Greg Mankiw posted the views of a surrogate (his "smart friend") to dis the Paulson/Dodd bailout compromise (buy assets, get warrants/equity as well). His friend addresses the plan on its merits. But when David Leonhardt replied , also addressing the plan's central issues, Mankiw changes tack, arguing that it will screw up the auction process:
bank's stock, then the items being sold are no longer comparable. A
warrant on one bank does not have the same value as a warrant on
another. How then can you run a competitive auction to find which bank
is offering the best deal?
I suppose Treasury could hire option pricing experts to net out the
value of the warrant from the price of the package to find the net
price of the MBS. But doing so would certainly add noise to the process
and make it harder for Treasury's auction experts to make sure the
taxpayers is getting the best price for the securities it is buying.
Good point–undeniably true. But even more to the point, Mankiw is not arguing any of the points raised by his smart friend (refuted by Leonhardt). He's raising a new, somewhat mechanical, objection.
Much better use of his time and fine mind: figuring out an auction/pricing process that would work.