Even Wall Street Journal Readers Are Outraged

A new Bloomberg poll finds Americans oppose the bailout by 55%-31%. But if there's any blog where the Paulson Plunder should get some love, it's Rupert Murdoch's blood-red Wall Street Journal.

Exactly the opposite happened when WSJ blogger Sudeep Reddy explained how Ben Bernanke went off script "to argue for not buying assets at fire-sale prices in the Treasury’s $700 billion bailout proposal."

Uncertainty in housing markets and the economy are forcing financial institutions to mark mortgage securities at fire-sale prices, rather than their value if held to maturity, effectively creating a vicious circle of more write-downs that further depress asset values, Mr. Bernanke explained.

Reddy argued taxpayers should only pay fire-sale prices to get the best deal:

Forcing assets down to even lower fire-sale prices would protect taxpayers the most, since the government would own the assets below the value if held to maturity. As long as those securities didn’t flat-out default, the government’s purchase would have a substantial upside.

This led to comments that ranged from angry to furious. Leaving aside the purely ad hominen attacks (of which there are many!), here are some of the more interesting critiques on the core question of how Treasury should price the securities:

Ben just said that he is going to buy these securities at “hold to maturity price.” He has some model that tells him that house prcs are going to fall 25% (or whatever). then he figures out the foreclosures and the recovery rate. He figures these securities are worth 65 cents (not 22c as they are selling for now). Holy mother of God! How is the taxpayer making money on this? This is a give away - recapitalization of the banking system. Short treasuries. Am I reading this correctly? -- ReturnFreeRisk

Holy Cow! Pay full price for paper which, by investor math is worth next to nothing. He doesn’t mean to prop up the market, he wants to be Santa! This is insane. Banks are refusing to loan because they can’t establish a valid “value” of a house. Now we’ve decided that the math is irrelevent? God, I wish I was in the “D” grade paper business!!!! -- Robert

Bernake and Paulson have got to be kidding…..! Some idiot pays $1M for a house not worth $250K because another idiot with acces to excess funds agrees to provide the loan to do so and now when the “real market” value of the property comes to the fore the American taxpayer should continue the charade by relieving both the buyer and the banker? GET REAL FOLKS……NO RESCUE PACKAGE, NO WAY, NO HOW. -- R THEY JOKIN

Oh! I get the logic. There are huge numbers of these mortgages in the pipeline that will actually NOT default. So, these will actually make some money. This makes sense…until: If we are going to allow people to re-negotiate these loans, the value of the current one seems slightly diminished…or is it just me? What is not even being discussed is the number of people in these mortgages who will jump ship because this bailout incentivises them to do just that. AND THEY SHOULD! What is the fed plan, to sell the new (Renegotiated) loans back to bank — at a discount? -- anonymous

$700 bn is not number at all. Consider this: the total equity capital of the entire banking system in the US is $1.35 trillion. So, the taxpayers should give Paulson and Bernanke a checkbook equal to more than half of the total capital of the entire banking system?!?
Look it up:
http://www2.fdic.gov/SDI/main4.asp

-- HELLO, IS THERE ANYONE OUT THERE WITH A BRAIN?