I listened to Treasury Secretary Paulson a lot this morning as he explained the "plan." Under his concept, the federal government will buy a great deal of presently worthless securitized mortgage debt, hold it for years and then sell it to someone who wants it, presumably because the value of the underlying real estate has gone up. The institutions from which the federal government will buy the debt will play a large, perhaps decisive, role in setting the price at which they "are willing" to sell the now worthless debt to the federal government.
Paulson hopes that the institutions that will be unburdened of this worthless paper will once again soar like eagles (wasn’t there a song?). This would seem likely to lead to high profitability for the unburdened institutions with lots of money for all.
Wait! Not so fast! Paulson is not enthusiastic about requiring the "unburdened" to give the government warrants for future stock sales to the government. Such warrants would enable the tax suckers (us little people) to buy the companies at distressed prices (like, now prices) and sell the stock at later higher prices so that the Treasury of the United States (us tax suckers) could make money out of this whole thing.
Paulson also does not think that in return for the US government buying the nearly worthless mortgage securities, the "unburdened" should accept restrictions on executive compensation. Why? He believes that such a restriction would cause the presently burdened institutions to refuse to sell the government their "treasured" worthless paper. Hmmm.
When asked why he thought the presently worthless mortgage "bundles" will become valuable some day "over the rainbow," he expressed faith in the future of America. Bless him! pl
If I do not understand this, explain it. pl