John Berlau suggests that mark-to-market accounting is
partly responsible for the current financial meltdown because it
forced banks to write down their assets even if they really weren't
worth any less if held to maturity.
Hank Paulson and Ben Bernanke believe that another Resolution
Trust Corporation, armed with a $700 billion line of credit from
the U.S. taxpayer, could resolve this crisis using market
principles -- reverse auctions for distressed assets, most
likely.
Now Hank Paulson, formerly of Goldman Sachs, knows full well
that the beauty of the market is that if you see an opportunity,
you can make a profit. If mortgage-backed securities are currently
undervalued due to some arcane accounting rule, you can bet that
Paulson and Co. are all too ready to pounce. Taxpayers, get ready
to profit.
Paulson's plan is to buy those assets at 10 cents on the dollar
and use all the credibility of the U.S. Government to strong-arm
the economy back into functionality. It's very likely that a year
from now the RTC will be ready to sell back those assets to the
market a year from now at, say, 50 cents on the dollar, factoring
in default costs.
Let's say that the new RTC spends only $500 billion in the next
few months on assets sold to them by distressed banks. The RTC
reaps a cool $2.5 trillion windfall in under a year. This is in
addition to the enormous profits it's already making off of Fannie,
Freddie, and AIG. The Federal debt is sliced by 25% and President
Obama generously extends his tax cuts to 99% of the people. Instead
of FDR's New Deal, we'll be talking about Paulson's Sweet Deal.
Or
maybe not.
topics:
Hank Paulson, Ben Bernanke
