Exactly what is going on with President Bush and the bailout? What is the money going to be used for? ?

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  • Anonymous
    1 decade ago
    Favorite Answer

    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.

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  • Anonymous
    1 decade ago

    What exactly the bailout is about seems a mystery, even to Bush (at least he couldn't explain it last night).

    What they will do with the money seems to be 'whatever they want'.

    Pretty scarry scenario, if you ask me.

    Here are a few interesting figures though: There is aprox 1.3 trillion dollars of sub-rime mortgages, of which about 25% are in default. The government could actually buy these assets at the lower current market value (although they want to pay far more than market value). So how they need $700 billion seems beyond my comprehension. 1.3 trillion times 25% is only $325 billion, and that is at the full value when written, which we know the current market value is well lower. So one can only assume the money is not to buy sub-prime mortgages.

    To some of the other posts, I have to ask why shouldn't the mortgages be written down to the current market price? I mean, if a bank is holding a mortgage for a $400k house, but the house in now only worth $300k, and the mortgage is now worth less than that if the bank was to try and sell it, why should the house owner be forced to continue to pay for a $400k mortgage on a house worth only $300k and a mortgage worth less than that? If the government can buy the mortgage from the bank for $250k, why not write it down to $300k for the borrower? The Gov't makes a profit, and the home owner now has a mortgage he can re-pay. And the bank has 250k in cash to make new loans with (and hopefully will make better loans in the future).

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  • 1 decade ago

    Yes, that is correct. The interesting part is that the assets will be bought for less than asset value.

    For instance. Joe Six-Pack bought a $400K house at some low adjustable rate (stupid) and now the house is worth $300K and the payments went through the roof. The government will buy this mortgage from the bank for, at most, $150K then allow judges to renegotiate the loan down to $300K and a lower fixed interest rate to make it more affordable.

    It could actually make the government a ton of money and the banks are still getting partially hosed.

    The thing that sucks it that there is nothing in it for someone like me that actually bought within their means and pay their bills.

    Nice Lady - the government will be paying less than 50% ASSET value for the assets, so they're making a 50% instantly and can only lose if the asset value drops another 50% or the payer stops paying, but even then they have the asset.

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  • Buying up mortgage loans that cannot be valued.

    Too bad the government will not agressively pursue the deadbeats that took out loans that they could not afford.

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  • Brian
    Lv 7
    1 decade ago

    It will be used to buy up "bad" mortgages. I am not a fan of the move but the government will get the lion's share of this money back and might even make a few bucks..

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  • 1 decade ago

    Who knows?

    With the bush gang's history the money will be mis-appropriated and much of it will just disappear but he will swear that he will get to the bottom of it and make sure the culprits are punished - NOT

    .

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  • Anonymous
    1 decade ago

    According to Bushie it will be used to buy bad debt and it is a GREAT once in a lifetime investment!

    Mind you the fact that actual investors won't touch that debt and that is why we are in this crisis does not matter.

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  • Anonymous
    1 decade ago

    The banks are broke and need to pay back money they borrowed (that they lended to people who aren't paying them back). Since all the banks are broke, there is no one to buy anything the banks might want to sell in order to pay back the money they owe. Mostly what the banks want to sell are the worthless loans they made.

    So the governement wants to borrow more money from China and the Saudi's, then use that money to buy stuff from the banks at much higher prices than those things are worth, so the banks can pay their executives 10's and 100's of millions of dollars to lend more money to people to buy big screen plasma TV's made in China and pay outrageous amounts to fill their gas tanks with oil from the Saudi's.

    THUMBS DOWN??? FOR WHAT???

    Source(s): amazingk - you are incorrect. If there was any value in renegotiating those mortgages, the banks could have (and would have) done it themselves. The government will be paying GROSSLY higher prices than the loans are worth. They are using "if held to full term" valuation methods that are total rubbish. If there was any value to these loans, they could have been sold in the free market long befdore this got so far out of hand.
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  • 1 decade ago

    This link should explain everything. It's a video of bush last night being an idiot:

    http://www.youtube.com/watch?v=eBGIQ7ZuuiU

    Youtube thumbnail

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  • Anonymous
    1 decade ago

    To be determined by company ceo,s and corporations!!!!

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