From a recent Deutsche Bank research note (bolded portions added for emphasis):
“One main stumbling block to the purchasing of troubled assets has been pricing, specifically how does the government price a diverse set of assets in a way that does not put the taxpayer on the hook. However, this should not be the standard by which we judge the efficacy of the plan, because a more prolonged deterioration in the economy will result in a higher terminal unemployment rate and a greater deterioration of the tax base. As such, the decline in tax revenues will crimp many of the essential services provided by the government. Ultimately, the taxpayer will pay one way or another, either through greatly diminished job prospects and/or significantly higher taxes down the line to pay for the massive debt issuance required to fund current and prospective fiscal spending initiatives. We think the government should do the following: estimate the highest price it can pay for the various toxic assets residing on financial institution balance sheets which would still return the principal to taxpayers.”
Pretty clear, eh? EitherÂ buy our toxic assets now, deferring the cost over the next generations of citizens, or risk a prolonged period of unemployment. Your choice.
You see, if I thought that “dimished job prospects” meant only that, then I might be for just letting the banks take their own medicine. The truth is that “diminished job prospects” is a euphemism for social unrest, in my opinion.
Regardless, the taxpayer is on the hook for this mess. Any one saying anything to the contrary is a liar.
To see the original blog that broke this story, go here:
The Planet Money Blog on NPR also has a good story on it: