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No Corporate Welfare

My friend (and co-blogger at Market Correction) Andy Morriss sent this spot-on letter today to the Financial Times.


With your characteristic British reserve, you report on the
calls for asset pricing transparency in the proposed financial “superfund”
intended to bail out holders of mortgage securities  without breaking into
a fit of giggles (‘Asset price warning for $75bn superfund,’ Oct.
22). There’s no need for a fund, super or otherwise, for transparent
pricing as such prices are set in an open market between willing buyers and willing
sellers. The problem for the banks holding these securities is that there are
no willing buyers at the prices they need to rescue their balance sheets. If there
were such buyers, there would be no need for a superfund. The entire point of
the proposed “superfund” is to boost the value of these securities
over what people are willing to pay for them.  Markets only work when bad
decisions are punished by loss of value. Many financial institutions made some
very bad investment decisions by buying these securities. We don’t need a
superfund to bail them out, we need to let the resulting drops in those
institutions’ share prices provoke investor revolts to get better risk
managers in place.

Andrew P. Morriss
H. Ross & Helen Workman Professor of Law and Business
University of Illinois