Lots of interesting conjecture. Lets look at one hard bit of evidence: The folks with the best knowledge of what might be behind these securities (and who work in RE finance for a living) are not rushing in to buy these great bargains. Gee, why would that be? "Here's free money folks, all you want, scoop 'em up while you can!" And yet-nobody thinks they are worth even the beaten down amount. But somehow you have faith that government functionaries, with no "skin in the game" and using my tax dolars, are better able to judge the marketplace and what these securities are worth. That's a leap of faith.
Here's an idea. If you think these securities are such a great deal, buy them with your own money. Do it today before the government rushes in and you'll make even more. Because one ancillary negative impact of government action will be to drive away private investors and risk-takers after the prices get bid up--the window is closing, don't be left behind! Jump in now, let us know how it goes.
Sam I've looked at trying to buying these things but Schwab doesn't offer them only Fannie Mae/Freddie Mac issued MBS which are currently yielding between 5 and 5.50%.
The other problem like most folks on Wall St and most banks I've simply run out of cash to buy things with. I could go on margin but, although I'm an aggressive investor I also am retired and margin investing is too risky.
But fundamentally at 7-8% margin rate the interest I get from these securities doesn't warrant the risk. However, if you'd be willing to loan me money for 10 years at 3.85% (the current 10 year T-Bond) I'd be more than happy to purchase some of these toxic waste securities with double digit returns and large potential capital gains if the housing market stabilizes. Really Sam I'm good for it and 3.85% is more than a money market. I'll PM you with wiring instructions
Anyway I think I've demonstrated part of the problem, nobody has cash to buy anything and it is way to expensive to borrow money, because banks don't have any to lend because their capital base has been destroyed. Admittedly because the banks made plenty of mistakes.
You are as usual correct, it is conjecture on my part that Uncle Sam can make money with the Paulson Plan (God knows what Congress will actually pass). I think one of the victims of the current crisis is the efficient market theory. With the price of US corporations (i.e stock market) fluctuating by 500 billion to a one trillion dollars virtually everyday it is obvious that price and the intrinsic value of securities is way out of wack. I've got 100+ year old banks stocks that have been swing widely between the low 20s and the mid 40s for the last year. These aren't internet companies there boring banks. So if the market is constantly mispricing these securities it stands to reason that there is an excellent chance the value of these junk status MBS is also mispriced.
I personally believe the US Treasury bill are way over valued (but there isn't a cost efficient way of betting against them). I look at this as opportunity for US taxpayers to exchange overpriced T-Bills and Bonds for 700 Billion worth mortgages backed by Real Estate that a few years ago millions of people collective pay well over trillion dollars. (i.e. the purchased/appraised value of all of the real estate used as collateral for the mortgage was well over 1 trillion.)
I am not saying I know for sure if the taxpayers will make money. I certainly see the potential for making money. I also think that Treasury is a unique situtation to be profitable due to our low borrowing cost. What I know for sure is when Running Man says categorically there is no way we taxpayers will make money he is full of crap.
Never the less, the pontential profit is a distance second for supporting the Paulson, preventing a collapse of our financial system and protecting the taxpayers multi trillion investment in Fannie and Freddie bonds is the primary one.
