Our tech team has launched updates to The Nest today. As a result of these updates, members of the Nest Community will need to change their password in order to continue participating in the community. In addition, The Nest community member's avatars will be replaced with generic default avatars. If you wish to revert to your original avatar, you will need to re-upload it via The Nest.
If you have questions about this, please email help@theknot.com.
Thank you.
Note: This only affects The Nest's community members and will not affect members on The Bump or The Knot.
jlaj
can I pick your brain for a sec? tell me what you think of this crazy scenario.
The gov't wants to buy up the bad debts right? What if they used this commission to parcel off all subprime mortgages, and then through equity partnerships, or some such private company, sold off these mortgages to stable banks/investment firms. The entire subprime market is collectively profitable so the gov't would make money, or at least cover the costs b/c the debt would be bought at a discount and most mortgages won't default. Then the banks with the most of this debt would be forced to shrink, restructure or go under (I'm for this and not for the gov't buying shares to keep them afloat). Maybe they could buy back some of the good debt from the gov't in order to balance their portfolios...
This is wackodoodle. But I'm just brainstorming. I'm trying to come up with a solution without reading about one first. I don't want the gov't to have permanent ownership of banks or their debt and I want some of the proceeds to pay back the taxpayers.
Also, have you researched the Resolution Trust Corp from the early 90s?
Re: jlaj
You are on to something, but there are a few hurdles. Selling back the good mortgage securities to the remaining banks will leave the government with the riskiest assets. My guess is the government can hope to sell the good stuff at a high enough price to offset the losses that the risky stuff will incur. However, who determines which banks will buy these assets back and who will eventually have to fail? I am leery on shareholders and board of directors willing to take back even the good mortgage securities. These same banks will be selling everything to the government at a deep discount, incur losses, and then buy them back at a higher price.
I have to do some research on the RTC since every article I come across refers to it. I will let you know what I find.
Sorry it is taking me forever to respond, but work is getting in my way this afternoon. lol.
No problem! You're being responsible, something I might want to try some day ; )
You are on to something, but there are a few hurdles. Selling back the good mortgage securities to the remaining banks will leave the government with the riskiest assets. My guess is the government can hope to sell the good stuff at a high enough price to offset the losses that the risky stuff will incur.
Exactly, or at least make up a substantial portion of it.
However, who determines which banks will buy these assets back and who will eventually have to fail? I am leery on shareholders and board of directors willing to take back even the good mortgage securities. These same banks will be selling everything to the government at a deep discount, incur losses, and then buy them back at a higher price.
This is what I was thinking, the gov't could have an optional bailout, where banks with bad debts that wanted to offload them could, but only by offloading their good subprime mortgages also. So we, the taxpayer, wouldn't get stuck with all the bad debt, leaving the banks with all the good investments and no penalty. Also whoever wants to buy the debt from the gov't could. It would be up to them. If the gov't buys the debt at a discount I think investors would be likely to buy it up.
I would love you forever if you got me a kickass job like that!!
p.s. love the blinkie!
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.