An interesting article on an interesting academic paper, and at least one blog post expressing reservations about the paper's conclusions. First, the article (I like "crap assets" as an alternative to "toxic assets": far preferable to the ridiculous "legacy assets"):
Geithner Wrong, Crap Assets Correctly Priced, Say Harvard And Princeton Profs
Next, the interesting paragraphs from the academic paper (which appears to be online only in pdf form--I had to do some reformatting/retyping; this might be the first place where a good chunk of it appears in searchable html form, though I could be wrong):
Read the full paper.
Finally, a sharply dissenting view from the blog Economics of Contempt; his point is that the paper's analysis is not of mortgage-backed securities, yet it claims to draw conclusions about them:
On March 23, 2009, the Treasury announced that the TALF plan will commit up to $1 trillion to purchase legacy structured credit products. The government's view is that a disappearance of liquidity has caused credit market prices to no longer reflect fundamentals. ... The main objective of this paper is to determine whether …fire sales are required to explain prices currently observed in credit markets.
Read the full blog post (though I've given you most of it).
The criticism seems sound, but what's interesting is the very suggestion that the "firesale" scenario is imaginary. If they are right (even if the blogger is right that their evidence doesn't support their conclusion), then the bailout represents a huge transfer of wealth from ordinary folks (I hate the term "taxpayers") to shareholders and bondholders. If anyone has a better grip on this than I do, please leave enlightening comments.