Smarter minds than mine have noted a key instance in which Ben Bernanke's opening testimony deviated from his prepared statement. Both Paul Krugman and Felix Salmon seized on the following passage:
I believe that under the Treasury program, auctions and other mechanisms could be devised that will give the market good information on what the hold-to-maturity price is for a large class of mortgage-related assets. If the Treasury bids for and then buys assets at a price close to the hold-to-maturity price, there will be substantial benefits.
First, banks will have a basis for valuing those assets and will not have to use fire sale prices. Their capital will not be unreasonably marked down ...
One of the most critical questions in evaluating the Paulson plan is figuring out exactly what price the government would pay for so-called toxic assets. Here Bernanke is explicitly stating that banks will not have to use "fire-sale prices."
Krugman:
As I wrote earlier this morning, the whole "take these assets off the balance sheets" line is fundamentally disingenuous; the key question is what price Treasury pays for the assets. And here we have Bernanke effectively saying that it's going to pay above-market prices -- prices that allegedly reflect "hold-to-maturity" value, but still more than private investors are willing to pay ...
So the plan only helps the financial situation if Treasury pays prices well above market -- that is, if it is in effect injecting capital into financial firms, at taxpayers' expense.
What possible justification can there be for doing this without acquiring an equity stake?
Salmon:
Certainly under this system no outside investor would ever want to get involved. This is a bailout pure and simple, with the government paying too much money for banks' assets. And I don't like it at all.
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