Mark Cuban just wrote a really interest blog post suggesting that the government create an ETF with the assets it purchases as part of the bailout. The key point of this strategy is that the government would sell shares in the ETF to the private sector, thereby reducing the load on tax payers, and adding a level of transparency to the fluctuating value of the assets.
The idea is very interesting, and it’s hard to argue that anything requiring less tax payer dollars or more transparency would be a bad thing. The problem with this strategy is that it does not address the key problems with the bailout:
- If the ETF shares are sold initially at purchase price asset value, no one in the private sector will invest. The point of the bailout is that banks aren’t willing to sell their assets at the prices the private sector is currently attaching to them given the risk profile. The reason the government is stepping in is because it is the only buyer willing to pay above market prices for those assets.
- The ETF shares could be sold in auction, and the government could release full financials on all the assets. This would probably be sufficient to get the private sector to purchase vast amounts of the shares in the ETF. However, it will also cause the government to take an immediate loss on the value of the shares being sold, with no potential upside later on.
- In either case, the companies selling these assets will still be taking a net financial gain on the asset sales at the cost of the tax payers. This will still create distortions in the market (allocating resources to the players that deserve them the least, while robbing resources from everyone else). Likewise, the enormous losses accrued by the government (and the need to still finance them with public money) will serve as a further tax on the American people through depreciation of the dollar.
I applaud Mark for both putting new ideas into the fray, and also for being willing to put his money where his mouth is. But while the ETF idea has some nice features, it still won’t address the key issues of the bailout.
At the end of the day, as the guys at The Mises Institute often point out, when you have a major investment bubble, the only true solution is to allow the excesses to liquidate. Allowing the market to do it tends to be the fastest and most efficient path.
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