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Talk of plan energizes markets
Speculation that the Bush administration was developing a comprehensive plan jolted Wall Street on Thursday and sent stocks higher. The Dow ended 410 points higher.
The Treasury has been talking about the concept of an agency to take on bad debts of financial institutions "for several months," a source with knowledge of discussions on the issue told CNN.
There's precedent for the federal government taking on troubled assets from the private sector. In the 1930s, the Home Owners Loan Corp. was set up to issue bonds to refinance borrowers. Then during the S&L crisis Congress set up the Resolution Trust Corp. to sell assets of failed banks.
One way the agency under discussion could work is by setting up bulk auctions to buy mortgage assets from financial institutions. The auctions would be for set dollar amount purchases. Companies that want to offload the hard-to-sell assets from their balance sheets bid to sell to the government at a huge discount. The company willing to sell at the lowest price wins.
The government would then be able to sell the assets back into the market when it wanted.
According to policy research firm the Stanford Group, such a setup would allow the government to refinance borrowers in the loans owned by the government, thereby lowering the risk of their defaulting and eventually boosting the price of the mortgage security in which those loans are packaged.
The agency and auction facility is one that House Financial Services Chairman Barney Frank, D-Mass., and Senate Banking Committee Chairman Christopher Dodd have supported.
Jaret Seiberg, a financial services analyst at the Stanford Group, said he believes there is bipartisan support for allowing the Bush administration to take short-term action to "get us through the immediate crisis."
The expectation is that whatever program is decided on would only last through the presidential inauguration. "You don't want a program that will last for several years because that would limit what the next administration could do," Seiberg said.
"According to policy research firm the Stanford Group, such a setup would allow the government to refinance borrowers in the loans owned by the government, thereby lowering the risk of their defaulting and eventually boosting the price of the mortgage security in which those loans are packaged."
Originally posted by bruxfain
yeah its a crappy deal for Americans. Your government is about to buy a In the mean time the people who made these assets worthless will lose their homes and their credit ratings will be destroyed. They'll being living in tents out in the Nevada desert.
Originally posted by marg6043
reply to post by bruxfain
No you are wrong the markets are doing well now and will last until next year, by then either the new bastard child of the Federal reserve will be in place and the vicious cycle that put us were we are now will be now in full gear but with a bonus, this time the big fat rats will be able to dump their trash and stay afloat thanks to the American hard working class and tax payer.
What a future for we have build for Americas unborn, still the real problems that are the national debt and spending will still be without any approach, America still will be outsourced and sold to the highest bidder like China but no to worry we will have credit and loans to keep financing our personal debts.