"7". - If you actually READ what the proposal is, you will quickly find out that it is an "investment" and not a "hand out" or "bail out". You don't need to be part of the secret club, you just need to know how to read... and do it.
I work in financial markets and the public's ignorance is disguisting. It isn't so much that you need a PHD to understand it all, you have to spend the 5 minutues to understand the deal.
The government is making a trade, much like you would trade cash for a stock. You put your 10,000 bucks into ETrade, and trade cash for Microsoft stock.
The government is trading the financial institutions CASH for distressed financial instruments. The reason why they can't sell them is because there is no market. The reason there is no market is because demand is down. The reason demand is down is because everybody is trying to deleverage at the same time. The reason everybody is trying to deleverage at the same time is because of capital requirements and ratio's.
The banking industry is actually heavily regulated. One of my friends at work used to do just that. He would travel across the country and audit banks.
The problem isn't that these instruments are worthless... they are far from it... the problem is that the potential buyers of these are other banks and hedge funds and they have no money.
It isn't that they don't have money, it is that they have to meet regulations, and the reason why they are having trouble with that is because they are seeing assets depreciate... It is making the whole thing spiral down... assets are deprciating... making them need more money... making assets depreciate further.
Look at Lehman... The CEO didn't want to see their distressed financial products because he said they were "undervalued". He didn't want to take heavy losses, but in the end it costed him big time... the 100 something year firm.
The governmen is not buying trash. These financial instruments are backed by housing. So far were are at ~ a 2% forclosure rate... A lot of subprime mortgages already have gone belly up... people are trying to stop wasting money...
These financial products the government is buying DO HAVE value. Warren Buffet bets the government WILL MAKE MONEY, and that is even expecting the government to not run the program smoothly ( they never do). Traders are expecting to reap 15-20% in this distressed market and even if the government made ANY positive returns it would be worthwhile... even if they broke even...
It would keep people in jobs, corporations paying taxes, citizens paying taxes, citizens spending money etc.
It is not a god damn bailout.
k:
