How do taxpayers get a fair price?
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KAI RYSSDAL: We find ourselves in this mess, in part, because we’ve been waiting more than a year for the world’s bankers to come clean on the extent of their losses. They’ve said all along that they can’t find buyers. So there’s been no objective way for them to figure out how much their questionable mortgage holdings are worth. It’s not like the credit markets have suddenly become transparent now that a bailout’s on the way. Given that, one of the things Senators were asking today was how the Paulson plan will get taxpayers a fair price?
Here’s our senior business correspondent Bob Moon.
BOB MOON: Ever since their own risky bets caught up with them, the world’s bankers have kept poker faces. Merrill Lynch’s John Thain, for example, dodged analysts during a conference call back in January:
JOHN THAIN: We are optimistic that as the market starts to open up and actually trades really occur, that we can actually sell these things at or near where they’re marked. So, the intention was to mark them where we could sell them. I hope we do, in fact, see some trading happen.
Now the government is stepping in to play its hand in hopes of ending the stonewalling that’s literally threatening to bust the bank.
KENNY ROGERS: You’ve got to know when to hold ’em, know when to fold ’em…
On Capitol Hill today, lawmakers voiced worry this could end up being the biggest poker game in history.
What if the government gets bluffed on the true value of the confusing mix of assets it plans to buy? Taxpayers could be the big losers. But what if the banks bid too low to do themselves any good? Utah Republican Senator Bob Bennett took note of this very delicate staring match:
BOB BENNETT: If you end up paying too little to these institutions, you’re not giving them the support that they need. If you end up paying too much, then there’s no upside potential for the taxpayer.
The most likely means of establishing a fair-market price would be having banks compete to sell their troubled assets for the lowest bid — a reverse auction. But Treasury Secretary Hank Paulson essentially conceded the government is making this up as it goes along:
HENRY PAULSON: No one’s been faced with this situation before. We’re going to need to get some really good asset managers. We’ll do a certain amount of experimentation.
The irony in that is the government could find itself consulting experts from the very firms it’s trying to rescue.
I’m Bob Moon for Marketplace.
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