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Making Paper

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"Making Paper"

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One thing that I don’t think is getting an adequate amount of attention is that every well-informed person I talk to thinks the odds actually favor the government turning a profit on all these recent shenanigans. Basically, there were assets that were genuinely overvalued, but the real crisis has to do with a systemic cash flow problem that’s reduced the value of this stuff to basically zero. The government, however, has no cash flow problem and if it buys this stuff up for cheap and is able to hold it for a while and sell it off gradually will probably make money.

To help understand why in broad terms, the thing to realize is that the US government can borrow money on much more favorable terms than basically any other institution in the world. In general, borrowing money at those rates and investing it in just about anything would be a pretty savvy play. Selling Treasury bonds and using the proceeds to buy a broad index of stocks would, over the long run, make the government a ton of money. Normally, we don’t have the government buy up assets like that not because it’s a bad investment but because, politically, it’s deemed a bad idea to give the government that kind of stake in the private economy. But in times of crisis, those restraints go out the window.

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