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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