Thoughts on the bail-out

Here’s a thought.

A $700-billion cost to the American taxpayer would come only if every single one of the mortgages that the government buys up defaults … that’s a lot of defaults.

There’s a lot of people out there that will do whatever they can to keep their homes, which means a good chunk of those mortgages will get paid off.

Isn’t it possible that the Treasury is making one of the most astute business decisions it has ever done, by buying troubled securities at a deep discount, holding onto them, collecting principal and interest, and then, when they have a better idea of which ones are good, and which are truly toxic, selling off the good ones at a profit?

After all, the biggest issue with them is that they are now illiquid … their market value is based on the fact that no one wants to buy them, considering that there may be a large number of defaults; but what is the actual risk that $700-billion worth of mortgages are going to go into default?

Buried deep in the Campaign Wrap-up for 9/22:

Obama blames lobbyists, politicians for financial crisis – CNN.com

The Bush administration’s proposal to bail out the financial system is the centerpiece of what would be the most sweeping economic intervention by the government since the Great Depression.

The plan would allow the Treasury to buy up mortgage-related assets from American-based companies and foreign firms with a big exposure to these illiquid assets.

The aim is for the government to buy the securities at a discount, hold onto them and then sell them for a profit.

One Comment

  1. The biggest reason that no one wants to buy them is because even the banks that have them admit they don’t really know what they own. In many cases they are worth less than zero. Also he is not just stopping with the mortgages he is also gonna swallow all the derivative junk, stuff that in some cases is leveraged 60-1. The problem here is the 1 is not even worth anything. His plan is flawed from the start, because he has no clue what he’s getting in to.

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