I don’t think it’s all that significant. I suspect uncertainty over implementation of the bailout plan is behind the lack of buying interest. Presumably the Lehman trustee in bankruptcy will be able to participate in the Treasury auctions, which could significantly increase the value of Lehman’s debt claims. But no one knows what the bailout will look like because Treasury hasn’t gotten on with it yet.
It’s like a bunch of boats in a harbor have holes in them and are slowly sinking. The harbormaster has gone out and bought a whole bunch of buckets and hired a whole bunch of bailers to bail out the boats, and is now neatly arranging the buckets on shore. He’s telling boaters to go ahead and get back on the sinking boats. Yet it’s not apparent when he is going to get around to doing the actual bailing out, or, when he does, which boats he will bail out first and how exactly he will go about the bailing.
So many people are whining about the “bailout didn’t work” when there hasn’t even been any bailing yet.
Very good explanation.
I should add that’s not the only factor - obviously the deleveraging going on at many institutions is taking a lot of potential players out of the game at the moment.
There isn’t any bailing yet, because the bailout plan was predicated on the idea that we’d buy up crap paper at some higher-than-market price.
So: how do we go about setting a price for this crap paper higher than the market?
Get that one question and two economists into a room, and you can power the world off the futile effort that will be expended.
That’s why the bailout won’t work.