With all due respect, how the hell do you know this?
The so-called crisis supposedly stems from the fact that no one can determine the value of these assets.
If they were objectively worth $30, the bank would write them down to $30 (like every other business in America has to do with its bad debts) and life would go on.
Instead the banks get to unload them on the taxpayer at some indeterminate amount, probably less than face value but I bet a lot more than what they will finally be worth when the housing prices finish dropping to normal levels.
And please don't get me started on "AAA" asset ratings pulled out of somebody's AAAss.
A foreign investor bought insured AAA assets at say $100. They will now be selling them back to the US government for $30.
With all due respect, how the hell do you know this?
The so-called crisis supposedly stems from the fact that no one can determine the value of these assets.
If they were objectively worth $30, the bank would write them down to $30 (like every other business in America has to do with its bad debts) and life would go on.
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I used the $100/$30 as an example. How do I know this? Well, I am a CPA and CFA that follows the market. And, I have been reading many of the new articles on this for months, unlike many of the posters on this thread!!
As for the writedowns — most investors have already written these investments down to 30 cents. Are you aware of the accounting rules that require “marked to market??”
The reason governement intervention is needed is because no one trusts the market has hit bottom, even at 30 cents on the dollar, until there are sales of these securites. Everyone is panicked and doesn’t want to buy. That is why the government is stepping in as the buyer of last resort. We can get the market going again with the government purchase. They offer 30 cent. If another investor thinks there is more value they can bid higher.
Yes, it is not a pretty situation but there is one central question. Is a property that was sold for $100,000 three years ago now only worth $30,000?? If it is worth more, the government makes money. If not, IMO we have bigger issues!
The problem is that after the bank writes them down to $30, it lowers the banks capitalization so much that they need to sell the assets to get cash. But nobody wants to buy them, because nobody has cash.
The government is taking them for cash, in the hopes that it will free up the markets to go back to normal buying and selling. After a couple of years, the system will be working smoothly again, and the banks will be able to buy back these assets, or at least some of them.
on the other hand, some of these are mortgages on slums in the city that were way overpaid, by the liberal interest groups, in cronyism deals to shady developers. A developer buys a $100,000 rental unit, spends $100,000 making it into “condos”, and sells 2 million worth of mortgages for the property, collecting a windfall, while the banks look the other way because they had to make the loans because of CRA regulations.
In that case, the government could lose a bundle, plus the democrats will argue that the goal should be to let people who can’t afford mortgages OR to keep up a condo STAY in the housing, with the government subsidizing it.
That is my big fear. I’m not afraid of middle-class neighborhoods, I’m afraid of all the slum-lord democrats who made big bucks extorting the banks, and who now will be pushing government to use this “opportunity” to provide housing for all.
Of course, this will trap people in dependency, and hurt the cities, and be a drain on the government treasury.
But already Obama is making waves saying that the goal should be to bail out “main street” as well as “wall street”. In fact, the entire bailout is for MAIN STREET, not WALL STREET. Most of the people who own stocks in the brokerages are getting hammered. We are bailing out the banks because that’s where main street has their money and where main street business gets loans.
What Obama means is to make mortgages “affordable” for people, by writing down asset values and lowering interest payments. It will be more big-government giveaways to the poor, who will then vote Democrat.
Government is Robin Hood, and we’ve already lost because over 50% of the people think it’s OK to tax rich people to pay off poor people, since 50% of the people come out ahead, or so they think.