage backed derivatives and other assets. Even a great price, they figured, it's going to cost a fortune to manage these things. Whatever upside in price there is, will be evaporated by the management cost of these equities from now until it's a good yime to sell. "Thanks, but no thanks" they told the financial institutions. We;ll buy a piece of your equity and let you manage these assets. You have the know-how, people and structure to do it cheaper than us.

Why can't our government behave more like the smart money? Yes, the financial institutions need a $700B financial infusion lest the entire system collapse. Yes, it is in the best interest of the taxpayers to give them this infusion. So, let's do it. But, wait a minute, why do we have to take these assets that not even the financial institutions understand in return for our money? Let's change the accounting rules so they don't have to price them in their books at distressed prices and let's take instead some interest or equity for our $700B.

X years from now, these mortgage backed assets will be worth more than today. Who will be able to cutody them in the meantime at a lower cost? The financial institutions, or the federal government? Who eill be able to sell them at a better time and at a higher price? The financial institutions, or the federal government?

Dear fed: Please give the banks the money, just don't trade it for a complex financial instrument you don't understand and will spend a fortune managing. Buy stock or a CD, sit down and wait. After all, that is what politicians do best and at a lesser expense. No?