Bailout Blues

Both candidates want tax cuts and yet increased spending in some other areas of government. All this with an included 700 BILLION+ bail out. I know it’s the old “politician trying to win votes” concept but lets be realistic. Cutting taxes and increased spending all on top of a huge messy bail out does not make much sense to me. Ok…I am not an economics major but I do know how to run a house.

Let us pretend this was my household budget. It would not make sense to me to find a lower paying job (lower taxes)…buy more stuff (increase spending on programs)…and buy a huge home (bailout). If this were the case I would be declaring bankruptcy within three months.

Wait one minute. Isn’t this how the whole mess began? People got more credit….bought more stuff…and bought homes they realistically could not afford. Sounds like a vicious cycle to me.

So, with either candidate it seems we are in for a dark road ahead. The only winners will be the big execs who made millions from these companies. Oh sure the FBI is stepping in to investigate but what are they expecting to find that was illegal? Just greedy business practices convincing people to buy homes at inflated prices.

When did this idiotic practice start? Was it with the Bush administration? Maybe it was Clinton’s. No, I am sure this has been going on for years. The signs were written on the wall. For years we heard of the housing bubble. Someone in the government should have taken notice when the average Joe was buying a million dollar home at interest only loans hoping to sell it in six months for 1.5 million.

This was a clear risk even the average Joe should have seen. After the interest only period was over …BAM…huge…and I mean HUGE mortgages. Average Joe knew he could not afford it. This meant foreclosure…..this meant bankruptcy for Fannie and Freddie among others. Maybe average Joe thought someone would bail HIM out when he made a bad decision.

These companies and the homebuyers gambled and lost. Now we all are going to pay. This is only the beginning of a bad economic turn for the worst and the world will suffer.

To dig out we need to treat this like a household….stop spending on a lot of social programs…we have no choice…at least for a few years. I know a lot of people will be angry but it is time for tough choices. Either let the country melt down or cut back on spending.

These two candidates will need to make tough choices and stop beating around the bush on a plan. With Palin and Obama having limited experience I don’t see a silver lining anywhere.

With Palin and Obama having limited experience I don’t see a silver lining anywhere.

Not to be a stickler here, but Palin's experience in an executive position exceeds Obama and Biden combined. Least McCain has his military service as an officer to fall back on, whereas Biden's experience is yet another lifelong politician, which Obama has only a fraction of Biden's experience.

The 700 billion to 1.2 trillion dollar 'bailout' is simply liquidity in the market. The fed will be able to buy 'problem loan' packages - does this mean the feds will be paying top dollar for them? Nope, they'll be buying them for present value. The loans are backed by real property (in the case of housing), future careers (in the case of student loans), and vehicles (in the case of car loans.) Hopefully the student loans and car loans will not be forced onto the fed by liberals in congress.

In any case, those home loans that do fail will result in the foreclosure and sale of those homes, and recovered costs. Many of these problem loans will be converted to fixed rate 30 year mortgages through the existing homeowner bailout that congress already authorized.

The end result is that in actual real loss, the exposure if all homes were liquidated as soon as the loan was bought by the government is likely 20% - 140 billion isn't something to sneeze at, but since this is worst case, it's not as huge a line item as people think.

For the most part, however, the fed will likely recover the value of the loans, and perhaps extra. If it was as bad as you made it out to be, most of Wall Street would be in near rebellion right now. Considering that a considerable portion believes that the feds nationalized AIG, they would have no problem squawking up a storm if it was just a free ride being handed out by the feds.

Now, those who made money on these bad mortgages via fraud - they're the ones who have to start really worrying, as bogus documentation submitted to the feds will come back to haunt them.

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