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So my suggestion is that Governments should set up huge investment funds to buy up these assets at current market prices because then the taxpayer also has some prospect of reward should assets prices recover somewhat.
As Krugman and others keep hammering, buying the toxic waste at its "market price" doesn't make the banks any less insolvent. If anything, they can pretend they are solvent because they are not selling the assets and so they can pretend they are worth more than the market would give them for it. The problem of the toxic assets is not lack of buyers, but lack of sellers - the banks can't sell at the market price without instantly realzing losses that would render them insolvent.

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith
by Migeru (migeru at eurotrib dot com) on Sun Mar 22nd, 2009 at 04:38:43 PM EST

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