Friday, February 6, 2009

The taxpayer giveth, the bankers taketh away

On the first $254 billion of asset purchases, the taxpayer overpaid by $78 billion, yet no one at Treasury tells us why.

Harvard econ Prof. Elizabeth Warren, testifying before a Senate Banking committee hearing underway now to judge the performance of the $700 billion bailout, said that the Treasury overpaid by $78 billion in its first round of investments into troubled banks.

Warren said that Treasury spent $254 billion to purchase assets whose actual value was only $176 billion, "a shortfall of about $78 billion," she said.

Warren said Treasury failed to "price for risk," and used a metaphor to explain: It's as if Treasury was looking at 10 paintings and promised to pay $1 million for each, even though "one is a Picasso, one is a Rembrandt" and the other eight are not.

"There may be good policy reasons for overpaying," Warren said, "but without clearly delineated reasons, we can't know that."

Warren said her group hired financial advisory firm Duff & Phelps, "which we got at half-price," she said, and leaned on other professors and experts to determine the value of the assets the government bought.

"They all hammered until they were confident" with their number, Warren said. They concluded that the government overpayment so far estimated recently by the Congressional Budget Office -- $64 billion -- was "understated.

Any chance these folks will be able to price the purchase prices of the new assets the taxpayer will be buying? Not!

So what's a trillion dollars for this stimulus bill?

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