I don't think a lot of folks understand this win-win scenario. Let me repeat: The taxpayers own the bonds the Treasury buys; the taxpayers own the cash flows generated by the bonds; the taxpayers own the profits when the bonds are sold; and the taxpayers benefit when the profits and cash flows are used to pay-down government debt.
The troubled assets purchased by the Treasury right now are likely to be very under-priced because of the chaotic and frozen market conditions. But over time, through monthly cash-flow payments or through loan sales, taxpayers will get all their money back and in great likelihood a handsome profit.
The troubled assets are underpriced because they're troubled. They're based on bad loans. Many of them have or will default unless the borrowers get some kind of relief.
Thus there's no guarantee that those assets will appreciate as Kudlow predicts. Of if they do appreciate, it will be because the Democrats in Congress get their way and vote a huge subsidy for the foolish homeowners that bought more house than they could afford. Either way, there's a decent chance the Paulson plan will in fact result in a government bailout for someone: Wall Street, unwise borrowers, or both.