The Secretary is authorized to purchase, and to make and fund commitments to purchase, on such terms and conditions as determined by the Secretary, mortgage-related assets from any financial institution having its headquarters in the United States.
Update: Paul Krugman agrees with me.
It says nothing about how the Secretary will decide what price to pay for these securities. The ostensible purpose of this plan is to clear the decks and put this problem behind us. It sounds like the plan is to allow companies holding these securities to sell them to the US Government on terms to be negotiated by the Secretary. Why should we allow that? Update2: Slate's Daniel Gross invited readers to write in with suggestions. Here's what I wrote.
Many of the companies looking for a bailout need additional capital. Unfortunately we don't know what these companies are really worth. So let's allow the government to provide the additional capital by buying stock but with a margin of safety.
Specifically my suggestion is to allow any company to value itself at 50% of its lowest market price during the past 6 months. The company would then issue additional stock--thereby diluting the existing stock. The government would buy the new stock as if it were a venture capitalist investing in the company at the 50% under market price valuation. Any company that thought it was worth more than that would not be required to participate.
If the point is to allow the companies to get these securities off their balance sheets, they can do that simply by marking them as worthless. Then they will be off their balance sheets. Of course, if they do that they will take tremendous losses. Some may even become insolvent. Why is that the obligation of the US Government to fix?
The argument is presumably that if we let the companies that own these securities go bankrupt, the entire economy will collapse. If that's the case, and if the solution is a government bailout, then perhaps the companies on the brink of bankruptcy should be taken over by the Federal government. At the least their shareholders should lose all their money. Whatever assets remain should then be sold off and the proceeds distributed to the American citizens on some equal share basis. Then we can start rebuilding. While that is happening, the government can run the bankrupt companies in the same way that the FDIC runs banks that become insolvent until their asserts are dealt with.
One way to tell Congress not to sign on to this give-away—at least without far more planning, oversight, and justice than is being proposed— is here and here.
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