[Pessimist]

The load agencies I mentioned are currently under scrutiny for padding their portfolios w/ various loans (aka cherry picking) to bolster their bottom line. Leaving aside any argument about whether a quasi gvt body should be in the mortgage business to make a profit, this obviously means they carry some loans on their books.

In the event of a massive default, like I said, "guess who'll pay?" Its not really that there's a hard and fast requirement for the gvt to step in, but in practice they'd have to given the size and scope of the debacle.

Secondly, re the banks eating the cost: Hearken back if you will to the S&L crisis of the 80's. Who picked up that tab?

Need I say more?

[KC_for_Freedom]

Secondly, re the banks eating the cost: Hearken back if you will to the S&L crisis of the 80's. Who picked up that tab?

Recall in this case that the government agreed to reimburse the S&Ls for losses owed to their "depositors" they had no requirement to reimburse borrowers. When the S&Ls went under because the S&L loaned depositors money (all of which was covered by the government) on bad loans, the government was on the hook to protect the S&L depositors. The borrowers were still on the hook for the loans unless they could declare bankruptcy in which case the banks took a loss. This loophole in the depositor protection was fixed and new limits for S&L deposits on hand were implemented. and deposits are now only protected by the FDIC and savings and loan group with the same function, (Up to 100K) per depositor. But this does not mean the gov steps in to cover bad debts.

I believe this "crisis" will not result in a massive government bailout. But I guess we will see.