This money will be used to purchase assets from these companies so they have enough capital to continue operating. THIS part is a fact.
How good of an idea it is is certainly debatable. Some feel it will allow them to restructure and become more economically sound. Some feel it is like giving a transfusion to a terminal cancer patient - simply delaying the inevitable and wasting resources while doing so.
A few things that people need to understand:
1. This money is purchasing assets, such as poor-quality debt, real estate, stock, etc. These assets become property of the federal government (i.e. you and I).
2. IF the government can later sell these assets off for what they paid for them, the government would be out no money at all. I think the chances of that are pretty slim, however. In principle, the govt could even make money on the deal. I doubt that would happen, though.
It's effectively the same as a title loan on a car. The govt lends the companies money but in exchange has their assets as collatoral. If the assets bottom out and have no value, we are on the hook for any money we cannot recoup when we liquefy these assets.
EDIT amazingk: I didn't get into value of the assets. What their market value is is subjective, certainly. IF we somehow knew we could sell these assets for at least what we paid for them, then we have nothing to lose. It's pretty ballsy to "know" that these assets are worth what we are paying.
What I fear the most is that a substantial number of bad debts (i.e. mortgages) will simply be "forgiven" or greatly reduced in some horrible democrat scheme. Every dollar in bad mortgage debt that the goverment eats comes out of our pockets. Expecting handouts/loan forgiveness from companies is not realistic, but people have become accustomed to the idea of massive government welfare programs, and I see it as a distinct possibility that a broad forgiveness of bad mortgage debt will occur, or their mortgages restructured with the government (us) taking the hit on all the back-owed interest and such.
· 1 decade ago