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I just heard Secretary Henry Paulson saying that it the US taxpayer could even make money on the $700 million bailout of financial institutions. I already wrote about this possibility in the Huffington Post. Ben Bernanke spoke right after Paulson and reiterated the same theory. The problem that the Chairman and Secretary face is that a collapsing financial system does not add to their credibility. But this time I think they are right. It is very confusing to talk about $700bn as it is was $700 about to be spent say in the same way funds are spent when US spends money in the war in Iraq. When US spends money in Iraq the money is lost, gone, and it does not even have a significant multiplier effect in the US economy. But in this case the opposite is true. The money is not spent, it is transformed from one type of asset, cash into another type of asset, mortgages bought at depressed prices. Paulson and Bernanke must find a way to say that they will use that money to buy mortgages at a very low price most of which, provided that the economy does not collapse, will be repaid. And indeed it is likely that the taxpayer could even make money on this. Or not lose anywhere near $700 billion. So far, the deals that Bernanke and Paulson have made vis a vis AIG for example, have been great for the US taxpayer. These guys are smart. We have to give them credit. The way this should be portrayed to the American people is that here´s a new fund manager, named Paulson, who used to run the most successful investment bank in America, Goldman Sachs, who is now raising money on behalf of the American people, so they can finally earned some money off their taxes. If Paulson or his successors get it right, US overall debt will actually be reduced.

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Mankel on September 25, 2008  · 

It all depends on the premium over the market price that Paulson will be willing to pay, as buying without the premium is something that makes no sense (it could be done within the market). There are too many unresolved questions…

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Marc Arza on September 25, 2008  · 


This so called “rescue plan” is a major disaster. I can not understand how come we no longer accept that the economy has its cycles and recession is as important as growth for the system to work properly.

We are now paying the price of excessive interest rate reduction after the dotcoms went bust and 9/11 scared the hell out of everybody. Todays situation comes from not accepting a mild recession at the time.

Now, trying to bail out the system with a trillion dollars is absurd. Our system is based in creative destruction and the events in Wall St. these last weeks are creative destruction at its best. Banks will fall, companies will fall but if we do it right and allow for a free flow of capital, others will rise. Will it be easy? Hell, no! Money has been lost, value has gone down the drill, and tough times are coming. But this is what happens after a decade long of overspending beyond our means.

If you are American, call your representatives in Congress and Senate and ask them to stop this disaster. Inflation is coming BIG TIME! Value has been lost and new money will not make for it, it will only reduce the value of already existing money (aka… your savings!).

Marc Arza

3.0 rating

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