ImEbee

However, the problem is that if we merely let the market correct itself the resulting recession is going to be bad. The 700 bil is going to keep cash flowing through our financial system. Without it like someone said before, the banks will not lend money to anyone that does not have stellar credit, and without those sales, the crisis then moves out of the financial sector and into all aspects of the economy. Most people can afford a car but not pay for it out right, the same for homes. That is why there is credit, but it has to be used right.

I think its somewhat of a two way street. People borrowing need to be responsible with what they are borrowing (good luck I know), and the banks need to be responsible about how they are assesing risky loans. I frankly don't think we are necessarily letting CEOs "off the hook". Of the five major brokerage houses, two are still standing today and our biggest banks are collapsing. I highly doubt that this was part of a plan to screw investors and run away with the money. I do think it was rooted in greed in that lenders were willing to lend to anyone who would take it. So here we are now. Nobody likes it but some sort of "bailout" is needed.

waflyboy

It depends on what you mean by "bad mortgage." I think in this instance we are referring to loans that are collateralized by assets that are valued less than the loan.

To answer your question, the "value" (defined in this case as "the price the market is willing to pay") of these loans will typically increase as the value of the underlying assets increase.

So, let's say the market is currently willing to pay $0.70 per $1.00 to purchase a portfolio of these loans, and that's the price the US Treasury pays. We hope that five years from now the property values will increase, but the loan amounts will not. Then the loans would be in a much better collateral position, and their value would (theoretically) improve. (To $0.85 per $1.00, for example.) The Treasury would then be able to sell those instruments at the higher price, making a profit.

The Treasury would also collect interest payments on those loans, as well as take losses on defaults. In the end, the hope is that the portfolio is worth more in five years than the acquisition cost today.

ImEbee

Well put. And the US government has the patience and ability to hold them for that long.

HSLD

The Princeton LSAT logic podcast series had a few good points about framing the bailout. It's not a pro or con, but how to ask logical questions about the proposed solution:

http://www.radiotpr.com/podcasts/Podcast96.mp3

It's a great series and you can subscribe through iTunes:
Princeton Review LSAT Logic

VTcharter

I agree that the recesson will be bad, but the economy will recover. In the process, we as a society will learn from the mistakes that were made and the recovery will be stronger than we were before this pending recession. Let the system work...kids will never learn if they don't have to accept the consequences of their actions. It is going to be tough, but we'll come out stronger on the other end.

Oh, and whats wrong with people who have poor credit not being allowed to borrow?? Seems like thats the way it should be. I was irresponsible with money at one point and consequently had a tough time getting loans for a while. I learned my lesson though and I seem to be doing ok now.

ewrbasedpilot

So far this "bill" has caused close to $2 TRILLION dollars in losses on the stock market, and it's not over by a longshot. That for a $700 Billion bill. That's what's so wrong with this picture. The losses are STAGGERING, and FAR EXCEED the limits of this bill. Now they are saying the auto dealers and manufacturers will start failing since no one can get a loan to buy a car. My 401K is in a virtual "freefall" (even my "bluechips" have turned to cowchips) having already lost 20% in the last few days. This nation is on the verge of financial ruin because of a few greedy CEO's, who need their sorry butts in prison................ Unfortunately, our government continues to pad the CEO's wallets at the expense of US. A great example of this is the recent golden parachute for Washington Mutuals "three week CEO" who walked away with $19 MILLION for his HARD THREE WEEKS OF WORK. How pathetic is that? I hope he sleeps well at night.

stobelma

I am not for big business by any means but this problem is not only big business's fault. People have 100% lost the sense of the "American Dream" by which we work hard and make it. We have fallen into the mindset of we want everything, "buying stuff," without working for it, "obtaining credit." Why people are buying things they could never afford in the first place is ridiculous. On the other side, why banks are lending money to people who can not pay it back is beyond me as well. On top of this, the people who this whole thing will affect the most is the people who pay all their bills and work hard. The banks will get rid of their bad loans and irresponsible Americans don't have money anyways so they lose nothing. I honestly think they need to let the market correct itself. Will it be tough? Absolutely, but the strong companies will prosper in the end. The economy always performs better with small government and this bailout plan is a perfect example of big government. Now instead of Americans being broke, our government is broke and we are going to be responsible for taking care of that. Either way is stinks but I think we are going the wrong way with this.

Maxspeed

I think that part of this bill was to Raise the AMT tax so that it wont affect so many middle class. I would love to see that go away!

Copperhed51

While I agree with most of what you said, I think you're a bit naive to think that we have anything close to a free market economy. All the people here for the bailout just make me laugh. I love the whole argument of "conservatives were all for deregulation and a free market and loo where it got us!" That's the most nonsense I've ever heard but people are buying it.

It is not a free market economy when you have a central bank that is controlling interest rates, thereby controlling the money supply and inflating our dollar at a ridiculous rate. They do this to make sure people can buy things they can't afford and are in the business of price fixing. That is, they are using these methods to control the prices of goods like housing and automobiles. The only problem is that they are destroying the dollar in the process and the market is realizing that none of the things that people "own" are worth anything. Now the government wants to come in and buy up a bunch of this stuff and in order to do so, they will have to print up more money. What does that do? Well, it inflates our dollar, and promotes the exact policies that got us into this mess in the first place. Yes, we're headed for tough financial times, but to pass this bailout is to most likely destroy the reserve currency of the world (the dollar) and send the U.S. and possibly the rest of the world into a major depression. The bailout will delay the bad times, but will also make them way worse and last way longer.

Copperhed51

Additionally, the way Congress is pushing this bill through is somewhat sickening. Any financial bills are supposed to originate in the House of Representatives. Since the House is doing the right thing and not passing the bill, the Senate needed a way to put more pressure on them. So, they took a resolution that the House already passed and amended it by putting the bailout package on top of it. That allows the Senate to vote on it and then send it back to the House for their vote, putting even more pressure on them to pass the bill. The biggest problem we have is that the politicians are allowing their personal interests and opinions to guide their vote when all they have to do is look to the Constitution to decide whether to pass the bill or not. Being a congressman is not that tough a job when you have an instruction book that somebody wrote for you a couple hundred years ago. It's not even that long of a book. Hell, I'll take it and put pictures in it if that would make them read it more. Oh, but don't worry, McCain or Obama will fix everything......please