Actually, providing more hope for investors to get their money back. If these funds go bankrupt, the investors will be big losers.
“It isn’t a bailout.”
I suppose that depends on what your definition of “isn’t” is. Welcome to wonderland.
What will ultimately happen is that the securitized debt instruments that contain the sub-prime debt (and in California, sub-prime isn’t the whole of the problem; Alt-A notes are now defaulting at a pretty good clip too) are going to be sold at a discount because the investors who bought said instruments aren’t going to see their expected rate of return. These investors are going to take a loss rather than bother with the meddling of the government in their bond portfolio(s).
The investors who really want their money back would find a way of breaking open the CDO’s, selling or writing down the sub-prime components, getting rid of any derivatives and keeping the better quality tranches inside the CDO (which in many CDO’s is the majority of the paper inside them).
If the Bush Administration had offered some help in de-structuring these silly structured investments, we could have sped up the rate at which the market could resolve this situation, but no, the Bush Administration took a very DNC-like approach and decided to just kick the can down the road to the next administration.
The future problem will be that the market will demand higher interest rate(s) for mortgage-backed securities based on the assumption that the government might again meddle in the bond market for political expediency.