bsteamer1883

Now I have no party affiliation in fact this will be my first eligible election and I'm registered as an independent. I was hoping someone could help clarify this whole situation with the bail out though. I just listed some points i "THINK" are fact. Anyone who would care to set me straight or add facts is very welcomed to!! In order:

- US wants to encourage home ownership

- US intervenes

- US grants 13.6 billion dollars in credit line in the year 2000 alone to freddie and fannie to increase the # of mortgages they can lend

- To increase the number of home owners you have to assume that people who couldn't afford homes before in the "free market" now can because the federal government has empowered freddie and fannie with the money

- Market fluctuation + inflation of U.S. dollar makes it more difficult for these new homeowners to pay mortgages and they fall behind in payments

- Freddie and Fannie are now not collecting on money so therefore the federal gov't does not receive it's money either

- Now the federal government wants to give 700 billion dollars to freddie and fannie so they can foreclose on these homes and resell them?

- With putting 700 billion dollars into the economy that didn't exsist before this potentially weakens the dollar?

Thanks,

P.S. Take it easy on me.

Gladiator

Housing Demand Dropped. The illegals went home, and abandoned a number of mortgages. Investers who rented to illegals were stuck with units to rent, and the rental marked dropped. So now ther are too many houses for sale. Ordinarily, if someone gets in trouble with a mortgage, tehy sell the house. Today, you can't sell a house. Very low demand for hoiuses.

Market needs to adjust. Smart inverstors floated Credit Default Swaps in advance of the decline. Since illegals are not well tracked, only a few people knew that CDS was a trap. The illegals went Souoth, Literally and figuratively.

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How did Our Oil get under Their Sand?

donsutherland1

The financial rescue legislation was separate from the earlier measures undertaken when Fannie Mae and Freddie Mac were placed under federal conservatorship. The $700 billion authority was intended for the Treasury to purchase troubled assets from financial institutions, not Fannie Mae or Freddie Mac. The financial institutions included banks, savings associations, credit unions, security brokers and dealers, insurance companies, etc.

The legislation is needed to address the increasing strains in the money markets that saw overnight interest rates rise as high as 11% in Europe earlier today. Until those stresses are addressed, banks and other financial institutions will become increasingly reluctant to lend money, even to one another. They will either hoard cash or use any excess cash to purchase Treasury securities.

Under such a scenario, businesses that rely on lines of credit to finance inventory or meet payroll will face higher financing costs, when such funding is available. If money market functionality breaks down completely, there would be the danger of a spiral in which a deepening credit crisis and economic decline begin to feed off one another. Such a development could precipitate a systemic financial crisis. Such a crisis would have a substantial adverse economic impact (business failures, job losses, even the risk of debt-deflation) and much greater fiscal costs than those associated with the $700 billion financial rescue plan, which should result in losses well under $700 billion (perhaps on the order of $100 billion to $300 billion based on historic experience with similar mechanisms).

The measure is to be funded from borrowing. While there could be some adverse impact on the value of the U.S. dollar, the adverse impact would be nowhere near what would happen were the federal government to try to monetize part or all of the financing.

bsteamer1883

Thank you for your responses! Very informative!

donsutherland1

Bsteamer1883,

To illustrate the impact the intensifying credit crisis is having on businesses that rely on lines of credit or other short-term financing to fund inventory or meet payroll, CNN reported today:

The tightening of the global credit markets is crimping the world's largest telecommunications company.

AT&T Inc. Chairman and CEO Randall Stephenson said Tuesday that his company was unable to sell any commercial paper last week for terms longer than overnight. Commercial paper, which helps lubricate the flow of business operations, is a short-term IOU available to corporations that banks usually know are good for the money...

A shortage of buyers for the debt means such borrowing is not as readily available as it had been even three weeks ago, he said.