I Don't Want to Be a Paul Ehrlich

I expect something like this: The government will spend 700G$ purchasing assets. Later the government will spend 300G$ more supporting the bailout plan, but will label it as something else or as "off budget". The government will over time sell its purchased assets for 800G$. It will then claim to have made a 100G$ profit.

Do you think that the government measure will include the cost of funds?

I think it may be a suckers bet. Just some quick points:

Some of these distressed securities are trading at 17 to 20 cents on the dollar. That's right down at bankruptcy levels. Lets say he buys the stuff at 50 cents on the dollar. Now, not only can the Treasury rewrite the rules of "default", keeping these securities alive, they can also pump tons of money into the economy. More importantly, 50% loss rates with 0 recovery would be pretty apocalyptic by any measure. If the problem is (as the Fed seems to be guessing) a liquidity problem, then just holding onto these suckers for a couple of years and selling them back out would net them a profit.

Depending on the asset managers they hire, they would have to work hard at losing money.

Given the government's normal methods of accounting, I think you'd be a fool to make a bet that would depend on reliable and meaningful numbers that stem from government accounting. I guarantee they'll show a profit, though we may have no idea how.

Color me cynical, but I think you're betting on a sure thing. In five years, will Congress and the President want to develop a new program to "recoup its losses"? The answer is surely, "Yes".

So the President will direct the Treasury Secretary to report a loss.

If this is something that can be mechanized relatively easy, can someone set up an intrade contract?

definitely a sucker bet.

Are we sure that the government measure will account for all costs? Will it account for inflation?

I can imagine many scenarios whereby you would win this bet under any *reasonable* measure, but lose it under many possible measures typical of political reporting.

Treasury invests $700Bil. Treasury prints a pile of money, inflation flirts with double digits for a few years. Government sells securities for $800bil, declares $100B profit, while real return was actually negative. 5 years is a long time for games like this to make a giant difference.