Valuation is the key:
Bernanke finally gave us an (elliptical) answer to one of the questions that most concerns Wall Street about the bailout plan: the valuation at which distressed mortgage-backed securities will be purchased. The other question, whether there will be a deal in Congress at all, remains unanswered.
If you’ve been following my posts, you know that the most critical variable in the proposed purchase by the Treasury of up to $700 billion in MBS and related assets, is the valuation. Get the valuation too low, and a lot of banks and Wall St. firms will bust because of the capital losses. Get it too high, and it’s a big transfer of wealth from the taxpayers to Wall St.
I’ve been trying to get some sense for how Paulson and Bernanke are seeing this, for days now. Yesterday in open Congressional testimony, Bernanke finally spilled it: the purchases are to take place at “a price close to the hold-to-maturity price.”
I’ll say it straight out: that would be far higher than the current market for these securities. The Troubled Asset Relief Plan is a bailout of Wall Street, at taxpayer expense. Pure and simple.
This puts everyone in a very difficult position, for two reasons: First, it’s morally wrong and politically a disaster. Second, it represents a misallocation of resources that can only hurt the economy later.
Meanwhile, Pejman has a free-market approach to the situation.
UPDATE: Michelle Malkin says "Kill the Bailout" because of it's link to the illegal immigration debacle. Student Loans and Car Payments are also being added to the bailout bill. More info here.
UPDATE #2: McCain suspends campaign, pulls all ads, pulls out of Friday's debate (which is a foreign policy debate), and heads back to D.C. to work with the House & Senate leadership and the Bush administration to hammer out a workable bill. McCain has asked Obama to do likewise. Obama (so far) has refused.
UPDATE #3: Ace has a post that explains that because the bailout will consist of the government buying actual assets of value (property) as opposed to just paper, the potential "loss" will be far less than the initial proposed $700 billion shell out, and that the government could end up making money since they'd be buying the properties at a deep discount. Although, that still doesn't answer the questions of government takeover (even if for a short term), oversight, valuation on the mortgage-backed securities, and all the pork/earmarks that Congress is trying to tack onto the main bill.
Ace also has another link to this article from Bloomberg.com, which analyzes things further.
Also, thanks to Ace, there's this report from Fox News:
Finally, here's the text of President Bush's address to the nation tonight on the issue.