Ben Bernanke and Hank Paulson beat the bushes last night and found some members of a great silent minority to voice support for their bailout plan.
The supporters included Warren Buffett, who said on CNBC this morning that implementing some form of the plan was a necessity (and the expectation that the government will soon follow through on it was part of his reason for deciding to invest in Goldman Sachs).
However!
Even Warren thinks the proposed pricing plan is ridiculous. As a reminder, Paulson and Bernanke want to buy trash assets from banks at a theoretical "hold-to-maturity" price that is well above the current market price. The trouble with this is that the "hold-to-maturity" price--if actually different than the market price (unlikely)--is not stamped on the assets like a price tag on a can of soup. The market is generally recognized to be the best estimator of "hold-to-maturity" value on the planet. So to suggest that a tiny team of public servants can glance at the assets, determine a fair price, and then not get taken to the cleaners is absurd.
Warren recommends that the government buy the trash assets at market value. Even this is a gift, since banks have no doubt done everything they can to avoid taking the full losses they should. But paying market value is a heck of a lot better than paying some theoretical "hold-to-maturity" value that rewards the banks for making dumb-ass bets.
Why don't Bernanke and Paulson want to pay market? Because they don't think the banks will sell their assets at that level. To which I say, "tough."
If you want the banks to play ball, set a time limit (sell your stuff now or forever rot in bankruptcy court). And demand an equity stake in exchange for your money--because you deserve one.
On the latter, note that Warren Buffett didn't buy trash assets from Goldman at a huge premium to market value. On the contrary, he let Goldman keep its assets and invested in a senior preferred stock paying a 10% dividend, with a huge bonus warrant kicker on the back end. The government should drive a similarly hard bargain.
The economy is not going to recover immediately regardless. If this means waiting until banks realize that they're screwed to bail them out--and, in the process getting as good a deal for taxpayers as the government got on AIG, et al--then so be it. Whatever happens, the government cannot reward banks for their idiocy by buying $700 billion-worth of trash assets at a premium.