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George Nemeth · Seeing Green
October 1st, 2008
I only need 2 Prius and probably not that many solar panels:
Sure, the $66,666.67 per household may not be enough to buy a Tesla Roadster, but this money could go a long ways towards stimulating a green economy. If $700 billion was distributed to every US household for green technologies, each household could buy:
* 75 solar panels that produce 200 watts each
* 3 Toyota Prius
* 25 wind turbines that produce 3.4 kWh per dayWell, you get the idea. Rather than dividing the money up among households, the investment could turn our economy green on a larger scale…
Imagine a $700 Billion Bailout for the Environment : Red, Green, and Blue
Last 5 posts by George Nemeth
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October 1st, 2008 at 7:04 pm
Hey, why don’t we just spend it on booze, live music, and a Michael Symons catered smorgasbord? We could put the lights out on the American economy with one hell of a party.
Seriously, though, this green spend isn’t much of an idea, at least in terms of achieving anything economically. The $700 billion being proposed in Congress isn’t “spending,” like a so-called fiscal “stimulus.” Which doesn’t work in stimulating the economy, anyway, but does increase the public debt.
What is being proposed for the financial markets is that the government buy certain assets, basically mortgages. At some point, they will sell those mortgages and get our money back, or wait until the mortgages mature and get our money back. There’s a difference between buying assets, or investing, and buying consumer goods, like Prius’, or spending.
As to the solar panels and wind turbines, neither wind nor solar energy is remotely close to being able to generate energy at market prices. The outcome of those “investments” (which presumably would come along with a mandate for power companies to buy their output at a profit to the solar and wind companies) would be higher energy bills for you, me, and all other Americans. That’s what they have in Germany and other places where the source of energy is mandated.
If you really want to produce clean energy at market prices, let’s spend the $700 billion on a new generation of nuclear power plants. They’re cleaner than any other form of energy.
I don’t like the rescue proposal any more than you do, but remember this: nationwide, only 3.5% of mortgages are in default. Yes, banks and others will try to offload onto the taxpayer the securities containing the worst mortgages, and the default rate in those may be higher. But the securities have significant value, as long as most Americans keep paying their mortgages. I saw one estimate that, once markets stabilize and home prices rise, the $700 billion could turn into between $1.2 and $2.2 trillion–enough to pay down the national debt considerably, balance the budget, and still pay for a bunch of nonsensical new spending.
October 1st, 2008 at 9:13 pm
Jonathan,
How would the gov’t identify and buy those toxic mortgages, CDOs etc? I see an opportunity for an intermediary to be engaged by the Treasury to actually complete the transaction (for a fee of course).
There was a recent WSJ article calling this bet Paulson’s Folly, referencing Seward’s Folly and the “disastrous” acquisition of Alaska.
All this being said, how come there is no trading among asset holders in an attempt to buy mortgages on the cheap with the expectation of getting a slight premium from Uncle Sam?
October 2nd, 2008 at 5:53 pm
Justin, you have identified the central problem with this proposal, which is that there is a risk the government will overpay for mortgage-backed securities. The way to do this would be to hold an open auction in which the Treasury would be only one bidder. JPMorganChase, Citibank, and Warren Buffett have been buying in this panic (remember Jimmy Stewart’s comment about Potter in “It’s A Wonderful Life?”) and might bid on these securities. So might hedge funds, sovereign wealth funds, and others who are sitting on the sidelines with piles of cash, waiting to buy.
That would pretty quickly identify the floor price for these securities. It is also likely that mark-to-market rules would have to be suspended until trading regularized to avoid non-selling banks from having to take further hits to their capital base.
My take on why there is no trading among asset holders is because fear has overtaken greed, which is an irrational emotional reaction (again, the calm heads are buying) and because these securities are so complex that nobody can unravel them to determine their underlying value. This is probably why Treasury will buy and hold, letting markets and housing prices stabilize.