Why Don't We Just Give Wall Street A Loan

[MSU_Spartans]

It would be a loan from the taxpayers. We give them an opening line of credit at about $200 Billion (spread out amongst the various companies). They can pay it off on certain terms, at a decent interest rate. If they fail to make payments, we can assess late fees and higher rates. If they completely fail to pay back on the loan, we start sucking up assets of theirs to compensate.

If they're good with there payments, we can offer benefits like extending the line of credit or lower interest rates.

Best case scenario: Wall Street bails itself out with the loan, and pays the taxpayers back with interest.

Worst case scenario: Wall Street fails to pay, we take control of their assets, not much different than what the current plan proposes.

[screembloodymurder]

1. That's a good idea.

Would Wall Street give us money? Hell no! They'd charge 20% interest.

[maui9002]

7. The origin of the current problem is a credit crisis

caused by financial institutions who have too much debt relative to their assets (in large part because the mortgage backed securities they hold have been reduced in value), which means they can't lend and have trouble borrowing. Adding more debt doesn't solve that problem. Buying those assets at a discounted value takes those assets off the financial institution's books, which, the argument goes (and nobody can guarantee it will work) will allow those institutions to reengage in the credit markets (borrowing and lending and making money available) on which our economy depends.

[MSU_Spartans]

9. Good point, but the debt has to go somewhere

Maybe we could limit how they spent the credit. The idea behind this is getting companies to invest in better assets, so the profits on those can relieve the losses elsewhere. I just don't like the idea of buying up a ton of debt when we don't even know its true market value. It doesn't really clear the books, it just pulls out a few pages and hands them to someone else.

[maui9002]

13. It's not debt we're buying; they're income producing assets

that have been devalued because a portion of the underlying assets (mostly mortgages or mortgage related securities) are non performing or under performing (the homeowners who are debtors have not made their payments). So it's not debt that's being transferred off the books of the financial institutions. It's bad assets (bad to them because they've paid lots more than they're currently worth) they're trying to get rid of, and if handled correctly, the US government will purchase them at a value that is deeply discounted from what was paid by the financial institutions who bought them. After these transactions, the risk that the values will fall further will be borne by the US government; that's what is being proposed.

[ret5hd]

2. I'd go for that 100% if it were on these terms:

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=389x4122547

[nc4bo]

3. Isn't that the plan the House Repukes had? nt

[MSU_Spartans]

4. Not exactly

There's was to have an independent bank funding the marketplace, something they could capitalize on, leaving the taxpayers out. It also allows the corruption on Wall Street to continue with little consequence.

[nc4bo]

5. ok, I got it. May not be a bad idea. I'm not an economist so not sure

what the +/-'s would be but it certainly sounds better than just handing over huge sums of $$ to bail out a den of thieves.

[MSU_Spartans]

6. the good and bad...

The good:
Accountability- This is like a last chance for these people. If they fail, we seize their assets at what we would pay for them anyway.
Collateral- We measure what we believe to be their worth, and don't offer them a line valued at a penny more.
Returns- If it works, we're guaranteed to get the money back plus interest.

The bad:
Less oversight- We'd be essentially letting the same people who got us into this mess spend the money. However, the difference now is they need to save their own butts, so they should be smarter with it now.

[maui9002]

8. Honestly, how can you and others keep saying

that the government is just handing out this money? Have you read anything about the plan? It is NOT a handout. It is a PURCHASE of assets. Admittedly, the assets being bought are difficult to value in this market, but they are not worthless and in fact, given time, may be worth MORE than the government pays for them. When you buy a car, do you call it a handout to the car dealer? When you buy a house, do you call it a handout to the selling homebuyer? Sorry for the rant, but I'm just amazed to continue reading so many posts that characterize the plan as a handout. It's not.

[MSU_Spartans]

10. But why don't we invest in "good debt" instead

help companies buy better assets to offset losses from bad debt. I know I'm making this overly black and white, but I think there's a solution that keeps taxpayers from being on the hook for too long.

[ret5hd]

11. I call it a handout when...

I buy a 1983 Chevy worth $800 for $2500 from my cousin because he needs the money for crack.

on edit: and that 1983 Chevy someday...just gotta be...maybe...being a collectors item doesn't change a thing.

[maui9002]

12. Not exactly an apt analogy is it?

But let me use it to make my point. First, would you agree in your example that it's not a $2500 "handout" but a $1700 "handout" ($2500 less the $800 present value of the 83 Chevy)? Second, I don't know squat about the values of old cars, but, unlike most mortgage backed assets, they don't produce income and are unlikely to increase in value if the economy improves (which mortgage assets are likely to do--not all of them, but some will). Third, in your analogy, you mention the proceeds will used to purchase crack, when a more appropriate analogy might be that your cousin needs $2500 to complete his college education or buy a car that works so he can get to a job; in these circumstances, which I believe are far more analogous to what's going on with the bailout bill, would you still refer to the transaction with your cousin as a handout or as a family investment (it might never be repaid, but odds are better that you won't have to spend more money bailing out your cousin in the future).