Saturday, September 27, 2008

bailing, bailing

WaPo published this article, addressing the Situation of the bailout:

"The director of the Congressional Budget Office said yesterday that the proposed Wall Street bailout could actually worsen the current financial crisis. In a recent interview, Peter Orszag explained using the following example: Suppose a company has Asset X, whose value is recorded on the books as $100. Because of the current economic decline, Asset X's real value has dropped to $50. If the company takes part in the government bailout and sells Asset X for $50, the company has to report a $50 loss on its books. On a scale of millions of dollars, such write-downs could ruin a company.

Such companies "look solvent today only because it's kind of hidden," Orszag said. "They actually are insolvent" already, he said. Orszag said, "The key question is: What are we buying and what are we paying for it?"

Then, there is the paperwork cost of the bailout.

The budget office "expects that the administrative costs of operating the program could amount to a few billion dollars per year, as long as the government held all or most of the purchased assets," he testified, without defining what he meant by "a few."
So, the bailout will require a few billion in administrative costs- hmmm I do not remember President Bush mentioning this in his recent address, and I've not read it anywhere else.
Oh well we can just tack on the $2 billion to the $700 billion, and add it to the $480 deficit, and the $9.8 trillion dollar Ntl. debt. We did not want our retirement accounts anyway.... Pass the Prozac please.


D.K. Raed said...

I have real concerns about how the bailout assets will be valued, because of course that amount is what taxpayers will be underwriting. I also have concerns about only certain assets being "sold" to the govt -- not a mixed pkg (some good, some bad), but the seller's ability since they have all the details, to analyze & only send the very worst most likely to default assets into the bailout program. It's a recipe for failure.

Fran said...

I was just thinking about JP Morgan Chase, they have gobbled up so many businesses, these actions would be considered anti trust violations, subject to review.

Potterville here we come?

D.K. Raed said...

MorganChase is now tied for #2 with Citibank. BofA is still #1. Potterville is already here. Whenever you hear a bell ringing, it means another bank has failed.