I remember reading one of Gary North's older articles where he was discussing shortages. Mr. North wrote that whenever you hear of a shortage, the first question that should come to mind is: "At what price?"
Well, Peter Schiff uses the same line of thinking when discussing the $700 billion bailout...with the shortage in this case being buyers of mortgage bonds.
Mr. Schiff writes:
"We are being told loudly and repeatedly that the
gargantuan mortgage bail-out package is necessary because illiquid
mortgage-backed securities are clogging our financial arteries,
threatening the economic equivalent of cardiac arrest. The idea of the
plan is to transfer these supposedly valuable, but currently
unmarketable, assets to the government so that private institutions can
freely lend once more. The monumental flaw in this argument is that the
mortgage backed securities are in fact highly liquid, just not at the
prices the owners would like to receive.
bonds are just like houses. They won’t sell if the owners stubbornly
refuse to drop the price. However, they can find buyers if they
acknowledge reality, and lower their expectations accordingly.
government tells us that if these assets are held to maturity their
full value will eventually be realized, and that it is only because of
a lack of current liquidity that their value is not reflected in the
market. However, as many private transactions have shown us in recent
months, these assets will find buyers at the right price. These are not
overly exotic assets but relatively straight forward mortgage
obligations. The inability to find buyers is not a function of
liquidity but simply of price. The government is seeking to 'create
liquidity' by overpaying."
Don't miss Lew Rockwell's podcast with Peter Schiff.
It's a powerful 12 min.
Oct 06 2008, 01:42 PM