Decent commentary on the bailout is hard to come by. Certainly most "financial press" fails to fit the bill. It is a pleasant surprise, then, to see Posner describe the issues with something like clarity and aplomb.
A complicating factor was that the value of those securities was and is very difficult to determine, because each security represents a share in pieces of many different mortgages. The bank that owns the security cannot readily determine the value of all those different mortgages, since it has no direct relationship with the mortgagor, having sold the mortgage to the entity that issued the mortgage-backed securities.
If the Treasury pays the actual value (if anyone can determine what that is) of the securities, it will not be injecting new capital into the banking industry, but merely swapping one form of capital for another. If the Treasury pays more than the securities are worth, then it is contributing capital to the industry all right, but it is also enriching the owners and managers of the banks, which creates the familiar moral hazard problem as well as upsetting people by rewarding careless management practices. The more it overpays, the most costly the bailout plan to the taxpayer.
There is a rather serious issue here that has gotten only the smallest bit of attention. How difficult are mortgage backed securities to value? And, given that they are difficult or impossible to value, is it a coincidence that the Treasury seems to be using this opacity to funnel some extra cash.
The $700+ Billion Bailout [The Becker Posner Blog via Broken Symmetry]