Why can't taxpayers LOAN the $700 Billion AT INTEREST

[27inCali]

simple thing really -why is it so hard for our leaders to grasp?

I say do a thirty year loan on any of the money that is doled out to the failing corps at 15% interest. If they can't pay it off after that thirty, the rate goes to 30%.

Isn't that what average folks do when they are coming up short? -take out a loan to get through the moment and eat shit afterwards on the interest?

seems fair to me. If we have to bail these fuckwads out after years of damaging our country's economy and making it harder for average folks to make it by and have a little comfort -shouldn't we take this change to fuck em hard in the ass for years to come?

just my two cents.

[EFerrari]

1. I thought it was a loan. Is that wrong? n/t

[Eric J in MN]

6. That's wrong. The government is buying trash from Wall St. NT

NT

[EFerrari]

8. Thanks, Eric. I thought I heard these funds referred to as loans

this morning on Amy's show but maybe that was before coffee. :(

[knowbody0]

2. with late charge penalties!

[GoddessOfGuinness]

3. Can we raise the interest rates whenever thugs take over?

[valerief]

4. It'd be a subprime loan, wouldn't it?

[Eric J in MN]

5. They could.

But Bush said Congress must act quickly on his plan or else.

Congress caved.

======================================
Allan Meltzer, professor of political economy & public policy at Carnegie Mellon:

And if they're going to do something, then what they ought to do is make loans, which the financial institutions have to repay with interest. And if you think -- that's an idea which the Chileans have used in a bigger crisis than this for them in 1982, and it worked for them.

People paid back the loans. They weren't allowed to pay dividends until they repaid the loans. They weren't allowed to take bonuses until they repaid the loans. I think that's the way -- if we're going to do this, then that's the way we should do it.

http://www.dailykos.com/story/2008/9/24/133422/858/388/608797

====================================

[TheKentuckian]

7. Its not a loan at all, unless some hefty changes have been made

the stuff about recouping money is that the value of the junk we are buying goes up and eventually gets sold.

I strongly suspect by many of the same pieces of crap we're buying it off of now. Which means they'll get paid for the same property 4-5 times, get a nice "transaction" fee, and then end up owning a huge percentage of the country.

[lapfog_1]

9. Mostly because these firms want to dispose of the

worthless investments, preferably next week.

Even if we loaned them money, their balance sheets would still look like crap. The loan would have to be carried as both a cash asset AND as a debt obligation. Gives them cash to do something with but doesn't improve their balance sheets.

If, otoh, we buy their worthless assets (mortgages and mortgage backed securities), it gives them "cash for trash" (they both get rid of worthless assets and they get some cash in it's place). That makes them profitable again and, theoretically, worthy of new investments from the foreign and domestic market (like Warren Buffet putting in $5B in Goldman).

We need the same deal as Warren, we need to get equity stakes (and board positions) in the companies that take the deal. We can hold the asset and renegotiate the mortgage with the homeowner, hoping to keep them in the property and, eventually, pay us more than we paid for the assets AND we make money from the company we bailed out, both in valuation increases (stock price goes up) AND future dividends. We sell the stock in small chunks over a period of years and make money and, eventually, resign from the board. Having a board seat also allows us to hold a veto power over executive compensation and golden parachutes.

[Abacus]

10. Dems got us equity positions as part of the deal

"us" being taxpayers.

[abumbyanyothername]

20. Different kinds of equity

Warren got equity in GS.

Even though the news media is trumpeting "equity", we are getting equity in the assets we buy.

I would take Bill Gross (PIMCO) up on his offer to manage the process for free. He has a better track record than Paulson and is close to Buffett, but younger.

[DefenseLawyer]

11. What? You don't actually want these companies to suffer do you?

Why get a loan when you can get the government to buy worthless pieces of paper from you for $700 billion dollars? Good work if you can get it, as the old saying goes.

[depakid]

15. Most of the paper isn't worthless- not by a longshot

it's just extremely difficult to value accurately at the moment. Indeed, if the treasury sets the right price, and institutes the proper reforms and relief with respect to the underlying problems, it's quite possible that the taxpayers make money on the deal.

[DefenseLawyer]

17. Well that is the official line.

If there is money to be made on this paper why aren't you buying it?

[depakid]

19. This DU'er explains it straight forwardly:

http://journals.democraticunderground.com/HamdenRice

There's also a decent wiki about the nature of these deals:

http://en.wikipedia.org/wiki/Mortgage-backed_security

[DefenseLawyer]

21. I am very aware of the nature of the products they hold.

If buying up derivatives and debt swaps is such a money maker for the taxpayer, why not buy them yourself and clean up? of course no one is going to buy them on the market because they are worthless, the end result of a giant ponzi scheme built on artificial real estate values. I'm not again st the bailout. Things are fucked up to the point of no return. But the idea that this is a "good investment" of tax money in terms of an actual return is laughable.

[depakid]

22. What's a good investment is putting a halt to global credit freeze-up

and creating a mechanism for dealing with these "products."

There are obviously underlying structural problems that need to be dealth with to- and there needs to be oversight. I don't think anyone credible is arguing for a blank check.

Sounds to me that something similar to the Swedish situation in the early 90's is on the table:

http://www.nytimes.com/2008/09/23/business/worldbusiness/23krona.html?em

[DefenseLawyer]

23. I think we agree

except on the issue of whether what we are buying will ever be profitable. It is what it is, a bailout, not an investment.

[abumbyanyothername]

12. A loan won't help anything (or very little, at least)

I am not sure that buying these assets will help either. But buying at least shores up the capital base of the banks.

Banks lend to each other all the time. WaMu's customers put a lot of money in, while BoA's draw it out. BoA calls WaMu and says "Float me a billion, overnight, and I'll pay you the standard rate (LIBOR, if you care)." WaMu thinks, "that's a safe deal, I'll get paid back tomorrow, with interest. DONE." Next day, the roles reverse and BoA loans its excess to WaMu (in addition to paying back the original loan). Think of the banking system as one huge bank. The interbank market allows banks to "bank" their excesses and cover their deficits.

What is happening now is that no one knows if anyone else is solvent because of all of these mortgage-backed securities and other derivatives in everyone's portfolio. Because no one knows anything about the other banks, the interbank market is drying up. No one wants to be caught hold the IndyMac bag when the run starts.

In addition, all the banks are scared to death of having to face up to a run on their own cash so no one wants to make a loan with a terms longer than . . . basically overnight.

I am not sure how buying these assets is supposed to help, but making a loan against them definitely won't. Except in the case of an institution facing a run and in need of cash to pay off depositors.

[Nay]

13. First, they don't want a loan. They want a giveaway. Second, lending

money to companies that are already way past being bankrupt means you will never get your money back. They can't pay their debts now--it will get worse in the future!

[Gin]

14. I think I heard we will hold the mortgages until maturity.....

well..that's 15-30 years....holy hell...by then..the generation in charge will have forgotten they bought the shit.

[Dr Fate]

16. For the same reason the middle class cant get a $700 billion stimulus w/o interest.

Or an equivalent thereof...

"Who's your Daddy?"

Congress knows.

[ljm2002]

18. And if they're late on a payment...

...we add on a late fee of, say, $250M, and up the rate to 30% right then and there. With more penalties if they continue to not meet their obligations in a timely manner.

Yes, I like it.