Fat cats huh? You mean people being threatened with foreclose and small businesses trying to get a loan? Yeah. This is NO bail out. Not in any sense of the word. The government will be BUYING securities. They will not be giving anyone any money. Read the ****ing bill already. Get your **** straight. The bill that will be rewritten or written anew will hold even more benefits for the people. Do you still not understand that the government will have a decent chance at SELLING all the assets it buys for PROFIT?!
I do not think the bill mentions the price to be paid for these assets. If it is the "hold to maturity" price then it will be above the mark to market price. I would highly doubt the government makes any money on this deal. They are not going to low ball the banks, because that causes further write downs, thus setting off neutron bombs in pretty much all the at-risk banks. You can suspend mark to market accounting, but then banking transparency goes from bad to worse. That is the what the bill on Monday proposed doing, you will see there is a clause about suspending FASB 157.
The great lie in all this is that these assets are not illiquid by nature, they are illiquid at the prices the banks have in their books. The banks have overvalued these assets, and do not want to face the music. Want proof? Look at the write downs JP Morgan and Citi took after their acquisitions of WaMu and Wachovia.
If you look at housing supply numbers, and think about just how crazy the prices were when these mortgages were originated, it is likely this toxic paper is pretty close to worthless. Plus we have no idea on the default rates of these mortgages as housing prices continue to decrease.
The conditions you describe are what happens when credit seizes up, this bill does not really address that problem. It provides the banks some breathing room, but there is no guarantee they will loan again. Incidentally, if you look at what the massive injection of fed liquidity has done to the LIBOR rate, you will see that banks are not going to lend to even each other if they don't have to.
Incidentally, since the Fed is providing so much liquidity it is disrupting the Libor, they are making the matters MUCH worse. Why?
"About 6 million U.S. mortgages, including almost all subprime home loans and 41 percent of prime ARMs, are linked to the London Interbank Offered Rate, or Libor, according to First American CoreLogic in Santa Ana, California."
It is almost like people want the bill to pass so they can they say, "Well that debate is for the historians." There are alternatives, the end of the world is not coming tomorrow.
If they want to set up some sort of market for these securities fine; do it like the RTC and acquire these assets for free after the banks go bankrupt.
