The Untold Story behind Foreclosure Crisis Bailout
March 3rd, 2009
There has been much hype about the magic figure of $700 that will help Wall Street. But story behind the foreclosure crisis bailout by the government remains untold. How much will it really pinch the taxpayer? The Treasury and the Congress are in a huddle about the details of this mother of all bailouts for the financial sector. Some of the legislators are shouting that the amount might well spin up to $1 trillion.
According to the plan the Treasury Secretary (at present Henry Paulson) will have full authority to purchase “residential of commercial mortgages and any securities, obligations, or other instruments that are based on or related to such mortgages.” There is a suggestion that the clause should be expanded to include “other assets, as deemed necessary to effectively stabilize financial markets.” Every three months the secretary would have to regularly report to the Congress starting from the date of the ruling.
The bill got stuck over few issues – trimming the pay packets of the bank executives, more help for those facing foreclosure and stricter supervision over the activities of the financial sector. The Democrats are especially vociferous on the last two points.
The big question at this point asked Giri Cherukuri of OakBrook Investments, “How is the government going to buy these securities, and what they will pay, how that reverse auction will work.” The public wants to know if the government can meet the expenses and if it fails who is going to pay for the gap?
According to The Economist it seems inconsistent to think that by taking over the government will turn bad debts into profitable ones.
Paulson said that the bulk of $700 billion would come from payments of mortgage holders. Also, may securities that are defaulting speak of liquid cash. But The Economist argues that these securities or paper “no longer trades.” If they had then the financial bodies would not have collapsed.
The counter argument is that the government will purchase these securities and wait for time to allow their value to increase. This will replenish federal coffers. The government will sell the bad debts as debt securities and the investors who purchase these, and not the taxpayer, will pay for the bad debt. Bu why should investors knowingly opt for bad debts? The answer is that the stamp of government guarantee changes the complexion of the debts.
Repo Houses for Sale
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- Repo Houses for Sale in Michigan
- Repo Houses for Sale in Texas
- Repo Houses for Sale in Indiana
- Repo Houses for Sale by State
- Civil Courts are Clogged by Staggering Number of Foreclosures
- Scam Companies Are Proliferating, Thanks to Foreclosure Crisis
- The Obama Government Aggressively Responding to the Foreclosure Crisis
- Foreclosure Measures Being Discussed by Congress and HUD Secretary
- Ben Bernanke Facing Brickbats As Well As Kudos for His Foreclosure Mitigation Plans
- House Builders and Mortgage Associations Wake Up To the Benefits of Empowering Judges to Modify Loans to Avoid Foreclosures
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