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goofyjim
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Hey if welfare programs are immoral then this bailotu must certainly be. It is socialism for the rich.
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JimG
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Yes, but another kind of short term debt consists of short term commercial paper which business use on a daily basis, and which is bought up by some money market funds.
Take nearly any business, a car dealership, a hardware store, whatever. They don’t own their inventory outright. They couldn’t. The inventory will be turned over in the short term and it is financed by short term paper.
It’s this type of credit which was beginning to freeze up during the credit freeze. Banks were not even making overnight loans to each other to cover reserves. That’s unheard of.
Like it or not, short term credit is the lifeblood of the local, national, and global economy. If the credit lines freeze, the entire economy grinds to a halt.
Even in the subprime mortgage market, it’s not mainly the mortgages themselves that are the problem. Only about 6% of them are in default. Most people are still managing to make their payments. No, the problem is in the mortgage backed securities which are sold widely and held globally. Why should they be in trouble if only 6% of the loans are in default? Because the market became illiquid. If you try to place a several million in MBS and can’t get a quote, or you can only get a really subpar quote like 40% of par, that freezes the market.
Not only that, but everyone else who holds those types of securities, under the accounting rules had to ‘mark them to market’ whether or not they wanted to sell them, meaning their balance sheet took a big hit even while just sitting there.
The bailout was to try to unfreeze the credit markets, not to bail out the honchos on Wall Street. The added pork was just a sweetener for the public.
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royal_archer
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This may be a difference of semantics. Securities with out a guaranteed return are based on some extent of “luck”. That “luck” is mittigated by a track record, but still we can not tell the future and can not control the circumstances. Therefore it is essentially a gamble.
Again this may be semantics. between the short term of paying the next month’s bills vs the ability to eventually pay off the debt.
Please re-read and think of a revolving debt such as credit cards that are paid off at the end of the month or at the end of the period. There is also the concept of putting a vacation on credit and paying it off over the next few months but with a known streem of income to pay back the debt. This may not be wise but is hardly in the same category of taking out a loan someone has not plan to pay back.
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royal_archer
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We are in a recession and we think we can borrow our way out of it. I understand why small companies need revolving credit lines. However the companies which have offered the revolving credit lines made risky loans. You can say it is not their fault that we have a recession but it was their choice to ignore the potential of a recession. It would seem that those who support the bailout believe that the ends justify the means. If the intended end is to make credit available then that end could be provided by other means with out rewarding those who made risky business decisions at the expense of tax payers at large.
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JimG
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Well, you are going to be more specific on just who we are rewarding and who we are bailing out.
If an auto dealership can renew his floor plan credit line now when he couldn’t before, he’s been helped and so have his customers. If he files bankruptcy for lack of short term credit, that helps no one.
If money market funds maintain their $1 value instead of breaking the buck, that bails out a lot of small savers who have savings in money market funds.
It goes on.
If an auto dealership can renew his floor plan credit line now when he couldn’t before, he’s been helped and so have his customers. If he files bankruptcy for lack of short term credit, that helps no one.
If money market funds maintain their $1 value instead of breaking the buck, that bails out a lot of small savers who have savings in money market funds.
It goes on.
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royal_archer
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If the governemtn paid off the national debt ans started accumulating a surplus for a “rainy day” and then decided to invest that money in a manner where they expect to get a reasonable return then yes it would be proper to buy mortgage debt. However what we have here is a series of companies who have made business decisions that proved to be bad. The government is now deciding to selectively relieve them of their bad decisions and saddle the tax payers with that debt.
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royal_archer
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Why not skip the mis managed banks and increase the amount of loans available to the banks that have made better investments? This would allow financing for the small guy and not reward the people who mis managed.
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wynnejj
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flixxy.com/subprime-mortgage-loans.htmI have had a little trouble trying to get a grip on the whole financial bailout issue and how it came about. The above link explains it in layman’s terms that I can readily understand.
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royal_archer
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That was great. Thank you.
I have had a little trouble trying to get a grip on the whole financial bailout issue and how it came about. The above link explains it in layman’s terms that I can readily understand.
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Texas_Roofer
Guest
I think you mean credit lines? Which are supported by earnings. Rolling credit is used to create liquidity against fixed or seasonal assets. A good example is the farmer during the winter. Sorry to burst any bubbles but inventory is supported by a line of IOUs typically the manufacture holds title but he owes suppliers who owe suppliers who owe raw material suppliers.
Banks borrow overnight funds to met reserve requirements
I agree
Good, the 6% default is not causing the meltdown. The systemic over evaluation is the cause. We did this to hide debt. It works like this Bill graduates college and gets a job that pays $50k. Bill has $40k in student loans, + $25k in car loans, and $10k in credit cards (that is 150% of is salary or a 1:1.5 debt ratio) Bill can afford a 1:3 ratio so if he buys a house is maximum should be $75,000. He should be a renter *but since houses always go up *Bill does a 100% finance walk in and sign house at $200,000. Now Bill has $275,000 in debt and two incomes one from a job the other from the house’s increase in value. So how much does the house have to increase to make this plan work? Well at a standard 1:3 ratio Bill needs $92k income so the house has to make $42k the first year. Now bill could struggle a couple of years. Let’s let Bill suffer at 1:5 (that is a tough haul) so how much does the house have to make now? The answer is $5k per year. Now the problem is clear for Bill to make it work at all the house must earn money. Bill simply cannot afford the debt load he has.
There are too many Bills in the mortgage security. Bill cannot pay with his job and any unemployment or large money loss for Bill sends the deal into foreclosure.
no, the companies always run on 40-60 percent debt that has not changed
The problem is the consumer as Bill have already over borrowed. No amount of government loans can unborrow. And paying off their debt is even worse
The issue is non-FDIC insured financials. One Mutual did “break the buck” which means they admitted losing money. They are telling their customer they cannot return the original money in full let alone they have lost all the returns the money has earned through the years. The government may have to provide a bailout of say a 50% to the retires who loss are greater than 50% to prevent catastrophic problems. However it is important the assets be taken from the executives and some jail time be involved for the loss of money market funds
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Texas_Roofer
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A government can have a surplus budget but not a surplus debt. A surplus budget pays down the debt, however a surplus or reserve of money has no real meaning for a government.
that is usually done, cheap credit is given to a good bank to absorb the broke bank. The executives usually leave with what ever they are offered because criminal charges can occur, so usually a small severance and no criminal charge is the plan
That is cute, and too close to accurate
I have had a little trouble trying to get a grip on the whole financial bailout issue and how it came about. The above link explains it in layman’s terms that I can readily understand.
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royal_archer
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But what has changed is that due to the recessionary preassures the income levels overall have dropped. So while in a growing ecconomy the risk is minimal, in a sluggish ecconomy the risk increases.
Let’s say Tom loaned the money to Bill and several others like him. And now he isn’t getting full payments from Bill and now does not have money to loan to Bob. As a reslt Bob suffers. One answer may be to have the goverenment borrow money and increase Bob’s, Tom’s, and Fred’s taxes (Bill’s income is so low that any increase in his taxes is negligable). On the other hand the government could let Bob go bankrupt and loan the money to Fred’s bank who would loan the money to Bob. Yes Fred charges more but he has a more stable bank and only provides loans to those with better credit. If Bob can’t get a loan from Fred, he probably is high risk and shouldn’t be getting credit.
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Texas_Roofer
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There have always been recessions. the plan has never been to fold every business every recession
you’re joking, right? Tom must go broke and Bill too. Tom needs reviewed to assure he stayed inside the law. Typically people as him do not. Bob does not need Tom. Bob’s business will not fail from Tom’s inability to do shady money deals. Bob may have a cash flow crunch because interest rates may increase however the fundementals do not change. The worst thing the government can do is to give or loan Tom or Bill as both made this problem. Both need to pay for the losses they created.
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LeahInancsi
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This so called “bail out” is not socialistic by any stretch of the imagination. By law (re: 1999 Clinton admin), banks were required to approve mortgages to people who could never afford to make the payments.
This legislation is an attempt to correct irresponsible previous legislation.
BTW, Since the first of the year, I have lost over $100k if my life’s savings whose earnings were to support me in my retirement and be left to the Church upon my death. As if looks now, there may not be anything left to give to the Church.
This legislation is an attempt to correct irresponsible previous legislation.
BTW, Since the first of the year, I have lost over $100k if my life’s savings whose earnings were to support me in my retirement and be left to the Church upon my death. As if looks now, there may not be anything left to give to the Church.
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Dee_Dee_King
Guest
it sounds like these giant financial institutions and hedge fund investors didn’t care what was in the bag. isn’t this why the church teaches that larger things should not take the responsibility proper to smaller things, i.e. subsidiarity?
if local banks financed mortgages without selling/repackaging them to larger more removed institutions, mortgage debts would likely get paid back in full with far less defaults.
if local banks financed mortgages without selling/repackaging them to larger more removed institutions, mortgage debts would likely get paid back in full with far less defaults.
maybe your stocks were overvalued like the housing market was. there will be nothing left when i retire. you shouldn’t push this debt to younger generations to float your retirement.
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JimG
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I don’t know that the default rate would be lower (that depends on quality underwriting.) But there would be more flexibility in the workout department.
However, keeping mortgages with the originator would require a complete restructuring of the home mortgage financing business. That may be a good thing, but it would not be without problems.
VA and FHA mortgages are guaranteed or insured by the government. Then they are usually pooled into GNMA pools, which are absolutely safe for investors.
And not only safe, in the sense that the mortgage is guaranteed. GNMA also guarantees the certificate holder the prompt payment of principal and interest every month! You can count on it. If the loan goes into defaul / foreclosure, the pool must continue to pay the certificate holders each month until the loan is foreclosed and redeemed out of the pool, at which point the full remaining principal is distributed.
The drawback is that since the mortgage is pooled, and default is costing the pool, there is little incentive to “work with” a borrower.
A bank which held the mortgage privately would have a lot more flexibility. But without selling the loans, a lot less money to loan without replenishment.
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Atreyu
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What do you think this bill is about? Besides, he’s the one claiming the bill is immoral and anti-Catholic; not me. If he wants to make such a strong statement, then it is up to him to prove why.
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Atreyu
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Were there business decisions illegal? Were they the only ones to blame? The answer to both of these questions is clearly no. The CEOs of the companies that are to blame are mostly gone. So a lot of the people whose fault this mess is are feeling the consequences. Most of the rest of the people are unreachable. So why insist that helping those who remain is immoral?!
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LeahInancsi
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Not that much. They had been at the 2007 value since the 2001 crash. Prior to 2001 they may have been over valued, but not since then.
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stinkcat_14
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This is one the old canards that keeps floating around these threads and I what I have found interesting is that not once has anyone offered the slightest shred of proof for this ridiculous assertion. After all, mortgage brokers and nondepository lenders are not subject to the community reinvestment act. In addition, if you look at the home mortgage disclosure act data, most of the subprime loans were not made to poor people. Finally, a couple years back, banks were promoting subprime lending as a profit center, not a something they had to do to avoid having the government on their back.
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