Toxic Assets
September 19, 2008
Financial Times reports that Stocks soar on rescue hopes, that a deal is being brokered which would empower the government to manage so-called “toxic” assets. The New York Times calls this the biggest bailout in United States history.
Q: Why are these assets “toxic” ?
A: Because they’re illiquid.
Q: Why are these assets illiquid?
A: Because nobody wants to buy them.
Q: Why doesn’t anybody want to buy them?
A: Because nobody knows what they’re worth.
Q: What about the shareholders who want to sell?
A: They must know something we don’t.
There is something fundamentally (and terribly) wrong with any system which forces the whole of its constituency to absorb staggering losses, in the form of bailouts for companies deemed Too Big to Fail.
We didn’t share in their profits when they were making money hand-over-fist, but now, we’re being asked to absorb their losses, and if and when these companies turn a profit in the future, we won’t be invited to share any of that, either.
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I wish I could find the quote again, but I was reading a Reuters article about this yesterday, and an economist from Harvard made a statement to the effect:
‘We privatize the profits and socialize the losses’
Which I thought was particularly apt.
Olly, I don’t think it was original.
http://bkmarcus.com/blog/2008/08/outsourcing-the-losses
When the system works, we’re all state capitalists, when it fails we’re all state socialists.
US GOV’T BAILOUT of Banks…
they have to do most of this stuff, otherwise we would probably be in another great depression. I would rather pay more taxes than live through a depression.
If you understand cause and effect, as wel……
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