It’s All About the Price

The debate on what the Treasury should or will pay for mortgage-backed securities has moved fast in the last week.  Last week, Mr Paulson said it would be “market prices.”  On Tuesday, Mr Bernanke said it would be “close to mark-to-model prices,” which you can presume would be above, and perhaps substantially above market prices.  Since then, Mr Bernanke seemed to back track from that statement, towards some version of market prices.

But what are market prices or any other prices in this situation?  You need to answer this question to know whether the Treasury is intending to overpay — or whether, after the fact, you can figure out if they did in some meaningful sense overpay.

We attempted to sort this out in The Price of Salvation on the Financial Times website (Economist Forum).  It’s hard to say if any of this is getting through, but we are a little bit encouraged by the reaction.