Tuesday, December 9, 2008

Hindsight: Taxpayers ripped off?

The AP reports that the preferred shares of banks purchased by the Treasury have lost $9 billion in value already. On the surface, it would seem that taxpayers over-paid.

However, I have explained earlier that taxpayers are among bank shareholders, and the Treasury funds went straight to those shareholders. In hindsight, those lucky shareholders received a good price for the stock they sold to the Treasury.

This is not a situation where taxpayers were ripped off, but rather a situation where some taxpayers got a bad deal and others got a good deal. Moreover, if you are among the former it is your own fault, because you could have sold bank shares when the Treasury was buying.

disclosure: long XLF


Bob Murphy said...

I'm not following you. I never owned any bank shares, and I pay a lot in taxes. So I'm thinking I got ripped off. How is that my own fault? I should have shorted the relevant shares when the Paulson plan passed?

sugam said...

By that logic, if the treasury gives billions to a company and the firm simply distributes the money as dividends, it would be a bad decision on the part of the loyal taxpayers who were stupid to not gamble money on an insolvent firm and still paying taxes.... what sense does that make? My preferencial treatment to the chosen few 'taxpayers' on the expense on all taxpayers?