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 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."
We are doomed until and unless the Obama Treasury at least insists on not being lied to by the banks it is rescuing. I am not holding my breath. As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
Bankruptcy law. One of those basic establishment liberals who got seriously pissed off and moved a little to the left and became a lot more vocal early in the Bush admin. Early contributor to TPM, and founder of the blog Credit Slips. Her main issues have been the growing burdens on the middle class, and the growing class divide, plus lots of attacks on the banks. The main academic point person in the (failed) attempt to fight bankruptcy 'reform'. Disclosure: I knew her daughter and coauthor fairly well for a while.
