In reference to the junk assets held by banks, the Post told readers that "If the government buys the assets at prices that banks consider fair, the Treasury would take a huge loss when it ultimately sells the assets for much less." It then points out that if Treasury paid the market price, then many banks would probably be bankrupt. The problem with the Post's assertion is that it has no idea what price the banks "consider" to be fair. They know what price the banks want for their assets, but that has nothing to do with what price they consider fair. It is worth noting that the article never discusses the possibility of simply having the government take over insolvent banks, a policy which gets around the problems discussed in this article and which has been advocated by economists across the political spectrum.
--Dean Baker
