Quote:
Originally Posted by VRM
Mike, I agree.
I hate regulation of any sort, but there is a point where a system needs to be put in place to prevent people from making a mess.
Rather than offer a bailout to companies (what is the term for corporate socialism?  ) Congress should re-regulate the industry. Nothing painfully oppressive, as that can curtail growth and profits. But I think that banks should be required to hold the loans they sell for at least a few years.
The other thing we might do that some others have talked about is offer the current fed rate for loans. That would allow people to refinance and not default on their loans, as well as give businesses access to cheap cash. This is not my plan, and I do not know if there would even be enough loot to cover what everyone would want (provided that the loans would get approved).
Anybody got any better ideas? I am not en economist, and while I think I understand the problem better than the average guy on the street, that is probably still not saying much.
Steve |
The $700 Billion may or may not be the way to go - the key point is the buy price - for example, if a mortgage backed security of $1,000,000 par value has a current discounted price of $800,000 will the Treasury buy that security at market and is the market price realistic? If that is the case, that security may be worth par some day in the future - therefore the Government will receive interest on that security, plus a capital gain. In theory, the current market price reflects what is happened within the pool of mortgages that make up the mortgage backed security, but that may or may not be the case - so, even buying at current market is risky business.
On the other hand, if the Treasury is buying at par, not at market - someone is taking all of us for a ride to hell.
A better plan is to not buy any securities from entities in trouble,
open the Fed discount window and allow those institutions to borrow needed funds at the current 2.00% rate. That will allow them to generate needed liquidity to make loans and more time to work out the mortgage backed securities problems - and take any hit on the value of those securities over time, versus the citizens of America taking the hit. Now, when and if an institution or two goes down partly due to no bailout, that's the breaks and they can go straight to hell.
Buying or bailing out is pure socialism.