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jlaj... again
jlaj617:
Caden you are one smart cookie! I know you haven't read any details on the proposed bailouts but that is essentially what has been presented so far. The implementation portion of this plan, however, will be tough to navigate through considering that rising rates issue again.
I think I mentioned it in one of my other posts, but the government (and taxpayers) has the potential of earning large gains from these mortgage related assets. That is probably why the proposed bailout included all mortgage related assets and not just the horrible stuff. I think those teams of economic advisors can quantify how much of these mortgage related securities is left on company balance sheets.
The bigger unknown left would then be the required rate of return for a riskier Treasury bond. There will be a fundamental shift in how the rest of the world views our government issued debt. No matter how much you promise and prove to the public that the rewards do outweigh the risks in the end, it will be a very rough period for Americans. I am sure there are models that can drive up bond rates to see exactly where that break-even point is and make sure the Fed monitors that quickly.
I hope the Fed has a strong list for potential managers of this future portfolio. A great portfolio manager can mean the difference between success and failure of this plan. Unfortunately, whatever form this plan will be will cost us trillions of dollars.
Dammit! I wish I would have talked about this earlier. I told people I thought the gov't was only buying the "bad" debt. Oops! If you have time, I have some more questions!
The gov't is not planning on keeping these mortgage related assets is it? I read a little bit about the RTC and thought this was a similar idea - buy to sell.
Re: T-Bonds. From what I read today it seems like there is increased demand for gov't issued debt (which is pushing down rates, as I'm sure you'd know). Here's a short article about it.
Granted this is short-term debt fluctuating b/c of Congress' bailout debates, but I wonder if it won't continue as the private financial market suffers. I don't think the bailout will be the end of the private financial industry's problems. And I'm not sure that investors think this bailout is too much for the gov't.
At the same time I also question whether or not it would be a bad thing that the gov't pay more on its debt. Would that not curtail deficit spending, or at least create a disincentive?
WDYT?
Re: jlaj... again
<butts in>
jlaj - the tribe is KILLIN me on this subject... I really need to learn not to open political threads over there