Paulson's Bailout Plan's Achilles Heel
Paulson Plan Shows A Weakness: Above Market Pricing, Greater Taxpayer Risk
This is the Paulson Plan's achilles heel... the government's plan to purchase toxic debt at face value from the banks instead of an auction based market value transfers the risks to the taxpayers. Paulson counters that the bailout needs to help banks get their balance sheets in order to get credit markets running smoothly again, and a "fire sale" liquidation of bad debt won't really help their balance sheets
Playing Devil's Advocate -- Paulson's reasoning makes sense. The least that happens, as gov't sells the loans purchased from banks, the cost of the bailout decreases.
Don't know the answer here for immediate banking liquidity.
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Agree with you Jeff that the more money that reaches the banking system, the fast the credit markets jumpstart. I see a compromise brewing here though. Investment bankers like Paulson always drive hard deals, and he's doing so here. There will be a lot of discussion in the media today about playing hard ball while threatening to take the bat home (and thus ending the game...)
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