At the heart of Andy Kessler’s argument in the Wall Street Journal today that the Hanke-Panke Bailout Plan will make money for taxpayers is the idea that “the Treasury and the Federal Reserve get to cheat.”
“It’s not without risk, but the Feds, with lots of levers, can and will pump capital into the U.S. economy to get it moving again. Future heads of Treasury and the Federal Reserve will be growth advocates — in effect, ‘talking their book.'”
That strikes us as a bug not a feature. Getting the government back in the business of inflating the housing market is one of the dangers of allowing the Treasury Department to buy up troubled assets linked to real estate. Inflating asset prices beyond market values through loose money, subsidies and government sponsored entities is a huge part of what got us in this mess in the first place.
What Kessler, who we usually find highly persuasive, is advocating is solving the crisis of the housing bubble with another housing bubble. The government, in an effort to make good on its promise to earn a return on the Troubled Asset Relief Program, will be tempted toward all sorts of lunacy. What’s worse, it will be able to sell programs intended to inflate the housing market—such as subsidized mortgages or guaranteed mortgaged backed securities—as basically free of cost to taxpayers, since the taxpayers would stand to profit.
One more thought: can we all stop pretending that delivering money into the Treasury benefits taxpayers directly? Even if the government somehow managers to underpay for the assets and earn a market-beating return, taxpayers will be the last ones to benefit. The money will be spent first to support government programs and pay down holders of Treasuries. Only afterwards, if lawmakers are feeling tax-cutty, will taxpayers get a dime. Or a nickel. Or a penny.
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