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BAILOUT
November 20, 2008Poker is that kind of game we learn fairly fast. A game for all ages, young and old, and as players we all have our wins and losses, two words that we maintain in our playbook of our poker lives. But a new word has evolved _BAILOUT_ Wow! An easy word to say and a fun word to use and I don’t mean Jail _ “Bail me out!”
I’m thinking of the top 10 questions and answers about this world’s financial bailout, with businesses closing and people laid off from work, unemployment is at its worst in decades. So how do we get a full grasp of the word Bailout economically. Here are some questions and answers.
How much will bailout cast?
The total cost estimated at 750 billion dollars, the keyword here is estimate! So if the housing market keeps dropping and other financial turmoil continues, it could push the plan cost to $1 trillion.
What is Government actually going to purchase?
Primary focus is mortgage backed securities, whose value cracked due to foreclosures and home value declines, although government may add debt tied to auto loans, credit cards, student loans and packaged into the final bailout.
How long will the bailout plan be in place?
Possibly over the next two years, about $11 trillion in mortgages as listed as delinquent or in foreclosure. The plan allows the purchase of these mortgages in hope that one day reselling mortgages to investors for a profit. (Is this gambling?) No, just an investment, Oh! A twist of words, mmmm I see!
How much will the Government spend?
They don’t really know, they don’t need to buy the mortgages at fire sale prices, instead, they could pay market value for faulty mortgages to help stabilize things.
What if more than $750 billion is needed to bailout Wall Street?
If more funds are required beyond the initial plan proposed, Congress will have to approve additional funds. Factor – How purchases of bad mortgages impacts the market if bailout sends economy upward, the bailout would cost less than $750 billion.
How much will the plan cost an individual taxpayer?
Some estimate the bailout cost every US resident over $2,000 assuming the bailout plan works. However, depending on how the money is put to use, the liability owned by the new fund would exceed the value of the annual budget of the Pentagon.
Who will be in charge of the new fund?
The plan gives unprecedented power to the Treasury Secretary right now some provisions in the bill are being frowned upon by members in Congress and will probably altered before a final bill passes.
Will executives still be eligible for so-called “Golden Parachutes”?
Past few days lawmakers on both sides Democrats and Republicans have agreed to limit the executive pay for companies that take part in the bailout program. It seems no more big payouts to CEO’s of companies who are in trouble.
Is the Government taking other steps to help the markets?
Government stopped traders from short-selling shares of financial companies – short selling is a bet that the company stock will go down and in a small way helped drive some institutions out of business.
Some say Federal Reserve may have to raise interest rates if the market thinks the Treasury overpaid for the mortgages, and because of the bailout the President has asked Congress to raise the national debt ceiling for the fiscal year 2009.Has anything like this happened before?
Historically, not unprecedented, dating back to the financial crisis in 1792. In 1930”s the US was sinking into the middle of the Great Depression, at that time 1,000 people per day were losing their homes to banks. President Franklin Roosevelt and Congress created Home Owners Loan Corp. to help prevent larger scale foreclosures, issuing mortgages backed by the Government.
In 1980’s Savings and Loan crisis struck US, the S&L’s industry broke down when interest rates jumped and financial institutions began to collapse. Over 3,234 S&L’s closed from 1986-1995. The Government wound up owning shopping centers, homes, resorts and other assets after buying up the Savings and Loan assets, in the end it cost the US taxpayer $124 billion.
So where does this leave us? Hoping to avoid a long term economic slowdown globally, even a depression. The old adage seems to be true and Governments throughout the world are all set to “Shuffle up and Deal” and we’re all paying for the action.
Good Luck – Good Life – Good Horrors.. YOU CHOOSE!
