In the LA Times today, Warren Buffett endorsed the bailout plan as "a rescue plan for America." He went on to say:

"If we could do the deal that is available to the United States government and have its staying power, and its borrowing costs, we would make significant money. I would love to have, if they buy the assets at market price, I would love to have 1% of the profit or loss that results from buying these assets from troubled financial institutions."

Okay, well, that suggests a second deal:

I hereby offer to sell, straight up, my family's share of the bailout, both payouts and subsequent profits, to Mr. Warren Buffett. If he'll write me a check for what it will cost me in taxes, I'll sign over to him my share of the profits, if any.

Seriously, if Buffett really "would love to have 1% of the profit or loss that results from buying these assets from troubled financial institutions," then I am all in favor of him ponying up $7 billion for 1% of the action.

Indeed, I would be feeling a lot better about this deal if Buffett, his buddy Bill Gates, and the rest of the Forbes 400 put together a syndicate to, say, buy 2/7th of the bailout for $200 billion dollars. I'd love for them to have a say in how it's spent as long as they had substantial skin in the game. Buffett has been investing billions in Goldman Sachs and GE in return for 10% interest and warrants to buy stock at certain prices. I'd trust Buffett to come up with a better bailout plan than Paulson or Congress ... but only if Buffett had billions riding on it himself.

By the way, Buffett offers a caveat on his prediction:

"If they buy them at market, they will realize a significant profit over time . . . but the key is buying at market prices."

Indeed. But if they buy them at market prices, how do insolvent banks get bailed out?

I'm guessing about $2 to $2.5 trillion in paper wealth has evaporated in California houses alone, with similarly scaled losses in the other 49 states' houses.

On top of that, there's a possibility that those losses in wealth would be much bigger if the entire financial system comes tottering down because of the mortgage meltdown and we go back to an economy based on trading salt for rifle cartridges.

But, preventing that general collapse isn't going to make those 4 to 5 trillion in paper losses go away. That wealth isn't coming back in the real world because that wealth never really existed.

Now, the big question that I haven't seen answered is: How much of the 4 to 5 trillion was wasted on consumer crap during the bubble as if it were real? I don't know. Personally, I didn't spend more during the Bubble because I never believed in the Bubble price for my home. But, I'm driving a 1998 Accord with 105,000 miles on it, while a lot of other people on the freeway are driving 2008 Lexuses with $4,000 rims, so it seems as if other people took the market price of their homes more on faith.

So, I'm left wondering whether $700 billion (or, I guess, $810 billion in the Senate's version) is going to be enough to prevent a collapse of the financial system?

UPDATE: So, how do you price financial assets if the market has locked up? I have no idea what to do with all the derivatives and other financial black magic, but the underlying mortgages aren't that complicated. The good news is that rents weren't much affected by the bubble. Rents tend to trend upward at a fairly stable rate over the years. In California, house purchase prices got wildly out of whack with house rents. We also have readily available on the Internet a vast amount of information on rental properties comparable to each mortgaged house — Dr. Housing Bubble typically looks at a half dozen comparable rental units for each of his Real Homes of Genius awards.

So, it wouldn't be that hard to come up with a relatively simple spreadsheet to value homes based on rents in that area. From that, the government could value mortgages. One big technical problem might be reassembling sliced and diced mortgages. But the biggest problem is that 4 or 5 trillion in wealth just vanished and some unknown fraction of that has already been sent.