Monday, February 09, 2009

Bailout 2

The administration is expected to announce Tuesday that the government's latest bailout strategy will be enticing big investors to buy more than $1 trillion in troubled assets from the banks. The hope is that, free from the drag of subprime mortgage debt and other bad investments, banks will be more likely to start lending money again and the economy will rebound.

Treasury officials, briefing Congress on the plan Monday night, suggested two approaches that the administration was considering to deal with toxic assets, according to congressional staffers who spoke on condition of anonymity before the program was announced.

These aides said the government might provide guarantees for the bad assets to establish a floor on possible losses or perhaps provide low-cost financing through the Federal Reserve for investors willing to purchase the bad assets.

What a stupid stupid idea. The government is going to guarantee that investors do not lose money on an investment. Of course the investors that are stupid enough to buy overpriced paper deserve to lose money. This is structured like an option, except the government is selling a put that is deep in the money. Just another way to guarantee the taxpayer loses its ass.

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