> the market has already voted with its dollars that it doesn't think that the underlying assets are enough to cover outstanding obligations.

What obligations? We're talking about bundles of loans. There's some cost of servicing, but they're cash-positive.

We don't know what the default rate will be and we don't know how much can be recovered from forclosures, but do you really think that the folks who paid $0.22 on the dollar for Merrill Lynch's portfolio are going to lose money? (We also don't know whether Ford or GM will pay off its loans.)

I'd happily pay $0.25-$0.30 on the dollar for a piece of these packages.

However, if I'm not allowed to buy these assets for my benefit, why should I be forced to pay through taxes to buy them?

What is it you know that the market doesn't? Why is it no private company was willing to pay 25 cents, but you are?

If you know more about the situation other than a hunch that they'll be worth more then 25 cents, I'm really curious to hear it.

It isn't that "no company" is willing to pay 25 cents, it's that many of the "qualified to buy" companies are unwilling to do so while others are buying as much as they can afford. Me (and you) are locked out.

As to what I know, do the arithmetic with some horrendous default and forclosure recovery rates and see what you think the net present value of these loans is. (BTW - It's not just securitized home loans. There are also corporate bonds that are selling at a significant discount. Some are bargains, some aren't.)

However, in a very real sense, it doesn't matter what I know. If I'm willing to risk my money, why should the govt risk yours?

Well, there aren't enough people (or corporations) willing to risk their money with little to know knowledge of what is going on to do what the government needs to.

You can't do any basic arithmetic where credit default swaps are involved to compute EV. It's to the point where even the people holding them don't know how much they can potentially be on the hook for, but it's a far larger number than any of the mortgages they're based on. A foreclosure rate of even 10% can easily wipe you clean if you're betting 10x on it.

I will totally pay 1 cent for all those "toxic loans". I'm bound to find somebody who will pay at least 1 cent of their loan back. Eventually somebody will pay 2 cents, etc. until you get a fair market value.

Not all of these toxic assets are loans but essentially insurance, i.e. credit default swaps.

http://en.wikipedia.org/wiki/Credit_default_swap

If you bought some of these for 1 penny you would be obligated to pay out money to cover some of these bets that have already gone bad.