According to the administration's proposal, the federal government would buy up as much as $700 billion of illiquid mortgage assets at a deep discount from banks. The Treasury Department would run the program directly, unlike the savings and loan crisis of the 1990s when Congress created the Resolution Trust Company to spearhead a financial bailout.
"The federal government must implement a program to remove these illiquid assets that are weighing down our financial institutions and threatening our economy," said Paulson.
What remains to be seen is how the Treasury Department will structure the purchases and what price they'll pay.
The cost: While the proposal calls for the purchase of as much as $700 billion of bad loans, it's unknown what taxpayers would ultimately pay for the bailout.
The government will likely buy the assets at below-market rates and hold onto them until the market recovers. Ideally, the loans could then be sold at a gain..."
Although it is still not clear as posted above who will end up making up for the 700 billion dollar bailout, I feel it will eventually trickle down to the tax payers. Illiquid mortgage cannot be precisely valued but we cannot expect such a expensive bailout to occur without some eventual cost to the people. Are there any further thoughts as to the aftermath for such a great expenditure?
5 comments:
I think that the U.S government's proposed program to buy up illiquid mortgage assets is not really a government "spending" as many people companin, but that it's rather a govenment "investing."
The debts that the government is going to buy are very undervaluated because of their illiquidity. Thus, if the govenment buys them up and cashes them for long term, it would rather make money out of them.
Some companies' value of assets are higher than their debts and it takes time to cash those assets. However, if people in panic ask their money at the same time, those companies that might otherwise survive with the government's help would fall down as well.
In years, the U.S people would be satisfied by getting a portion of the profit from this government program.
although i dont personally agree with the fact that rich people get to take risks and then the government comes ahead and bails them out..
the fact of the matter is that too many people are affected by this, and the government needs to step in.. in this case.. socialism is a neccesity, not really just a choice..
if the fed doesn't act on it, they would get too much flak from the general public..
I think that the U.S government's proposed program to buy up illiquid mortgage assets is not really a government "spending" as many people companin, but that it's rather a govenment "investing."
The debts that the government is going to buy are very undervaluated because of their illiquidity. Thus, if the govenment buys them up and cashes them for long term, it would rather make money out of them.
Some companies' value of assets are higher than their debts and it takes time to cash those assets. However, if people in panic ask their money at the same time, those companies that might otherwise survive with the government's help would fall down as well.
In years, the U.S people would be satisfied by getting a portion of the profit from this government program.
I am still very undecided about this current plan for the proposed $700b buyout. I understand that the stock market need to be reassured so that there would not be a complete melt down. The problem I have is where is the government going to get this money from? Sure they might take some from our tax dollars but I have a feeling that the government is just going to end up printing up money from no where. I have a feeling that inflation is really going to start to rise and it's going to have the biggest effect on the lower classes. I also believe that this major stock market hit was the free-market correcting itself, in that these stocks were way over priced due to their over-priced assets. As we have all been thought in principles of econ. this could be the cyclical nature of the markets and we might have to go through a rough patch before everything becomes better.
In response to your comment, I think the tax payers are definitely going to have to pay for this $700 billion dollar bailout recommended by Treasury Secretary Paulson. And when they do, The proposal has started to stir a populist backlash, with many members of Congress saying the bill needs to be better geared to Main Street than Wall Street.
"This is not in anyway to deprive [Treasury Secretary Paulson] the opportunity to act. We totally understand the gravity of the moment," said Senate Banking Committee Chairman and Connecticut Democrat Chris Dodd. But, he added: "You cannot just turn over $700 billion of taxpayer money and not insist that that taxpayer is going to be protected in this."
Post a Comment