They are not using all "taxpayer dollars" to finance this:

[gopbuster]

They are issuing Treasury Bills and Bonds in exchange for the bad assets and then will pay prevailing interest on the bills and bonds maybe up to 20b per year. Many of the troubled assets will still earn income over the coming years.

per Galbraith:

http://www.prospect.org/cs/articles?article=how_much_will_it_cost_and_will_it_come_soon_enough

Many are concerned with the fiscal implications of this bill, so let me turn to that question. Despite the common use of language, the capital cost of this bill does not involve "taxpayer dollars." It authorizes a financial transaction, exchanging good debt (U.S. Treasury bills and bonds) for bad debt (the "troubled assets"). Many of those troubled assets will continue to earn income for some time, perhaps a long time. The U.S. Treasury commits itself to paying the interest on the debts it issues. The net fiscal cost -- which is also the net fiscal stimulus -- of this bill is the difference between those two revenue streams. Given the very low rate of interest presently prevailing on Treasury bills, this is likely to be somewhere between $20 billion per year and zero from the beginning, even if the Treasury were to issue all $700 billion in new debt at once. It is a mistake, in short, to count the capital cost as a "cost to the taxpayer." This is not the war in Iraq.

[ixion]

1. yeah, they're trading crappy paper for treasury bills

which still devalues the dollar and increases inflation.

So, yeah, we're still on the hook for 10 trillion+ now.

[gopbuster]

4. How does it devalue the dollar?

Doesn't it keep them from injecting more dollars into the system?

[ixion]

7. It devalues it like this... you start with a dollar

and I give you a pile of crap and you give me the dollar. Your net value has just decreased a net difference of a dollar vs. a pile of crap.

We now owe more than 70% of our GDP. That is, we are insolvent. As we continue to borrow money and pull it out of thin air, the value of the dollar will continue to decline, and inflation will sky rocket.

The only thing that has changed is that the situation is now worse than it was this morning.

[gopbuster]

12. You are not creating it out of thin air, the money that is purchasing the

Debt instruments is already in the system.

Not that I disagree with you about the national debt,

Not all the troubled assets are valueless. Once they disclose & unbundle the pools they will find SOME value as well as stoking the market for the troubled assets.

[ixion]

14. it would be great to verify that the money is not printed, but since they stopped publishing the M3

there's no way to track it. My bet is that the presses are running round the clock, figuratively speaking.

Other than that, I'm not sure what we have in the system, since we're borrowing 2bln+ a day just to cover debt service.

What we don't print, we'll borrow... but wherever it comes from is sort of a moot point, because we'll be on the hook for it.

I agree that there will be some mortgages that aren't worthless, but the estimates I've seen are around 30 cents on the dollar. If we purchase them for more, which will probably be the case, we'll lose money.

[endthewar]

18. Exactly! Bush stopped publishing the M3 and that has made China wary.

Everybody knows that he's probably just ramping up the printing of dollars when nobody is looking.

[gopbuster]

20. Only 10% of the mortgages are bad in this country so there has to be SOME value n/t

[endthewar]

22. You need to learn more about the problem

The layman's way to describe it is that one bad apple spoils the whole bunch. What the financial companies did was to package a lot of mortgages together. The end effect was that when a few mortgages went bad, they made a lot of the mortgage packages that companies bought bad. You should read up on credit default swaps (CDS) to learn more about this. It's essentially speculation on mortgages that ran wild and rampant. The poster 'girl gone mad' has posted quite a few threads educating people on these things. She must have an economics degree or something. Look for her threads to help you. Perhaps she also put them in her journal.

The most likely scenario is that the Paulson plan will pay $700 billion for assets that have value much lower than that. How much lower, nobody knows. So it's pretty much just rolling the dice with $700 billion. So ask yourself, how lucky do you think Paulson is.

[gopbuster]

23. I understand exactly what they did and I understand about CDSs as well.

They will buy the pools of MBSs, crack them open and audit them to see what is there, value them and attempt to create a market for them pulling in investors. It is also my understanding that in order to modify the mortgages within the bundles you have to have have controlling interest.

I don't know what they will do about the CDSs though which I thought were tied mostly to bonds. As banks fail some of the bondholders are covered through CDSs but others are purely speculative who will make out like bandits as the writers of the CDSs will take a hit.

[endthewar]

24. You sound like you have at least a basic understanding of this

yet your thread says that this isn't taxpayer dollars? Whose money is it then?

[gopbuster]

25. Investors who buy the debt instruments and I said "not all taxpayer rmoney

[endthewar]

27. It's still taxpayer dollars

Just because we might get some of those dollars back when the assets are again sold doesn't change this.

Also, the effects of inflation should be considered as well. The US dollar will weaken further because of this. Paying tax dollars to increase inflation, a regressive tax.

[MercutioATC]

2. Ummm...what do you think Treasuries are??? They're taxpayer dollars.

[drmeow]

3. Exactly

The interest on those Treasury bills come from taxes.

[gopbuster]

6. That is why I said they are not using all taxpayer dollars and

Galbraith is saying that the interest payed on debt instruments may be offset by the value of some of the assets.

[MercutioATC]

9. We're essentially paying a dollar for a quarter.

...and the .75 loss is all taxpayer dollars.

So it IS all taxpayer dollars, we may just get a few of them back (not as profit, just as a reduced loss)

[endthewar]

19. Fine. They're using future taxpayer dollars then.

Like a credit card. Just because you don't pay the bill today doesn't mean that the bill isn't coming...with interest.

[JackRiddler]

5. Thanks for a new low in economic illiteracy.

Hey people, why not cut taxes altogether? Why does the government need revenues at all? Just issue T-bills, and then more T-bills to pay the interest!!!

[jtrockville]

11. Yeah, that's the ticket :o)

I was just thinking about what an absolute disaster this bailout was, until I read your post and realized what a stroke of genius it really is.
:mad:

[TexasObserver]

28. Are you sure? What about "why don't they just refuse to pay the national debt?!"

That pops up occasionally.

As well as the always reliable "why don't they just print more money?!"

This country really needs a party devoted to things like this Recession and the proposed Bailout. We could call it something like ... The Greenback Party. Yeah, that's the ticket! A party that just wants more greenbacks printed, so everyone has plenty of money! It could be historic.

[girl gone mad]

8. We're swapping..

a lot of junk for treasury bills. And paying interest on it.

What could go wrong?

[marmar]

10. Semantic disingenuousness.....

You'd be better off believing in the tooth fairy than believing that this toxic rubbish is somehow going to earn the government money.

[jtrockville]

13. If the paper we're buying was worth anything,

the billionaires wouldn't be begging the government to bail them out. The profit (and then some) has already been taken.

[Warren Stupidity]

15. They're using your children's tax dollars.

You do understand that floating 700B (or more) in new T-bills means we have to repay that debt with interest over time, right?

By the way, we have no idea what we are buying, what real value it will have if we can ever unload the crap, and how long we may have to hold these rotten assets before such unloading might happen. Until then, the assets we are buying are WORTHLESS, which is why we are buying them. Until the WORTHLESS assets are off the books of the bastards who invested in them for ENORMOUS short term PROFIT, it seems that the global credit system is fubar. The bastards are holding the global economy hostage until we buy their CRAP from them.

Oh, I have I mentioned that there is NO effort at all here to RE-REGULATE the mortgage industry so that THESE BASTARDS cannot simply start doing exactly what they have beenn doing since 1998 and create another CRISIS a few more years down the road (after of course raking in BILLIONS in short term profits)?

[razors edge]

16. I can make you a great deal

on a bridge to nowhere. But you have to act fast!

[Eric J in MN]

17. The war in Iraq will pay for itself!

The bailout will pay for itself!

(sarcasm)

[JackRiddler]

21. Call now to apply for our interest-only mortgage! No down payment! No credit history necessary!

[Hydra]

26. Protip: The companies won't be giving us good assets

They'll be giving us THE STINKIEST stuff they can find. Meanwhile, they'll hold on to the good mortgages until those people default too, and then unload those on us at that point.

Meanwhile, we'll try to sell T-Bills to people who want interest payments to finance this monstrosity. As some people have pointed out, it's possible not enough people will show up for the auction because they think we'll default, in which case we are COMPLETELY screwed.

If this passes, it'll be Christmas on Wall St, and a pile of crap for the rest of us.

Even better? We can only do this ONCE. If this doesn't work, we're a third world country.

Care to roll the dice now, knowing that it's all in, and the dice are weighted?