Oh, what a party we’d have. We used that title once before and got a decent number of hits from it, and we’re nothing if not an opportunistic–albeit neophytic–SEOer, which is why we mention Lipstick Jungle, too.
Since August, when we began paying closer attention to our daily hits and the rankings of various posts, our silly little post during the Olympics, What Do They Want From Us?, about NBC’s promos for Lipstick Jungle remains among our most viewed articles
Actually, for new readers we’d like to mention that our reuse of the title is part of Spero Consulting’s green strategy of recycling still valuable material so as not to harm the environment. Perhaps we’re more gentle and caring because we’re majority-owned by a woman, or perhaps it’s because we are lazy, er, efficient.
Regardless, it is an apt title to introduce our criticism of Lucian Bebchuk’s op-ed piece in today’s (the September 26) edition of The Wall Street Journal, entitled How to Pay Less for Distressed Financial Assets.
Mr. Bebchuk’s entire essay summarizes to a single point: the government should pay only the fair market value for the distressed, illiquid mortgage assets and securities that financial institutions own (that don’t have market). Now, why didn’t anyone else think of that? Clearly, it takes a Harvard Law prof with, as the article mentions, a “white paper” to reach such a heady conclusion.
Presumably, the white paper’s argument goes something like this: let’s ignore for the moment that there is no market for these items, and let us assume that one exists. In that case, the government should pay no more than fair market value. Hmm, very clever. (Regular readers may recall that we occasionally use italics to signify deep and meaningful sarcasm.)
Now, we must admit that up to this point, we’ve been a tad bit unfair. See, Mr. Bebchuck’s essay actually makes three points, not just one. The second one is very similar to the first: pay fair market value for other stuff, too. So there is no need to dwell on it.
The third recommendation goes beyond either of the first two has to do with selling the illiquid securities that the government buys. We would negligent and misleading if we didn’t mention it. See, Mr. Bebchuk recommends that the government design optimal incentive schemes to sell the inventory of illiquid, mortgage-related securities at the highest possible price. Again, brilliant.
He recommends, placing the securities with managers who do not have conflicting interests–any good economic theorist could have continuum of them in a flash–and he concludes that competition will produce prices at fair market values in a jiffy. Brilliant, indeed. So, assume away conflicts-of-interest and have the government design optimal incentive schemes because we all know that the federal government is a very efficient designer of incentive schemes: see The Government Will Save Us! Not! for a recent example of the federal government’s efficiency at inducing cost-saving behavior. We’re sure that you could supply your own, too.
Interested readers are also encouraged to read a few posts from yesterday: The Uncertain Value of Mortgage Securities discusses the fact that no one seems to know how to value the securities and The Crisis and Free Market Critics provides a bit of detail about the nature of the valuation problem–see the aside towards the end, which is about CDOs. We also have a few other posts about the bailout in which we criticize the plan’s likely efficacy and oppose it for a variety of reasons. (Note that our argument against subsidization, or having the government pay more than the thingies are worth does not presume a market for them but does presume that they can be valued in some manner. Despite the upcoming double negative, we’re not being inconsistent or hypocritical by accusing Mr. Bebchuk of doing something and then doing it ourselves.)
Like most posts, we’ll probably revise this slightly in the next day or two.
