Via Brad DeLong, a good point about the proposed bailout: Assume the govt. borrows money at 4% interest to finance the bailout. Now suppose the govt. buys the crappy mortgage-backed bonds at a steep enough discount that the govt. ends up making more than a 4% rate of return on that purchase.
Then the American govt. makes money off the bailout.
The question is: how big a discount can the banks afford to give the government without going bust? Is it big enough that the govt. (which can hold the mortgage-backed bonds for a long long time, unlike banks) can make better than 4% on them?
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