[jyl]

Prices: suppose typical subprime/AltA MBS is marked to 80-90 cents on typical banks' books, and quoted at 65 cents, but distressed sellers are getting only for 20-30 cents. I don't have best data but this is probably in the ballpark.

Values: hold-to-maturity value basically depends on how many mortgages go into foreclosure, and how much those house prices fall from original purchase price to foreclosure sale. I posted some scenarios in another thread. I came up with range of 40 cents ("depression" scenario) to 80 cents ("good" scenario). Your views may vary of course, some of you probably think 100% of these mortgages get foreclosed and the houses/land are worth zero $.

So, potential outcome range is wide. Govt can buy $700BN worth of mortgages and MBS for anywhere from 30 cents to 80 cents, can sell for anywhere from 40 cents to 80 cents. So gives me a likely range of ultimate return -50% to +160%. Your assessment may vary.

I personally am assuming that govt will buy $700BN of mortgages, hold them for 5 years while receiving about $50BN of net interest, then sell them for $350BN in 5 or so years. So ultimate net cost around $300BN, or about 2% of GDP.

(Interest - govt will be paying treasury bond interest on the $700BN - say 3% on all $700BN - and receiving subprime/AltA mortgage interest on the portion of the $700BN that is performing - say 7% on 60% of the $700BN. So govt will receive net interest, maybe $10BN/yr - more in early years, less in later years.