MSNBC.com has an article, highlighted in my news section, about the new plan to be rolled out later today by Treasury for the toxic assets that are pinning our credit markets down. Unfortunately, all they can do is obsess over the price tag, which some estimate at $1 trillion.
Allow me to point out a few mitigating factors, here. They’re buried in the article and found elsewhere, but I’ll bullet them out to be clear:
- When they say $1 trillion, the implication is that its another one trillion dollars, which it isn’t exactly. Some of the money will come from the TARP money, closing out that account. More will need to be printed by the Treasury, which some estimates put at $400 billion.
- We keep forgetting that we’re buying up assets and that assets have value. In many cases, mortgage backed securities. To the extent that this market is in freefall, that would be bad. But the whole point is that the government is buying right along side private interests. Buying means a boost to the market, just like building roads and bridges means boosting those industries.
- Right along with that, if we’re buying assets, then even if we’re buying at a loss – which we certainly will do, in at least some cases – the assets are homes and even at their least valuable state, they still hold value. If we are indeed spending a trillion dollars, that doesn’t mean we won’t get some back. Potentially, we might be getting a lot back.
- Here’s a big one: the plan also includes using the powers of the FDIC to close and take over failed banks, where that’s possible and necessary.