In arguing that taxpayers might profit, in the end, through buying, holding, and then selling these opaque assets, Washington misses a basic point about markets.

Investors demand, or at least aim for, something called a risk-adjusted return in their holdings. When some vulture investors bought some of Merrill Lynch’s mortgage assets at 22 cents on the dollar, they did so not because they thought the assets were worth exactly 22 cents (minus expected inflation and a small premium during the investors’ expected holding period). If they wanted such an investment, they’d buy Treasury bonds.

Instead, they likely believe they’re worth something that would bring them to 22 cents plus a double-digit percentage-rate annual return. The riskier an investment, the higher the demanded return – and these securities that Congress is thinking of allowing the taxpayer to buy are very risky.

So even if it ends up that we’ve made a 3 percent return or what-have-you in a few years, we’re still losing from an investment standpoint, because the return that private investors would demand probably would have been more like 30-40 percent, even more.