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| The big Bailout http://tonyd.freeforums.org/the-big-bailout-t412.html |
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| Author: | TonyD [ Wed Oct 01, 2008 5:44 pm ] |
| Post subject: | The big Bailout |
Are you for or against it? Hey, it's only 700 billion dollars given to the guys that actually caused this mess... |
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| Author: | Angelita [ Thu Oct 09, 2008 3:24 am ] |
| Post subject: | Re: The big Bailout |
It's actually worse if the companies go out of business. In that case, the executives, because of their contracts, get paid with the creditors, not with the stockholders. With the bailout, the federal government suddenly becomes the "owner" of billions of dollars of mortgage backed securities, and might accidentally make a profit on the mess! |
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| Author: | TonyD [ Thu Oct 09, 2008 3:52 am ] |
| Post subject: | Re: The big Bailout |
You're dreaming. It works like this. Most of that debt is "toxic" because it's the result of the subprime mortgages. Basically, they make a loan to a guy $300K for a house. Normally, he'd pay a high mortgage, but the bank tells him, as long as the the market's stable, he can pay a rate that's more like you would pay if you borrowed $100K. Unfortunately, the market tanked, driving his mortgage payment too high for him to afford. He goes broke and the bank forecloses on the house. Let's say he put $50K into the loan of $300K. The bank now owns the house and needs to make up $250K just to break even or more to earn the interest they would've earned. Unfortunately, the housing market, which was already inflated far beyond real value, has dropped the house value to around $200K. Now the bank can either sell the house at a loss or hold onto it losing money until the housing market recovers. Since the market was artificially inflated to begin with, the house won't recover its value and the bank won't recover its money. The government "buys" the rest of the loan at $250K. We'll never see the whole amount. Multiply that by thousands upon thousands of loans. Additionally, all those people lost their homes. If you let the market adjust, those people would still lose their homes but other buyers could come in and buy the houses at their real, lower value. Eventually, that would set the market right. By injecting the 700 billion dollars to keep the market artificially high, you slow down the normal recovery process that's inevitable. -Tony D |
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