September 20, 2008

Taxpayers can profit from fear and greed too...

Hank Paulson wasn't head of Goldman Sachs for nothing, I trust. World stock markets are surging this morning, maybe 'exploding' is the right word, because of Hank's plan to form a 'bad' bank that will accept the supposedly toxic paper which is thought to poison the banking system. Can I buy shares in the Big Bad Bank? The US should take this toxic waste at distressed prices, tighten a little the screw on those who took out these mortgages to improve their incentives to perform, then simply reel in the scheduled payments which will way exceed the fraction of bad debts implied in the fire sale price. After a period of superior income returns, the Big Bad Bank can re-package and sell-off the newly nutritious CMO's, then distribute its well-gotten gains to their rightful owners, the American taxpayers. Now that's what I call creative destruction.

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