Buffett and the bailout

Economists “overwhelmingly agree” that we “need quick, bold action” to stave off a deep recession, says David Leonhardt in The New York Times. But few of them agree that Henry Paulson’s plan is the right action. A main concern is that taxpayers don’t get any stake in the firms their dollars help. Paulson says that demanding ownership stakes would keep healthier banks from participating, keeping credit markets paralyzed. But he has a problem: Warren Buffett, who convinced relatively healthy Goldman Sachs to sell him a stake with very healthy returns. Paulson could be right, but he needs to sell his plan better. Otherwise “maybe the American taxpayers should be asking Warren Buffett to be negotiating on their behalf.”

About that $700 billion . . .

The U.S. needs to “unlock the capital markets,” and quickly, says Chad Gray in Seeking Alpha, but let’s be honest about what our actions will cost us. The “Paulson & Co. talking points” now assure us that the bailout ultimately won’t really cost us $700 billion, and that “Heck, taxpayers could turn a tidy profit!” The logic is that the assets we buy will have greater value than what we pay for them, because they’re tied to “a representative cross-section of American real estate,” both good mortgages and bad ones. That logic is flawed. “When Paulson opens up his financial waste treatment plant,” the debt thrown in will be the “most putrid” assets out there. The $700 billion is an expense, not an investment.