[jyl]

Fending off a repeat of the Great Depression is well worth $500BN, or $1TR.

And the govt will recover much of that upfront cost. The assets it will take on are not "worthless", as the reporter says. There is a decent argument that many of them have become undervalued in this financial near-panic that has seized the debt markets.

They are mostly mortgage-based securities, which have already been written down - as one example, MS is valuing its subprime-based MBS at 10-15 cents on the dollar and its Alt-A-based MBS at 35 cents on the dollar. Take a pool of 10,000 subprime mortgages, what percent do you expect to go into foreclosure and what percent of the mortgaged value do you expect the house to sell for? If you think the answer is 100% go into foreclosure (all 10,000!?) and 15% recovery on sale (a formerly $400K house resells for $60K!?), then the govt will be getting a fairly valued asset. If you think that 100% and 15% is too pessimistic, well, then it doesn't look that grim.

OK, I understand the MS marks may be an extreme case. But my point is, these are not worthless assets at all.

Recall in the 1990s the RTC was formed to liquidate $520BN and ultimately recovered $400BN for a net cost of $120BN, appx.

It is quite possible that RTC #2 will ultimately have a net cost of $200BN, if the upfront cost is $500BN.

But whether RTC #2 ultimately costs $200BN, $500BN, $1TR, $2TR - the cost of another Great Depression is higher.

Heck, the ultimate price tag for Iraq is going to be $2TR even if we leave in the next year. Which do you prefer - an adventure in the desert, or saving the country from a depression?