Important point is that government will buy up paper from banks, but may be able to sell these assets into the market in the future.
Mark to market means that if institution A is distressed and has to sell assets, at any price, institution B, which may be stronger, has to write down similar assets.
If the government can buy for say, 60 cents on the dollar, but later sell for 80 cents. The government might even make money.
Question is, how to keep the profits out of the hands of politicians.
"The de facto nationalisation of Fannie Mae and Freddie Mac made implicit guarantees explicit and doubled the US government’s gross liabilities, to just over 80 per cent of gross domestic product. This is substantial, even compared with highly indebted Europe and Japan.
A huge budget deficit is set to raise federal debt further. Among other rescue measures, the $85bn cost for the American International Group bail-out and the $700bn for the proposed fund to buy up toxic assets will weigh on federal debt. Yet the overall cost of the crisis to US taxpayers is not known, nor is there any alternative to government intervention at this juncture. An enormous bill looks likely.
In the long run, however, the net impact on federal debt will be much smaller than the gross sums, as few of the assets now purchased will prove worthless. Nevertheless, government finances will be more constrained than previously expected. Proposed tax cuts and spending plans by the presidential candidates look more implausible by the day."
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