Last week, I suggested that the treasury (and by extension, the taxpayer) could actually come out ahead in this bailout package. I offered that when the market is so panicked that it cannot price a security, a large profit is there for the taking. Warren Buffet followed this reasoning and put $5 billion into Goldman Sachs.
This week’s Barron’s cover story Making a Mint shares my thoughts. It quotes Pimco’s Bill Gross as saying the Treasury will see a price between par (full value) and a 20 cent on the dollar fire sale. Not every last mortgage is defaulting, and even those that are are not completely worthless as there’s still a house, albiet one which is likely valued at less than the mortgage on it. Gross threw hit hat in the ring and offered to work for the government for free to help value and disposition these purchased loans if other fund managers would do likewise. So much for the overpaid CEOs. One can imagine that the infusion of capital helps to create enough liquidity to help form a bottom in the housing market ($700B can finance 3 million homes with loans of $233K each) and by doing so, help stablize the value of these purchased mortgage pools.
Another vote tonight on this bailout.