John Carney discusses a study by Joshua Coval, Erik Stafford and Jakub Jurek showing that low prices for toxic assets are fundamentally correct, implying banks holding those assets are insolvent.
Rick Santelli Loves Harvard Study Showing Crap Assets Aren’t Underpriced
Courtesy of John Carney at ClusterStock
Just about one minute and fifty seconds into this video, CNBC’s Rick Santelli reads from the study that demonstrates the crap assets held by banks are not being incorrectly priced due to illiquidity.
Need a quick catch up?
- Geithner’s public-private partnership plan aims to buy up toxic assets which he says are underpriced because of an illiquid market. If he’s right, the government and its partners should be able to make a killing by snatching up underpriced assets and selling them when the market recovers or holding them for their cash flow.
- Unfortunately, Geithner’s central claim–that markets are mispricing crap assets–is just wrong. The study by Harvard’s Joshua Coval and Erik Stafford and Princeton’s Jakub Jurek shows that the low prices for toxic assets actually reflect the fundamentals.
- This means that the banks are legitimately insolvent, and any attempt to buy the assets at above market prices is just a transfer of wealth from taxpayers to bank executives, shareholders and bondholders.
- Read the paper right here!
How much longer will Tim Geithner be able to keep ignoring this fatal flaw in his bailout plan? Or will he just decide to ban economic studies by current Harvard and Princeton professors? (Presumably, former Harvard and Princeton professors–Summers and Bernanke–will still enjoy the First Amendment.)
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