$700b for the purchase of “mortgage related assets.”

—Legislative Proposal For Treasury Authority

“A $700 billion expenditure on distressed mortgage-related assets would be roughly what the country has spent so far in direct costs on the Iraq war and more than the Pentagon’s total yearly budget appropriation….more than $2,000 for every man, woman and child in the United States.”

—NYT

“There are no atheists in foxholes and no ideologues in financial crises”

—Bernanke

“It goes a long way. It ameliorates it very substantially…It looked like we might be falling into the abyss…It’s easy to forget amid all the fancy stuff — credit derivatives, swaps — that the root cause of all this is declining house prices. If you can reverse that, then people start coming out of their foxholes and start putting their money in places they have been too afraid to put it…We’re deep into Alice in Wonderland’s rabbit hole. It may not be over.”

—Alan S. Blinder

“The risk of ending up like Japan, with 10 years of stagnation, is now much lessened…It’s not enough…but it’s the first time they have done something that makes a difference….The recession train has left the station, but it’s going to be 18 months instead of five years. “

—Nouriel Roubini

Criticism

“I hate to say this, but looking at the plan as leaked, I have to say no deal. Not unless Treasury explains, very clearly, why this is supposed to work, other than through having taxpayers pay premium prices for lousy assets.”

—Krugman

The problems of purchasing mortgage related debt

  1. The Treasury is lacking in two respects: it is not taking over failed assets from failed institutions at an attractive price; and it cannot conduct a dutch auction of homogenous assets that would allow it to evince the best pricce from the market of surviving institutions. 
    • “the affected debt instruments are quite heterogeneous, which makes setting appropriate prices and quantities very difficult. If all MBS were alike, the government could simply undertake a reverse auction,” but they aren’t.
  2. It lacks market discipline, entirely:
    • “it provides the most help to the financial institutions that made what are, in retrospect, the worst investment decisions.” The good actors in the market would receive no benefit, while the bad actors would be bailed out.
  3. As a consequence of the first two observations:
    • “this approach saddles taxpayers with significant downside risk but limited potential upside gain.”

—Brookings Institute