September 30, 2008 - As of this writing, there is no bill to buy assets from banks and other institutions. The market was down 780 points on the day. By the time you read this, hopefully a bill will have passed, and we can look forward to some liquidity flowing into the markets. But nothing has passed yet, and it may be because there's some confusion as to what this bill does.

Second, no money is being handed to an institution to simply continue business as usual, and most signficantly, it is not to fund extraordinary pay for senior management. Any money received by an institution will be for a specific asset that the government will then own. There is no attempt to prop up a failing bank or savings and loan by handing a check to management. For every dollar used in the project, an asset is purchased, an asset, if bought correctly, that has the potential to pay off and make money for the government (hence, us, the taxpayers).

The math works like this: if the government can buy an asset at 50 cents on the dollar and many of the those assets pay off on schedule, then there's 50 cents made on the repayment of the principal, plus all the interest paid on the loan. That's very real profit and very possible, certainly not on all loans, but on some of them. Those profits can be used to offset the losses the government will definitely suffer from the bad loans that won't pay off. In those cases, both the principal and interest will be lost. Again, if these mortgages and pools are bought correctly, there's a good chance that some money will be made because while there will be losses, if the price is right, enough of the good loans will make up for losses and then some.

This is not some hopeful, wishful thinking theory. It's how the program will work, if the right people are used to buy the assets. They have to be well qualified, professional mortgage investors with a straight moral compass. There are plenty of them around Wall Street now as fixed income departments have shrunk rapidly. Some of them helped create these toxic pools, and one can argue that they would know these assets better than anyone else. The other side of the argument is that they created them so how smart would it be to let the foxes guard the hen house. In any case, there are plenty of good, smart people available to help the government do this right.

Don't be confused. This bill needs to be passed to help the credit markets flow again. They're frozen. While the Fed and Treasury have other ways to create liquidity, this is the most direct, long lasting benefit that can help fix the crisis. It's not the total answer, only part of it. But it's a big part. And it's not a bailout.

- Ted Allrich