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Originally Posted by SCUDSBROTHER
Even if the taxpayers have to inject this money, it should be given to somebody new to make loans with. How can you give it to people that made bad loans already? Make them sell their homes for the market value. Yea, they have to feel the pain. If the Gov't has to provide money to make new loans with..o.k., but don't buy other people's bad loans. Why is it that the only way to inject money into this is to bail out bad loaners? People seem to often have the creativity of a gnat.
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To clarify, the plan isnt to "give" anyone money. The plan is to use up to 700 million dollars to buy distressed assets that are rotting on bank shelves and clogging up the flow of liquidity.
To put it simply: The govt is BUYING ASSET backed securites. Just like they would buy a bomb or a plane or a missille. They are NOT simply giving money to banks.
Now, some of the securities are probably going to be pretty toxic and go bad. If they do, you can sell the asset and recoup some of the 700 billion. Remember, they are not paying full value for the ABS's. So even if the market continues to decline you can still recoup most of your costs.
If the market stabilizes from here on out, the govt can actually make money. A lot of money.
The main issue is going to be determing buy prices. They have already stated that they are going to pay MORE than the firesale price. But how are they going to determine that?
The last point is the main issue.