The bailout program being negotiated by the Bush administration and congressional leaders calls for the government to spend up to $700 billion to buy distressed mortgages.
The main reason that the financial markets are in turmoil is that banks, hedge funds, and other financial institutions hold trillions of dollars in bad debt. Much of this debt is backed by mortgages that exceed the value of the homes against which they were issued, the result of an unprecedented run-up of house prices. What is happening now is that the banks and funds, after being oblivious to risk for the last five years, suddenly noticed that much of the debt they hold is not very creditworthy. They desperately want to dump this debt and exchange it for safer assets. The Wall Street crew wants the Fed to lower interest rates, which will reduce the cost of carrying this debt, and thereby give them more time to find some suckers on whom to dump it.
American taxpayers will come up with the money, although if you are bullish on the United States in the long run, there is reason to hope that the tab will be less than $700 billion. After the Treasury buys up those troubled mortgages, it will try to resell them to investors. The Treasury's involvement in the crisis and the speed with which Congress is responding could generate long-range optimism and raise the value of those mortgages, although it is impossible to say by how much.
We should be future tax-payers in the future, does this development concern you?
I see, also, you're interested in American Politics?
| QUOTE (Double Oh Seven @ Sep 22 2008, 04:53 PM) |
| I see, also, you're interested in American Politics? |
Canada and the US are highly integrated partners in the world market, so if things start going ballistic south of the border, then it will eventually come north to hurt us.
Canada makes a lot of its money from trade. If we can't trade with the US anymore, it'll be bad. In that regard, news bits of the faltering American economy concern me greatly. As for the presidential race, I'm more focused on our own elections, but I spectate.
And here I thought Tutan was just another dude with nothing to do. Sounds like you're one of those dudes from the news. D: