Free Markets, Free People


Hate To Say, “I Told You So”

If you recall, all of us here at QandO had a rough time understanding how the government was going to pay for something when it didn’t know the value when it announced it was going to buy distressed bank assets.

Common sense says you don’t buy something on the way down, but instead wait for it to bottom out before jumping in.  As we’re now learning, the government lost between 64 and 78 billion dollars when it doled out that first quarter of a trillion dollars:

According to the testimony of Harvard Professor Elizabeth Warren, who is chairing the Congressional Oversight Panel for TARP, Treasury doled out $254 billion for bank assets worth only $176 billion – an overpayment of $78 billion of taxpayer funds. She has also noted that Treasury has not cited any reason for the overpayment. According to the Congressional Budget Office’s independent estimate released a month ago, Treasury overpaid $64 billion.

This is the same institution that now is going to spend 900 billion of borrowed, taxed or printed money. Apparently everyone who is  for doing that believe the outcome will be different this time.

Insanity.

~McQ

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5 Responses to Hate To Say, “I Told You So”

  • Isn’t it obvious?  The whole point is that the Treasury is the “mark” in a sale of overpriced assets.  The $64-78 billion figure?  It’s not “lost” but in the pockets of a few politically connected operators.  Worked great the first time so let’s try it again.  A financial panic works wonders for getting hastily written blank checks through a spooked Congress.

    It’s a feature, not a bug.

  • “Common sense says you don’t buy something on the way down, but instead wait for it to bottom out before jumping in. ”

    It says nothing of the sort.  Common sense only says to buy low and sell high.  You make the best deal when you buy at the minimum market value, but it is almost impossible to exactly gauge this minimum point.   Knowing this, you buy stocks that you believe to be undervalued.  It doesn’t generally matter if they’re on the way down or on the way up, only that you believe they are worth more than you paid for them.  It is a perfectly acceptable investment strategy although it is a bit stressful when you see the market value of your investment decline into the trough before it (hopefully) rebounds.  Any investor will tell you this.

    That’s not touching on the fact that the government didn’t buy those assets as a good investment, it bought them as a way to prop up the banks.  If they turn out to be good investments, then great.  If not then hopefully those investments kept the heart of the free market beating for a while longer.

  • $900 billion?  No, the cost of buying the bad assets up will be in the trillions, not billions.  The $900 billion cost of the “economic stimulus” package doesn’t include the cost of buying up theses assets.  If the “bad bank” comes about, then most estimates are that it will cost $2-4 trillion and every single one of those estimates I’ve seen include a strong disclaimer warning that these are just guesses based on very little information.  The true extent of the toxic assets out there is really not known and probably won’t be until the suckers taxpayers offer to pay the banks for them.

  • $900 billion?  No, the cost of buying the bad assets up will be in the trillions, not billions.  The $900 billion cost of the “economic stimulus” package doesn’t include the cost of buying up theses assets.  If the “bad bank” comes about, then most estimates are that it will cost $2-4 trillion and every single one of those estimates I’ve seen include a strong disclaimer warning that these are just guesses based on very little information.  The true extent of the toxic assets out there is really not known and probably won’t be until the suckers taxpayers offer to pay the banks for them.

  • FYI (and to nobody’s surprise), MiniTru is blaming this on Bush.  He PERSONALLY bought those overvalued stocks.  Congress had NOTHING to do with it. 

    Not that I’m letting Bush off the hook; he panicked and we’re going to pay (and pay, and pay) for his foolishness.  However, it’s just a little too convenient for MiniTru to lay all the blame on him.  I seem to recall certain presidential candidates rushing to the White House late last year to iron out the details of the bank bailout.  Too bad they weren’t smart enough to point out to W that he was paying too much when they went along with him, eh?

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