The “Bailout Bill” has been passed and the Treasury will soon begin buying “distressed assets.” Many have spoken out against the plan due to the supposed “cost” to taxpayers.
What I think the critics don’t understand is that the $700 billion is not a “cost” to taxpayers at all; it is an “investment” on behalf of the American people.
With the unprecedented levels of distress in the markets the Treasury intends to wade into it’s hard to imagine the Treasury not profiting on the purchases. And as the chart shows above, the cost of capital for the Treasury is roughly one-half of one percent.
So we have the Treasury buying assets priced to yield, in all likelihood, double digit returns and a cost of funds at less than one percent. No wonder Warren Buffett says he would love to take a piece of the action.