The market hasn’t made any determination as to the value of the assets in question and that’s the crux of the problem: Institutions aren’t lending because they don’t know who is holding what assets, bad or good. Thus, the credit market froze.
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But much of this paper **has** traded, and there is a market price, even though it’s far below book value.
There are banks that did not participate in fraudulent or risky loans, and have fairly healthy balance sheets, relatively-speaking. Instead of having the govt support the a$$holes who got us into this mess, why not nationalize them, sell of what we can, and work with the institutions that tried to do the right thing? They are being punished via unfair competition from govt-funded/backed banks.
How is buying worthless paper NOT a misallocation of resources? Exactly what would happen if we let the big boys fail? If we simply need to keep credit flowing, we can do that through the healthier banks that took fewer risks.
Personally, I think this story has much more to do with political and financial connections than it does with what’s good for the nation.
