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Robert Miller

Based on Geithner's plan it seems each bank should bid as much as possible on its own toxic assets regardless of the assets value. For every dollar they spend buying their own toxic asset the government would provide them with an additional 14 dollars.

David Heigham

My guess is that, for once, the angel will be found to be in the small print of this plan.

The governemnt preserves discretion on such aspects as which securities it will accept in the plan and at what price. Once the market begins to work reasonbly smoothly, I expect to see these discretions exercised increasingly. I also expect that the tax issues which Posner points to will often be resolved in favour of the government, creating a very uesful additional Treaury revenue stream.

The buyers who get into this market first are going to make a killing; as people who choose the right moment to buy unpopular assets generally do. Those who come along behind are likely to find that they have to make do with surprisingly normal profit levels.

David Heigham

Isn't the angel, for once, in the details?

The plan preserves government discetion in what securities to accept in the plan and at what price. It would not be surprising if, once the market is working reasonably smoothly, we were to find these discretions being exercised in a far from generous way. Nor would it surprise me if the unresolved tax points that Posner refers to turn out to provide a very nice extra revenue flow for the Treasury.

The people who get in first under this plan are going to make a killing, as people who choose the right moment to buy unpopular assets generally do. Those who come along later may well have to content themselves with surprisingly normal profits.

Eric R Weinstein

Sorry Gary, but I don't get it. Something that "reduces the uncertainty" to "encourage hedge funds" with "generous terms" would seem to be an out and out anti-market subsidy or wealth transfer that you now seem to be promoting.

Can you explain why Chicago economists don't recommend simply valuing the assets assuming the illiquidity into the valuation. For example type "valuation of illiquid assets" on Google and grab the first result:

Valuation Bias for Illiquid Assets (2002)

Otherwise, this feels like "pick and choose" to save reputations after the fact. What you are endorsing is of course a massive subsidization of failed speculators by functioning agents in the economy. Am I getting this wrong or are you now reconsidering your life's work in light of current events?


Eric Weinstein


Dr. Becker,

Apologies to query your arithmetic, or perhaps I misunderstand the rules:

Ex. 1 - you suggest a bid of 107 this assumes that investors' "equity" is senior to the Treasury's "equity". I believe the rules suggest that in fact they rank pari passu.

Ex. 2 - I believe the equation is: Let E=total equity. Leverage is approx. 6 times E. So E=10% x (1000-6xE). Solving for E = 62.5. So investor puts up 31.25; Treasury 31.25; debt of 375; for a total bid of 437.5.

Or have I erred?

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