The Fed Has A NEW Plan!

[CosmicWizard]

jimhcom wrote:

If you only knew how much this was going to cost you, you would be really really depressed.

Getting depressed isn't going to make it go away. It'll just add another depressed person to an already very long list of depressed people.

[GregTraub]

From what I understand, this has the possibility of actually making money for the gov't in the longer run. The RTC plan is for the treasury (not the FED) to buy all this "toxic" debt from institutions.....I certainly hope they are going to be buying this bad debt for a significant discount, like maybe 30-50 cents on the dollar. This puts the banks balance sheets in a better position, but by no means is making these banks money, they are still loosing 50-70 cents by selling these things.....their benefit is that they can survive, which is good for EVERYONE to not have a massive collapse of the financial system.

The govt now owns these pools of mortgages and many people now have Uncle sam as their mortgage holder, they pay uncle sam directly, and if they default the govt forecloses on the home and hopefully sells it for more than they bought the mortgage for (remember the mortgage may say the person owes 300K, but the govt bought that mortgage for more like 150K). We can only hope any profits gained from this will go to paying off the debt the gov is taking out to fund this whole thing.
In more likelyhood, the mortgages that are bought in this plan will be re-negotiated with the borrowers to great terms. If it's a homeowner, I easily see the govt saying, ok you owe 300K on your mortgage, but can't afford it, we'll knock down your principal to 200K and your interest rate equivalent to a T-bill (since that's what the gov is paying who they borrowed the money from) and viola, you can now stay in your home instead of selling it and driving the housing market down even further. Win for the gov cause they now have a solvent mortgage on their books, Win for the Homeowner, Win for the Housing market and economy. Lose for all those that don't get free money, but oh well, at least the money came out of the reckless banks pocket, and at least we've avoided a complete collapse of the financial system that would have affected them surely.

I think it sucks it has come to this, but I really see it as the best and only way out of this mess. And hopefully the tax payer will come out the winner in the end. There is certainly the potential to actually make money on these mortgages, and maybe we can use that $ to pay down the nat'l debt.

[tallrick]

Knowing how the government works, I highly doubt this. Whatever they do is always at a loss. Many of those "homeowners" who used exotic mortgages have not seen their incomes increase and have principals far higher than the traditional 3x income rule. How can they negotioate with a HUGE beurocracy to reduce the loan to fair value? The bailout could slow price declines for a while, leading to a much more devastating crash later. We can hope that the debt is purchased at a discount, but I fear that it will go for still inflated amounts and the net effect will be more debt for all of us.

[lchoro]

The RTC lost 150 to 800 billion dollars depending on the accounting. If you're old enough, you should remember that the budget deficits and fiscal austerity became a big issue after the RTC had to be bailed out in 1991-1992 with another 450 billion dollar funding package.

Banks will still go under since they don't have enough capital to absorb these losses. The default+delinquency rates of 10% overall and 20-40% for subprime/alt-a are simply too big for most to survive. They can't recover enough of their losses from the sale of the homes.

[bale002]

tallrick: Many of those "homeowners" who used exotic mortgages have not seen their incomes increase and have principals far higher than the traditional 3x income rule.

RedNC: If the taxpayer has to pay for these “bad loans”, who gets the house?

chuck22B: BUT, the only true way to prevent this from happening again is to eliminate/reduce the trade deficit.

I really don't think China wants to stay being the junk manufacturer of the world indefinitely.

KevK: It looks like alot of money but if we can get economic growth we can grow our way out of this

Production (productivity) - consumption = saving + investment (productivity)


Yank these unproductive pencil-pushers (including Alan Greenspan and golden-parachute CEOs), former construction workers, and illegal aliens out of these inefficient houses and raze them.

Build factories that make everything from shoes and socks to nuclear power plants, build basic barracks within walking distance of these factories, and put them to work.