[quote=barnaby33]davelj, if you are truly a pragmatist and thought this through as you say, then why defend a bailout? The govt cannot create wealth, it can merely re-distribute it. We all agree that transparency is required to restore trust, but that if transparency is provided some sort of run on the banking system will occur. This is a seeming paradox. You can’t have it both ways.
I don’t think our leadership is getting smarter, I think they are attempting to buy time and praying that somehow someone will just fix it. I haven’t seen a single criminal prosecution, yet I’ve seen trillions of dollars go down the rat hole. Your supposition that most of the assets in the TARP are money good is shot down by your later admission that your friends who work in that marketplace can’t even accurately value these instruments. Again, you can’t have it both ways.
There is NO SUCH THING as intrinsic value. At any given point a thing is worth what someone will pay for it. The mere fact that until quite recently valuations were ridiculous by any historic measure is by no means a justification for obfuscating their values on the downside. Unless you are secretly backing the socialism for the rentier class that is.
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That the government can’t create wealth but can merely redistribute it is a tautology. In our current circumstances, the redistribution is a “bridge” – so to speak – to better times. Debt burdens on marginal borrowers are reduced and employment increased today at a cost to the taxpayer that is spread out over years in the future. All in order to prevent a precipitous decline in output today that would have even greater ramifications for years to come. This is Macro 101. We can debate the details – size, anticipated effects, etc. – but certainly you grasp the concepts, yes?
“There is no such thing as intrinsic value?” Huh? Warren Buffett (and every corporate finance department in the world) will be distressed to learn this. When I say that the TARP assets are money good, I mean down the road… in the long term… held to maturity in receipt of actual cashflows. That’s what intrinsic value is all about. There are “prices” – what someone will pay for an asset today – and there are “values” – the discounted value of what someone believes an asset’s cashflows will yield over its term. Sometimes they intersect often, other times they don’t. I believe that in the LONG term, the TARP assets will be money good. In the short term, any asset can trade at any price. My point in my previous post is that my friends have a very good idea as to what these securities are NOT worth (as cashflow investments held to term), and that is the prices that they’re trading at; they believe they’re worth considerably more.
But the reality is that if you don’t believe in a difference between price (today) and intrinsic value (based on cashflows held to term), then there’s no point in discussing these issues. If you believe that illiquidity influences value, as opposed to price, then we can’t have an intelligent discussion. I will suggest that, based on your supposition of no intrinsic value, you must pursue an interesting investment strategy.
