Imagine that many of the world’s central banks went into the market and bought tens of billions of dollars in mortgage-backed securities to help end the current financial crisis. The action would require that agencies to take on paper which may never recover in value, forcing tax-payers to cover the egregious mistakes of most large banks and brokerages.
A plan, for the citizens of countries on both sides of the Atlantic to bear the burden of the current troubled is being hatched and could be in place before the end of the month. According to the FT "If public authorities were to buy and hold sufficient mortgage-backed securities – rather than simply lend against them as they have until now – at prices well below face value but above current prices, they would set a floor in the MBS market."
The choice is whether to save mammoth financial companies in the hope of creating a back-fire against the growing crisis or to let it take its course and hope it does not severely damage the banking industry and exacerbate the present recession. Those arguing against such a move are likely taking the side of the man on the street who will see his own debt to the government grow through tax increases. But, he may be saving his job by keeping the broader economy from breaking under the weight of failures of large financial firms.
In essence, the tax-payer is being asked to pay to keep his own employment.
Douglas A. McIntyre