They had a combined share of half of the mortgage market which is $6 trillion, how much money do they need? Depends on the quality of their loan. $100 billion is just a drop in the bucket, I doubt it is enough to bail out the two companies. Nothing really to be happy about, it is tax payers' money = your money to bail them out.
what will happen if the govt don't help them? also can the govt really do anything or this might be just a delay thing
They would go bankrupt and a bankruptcy court would divide up the assets. The US bailout only delays the accounting of the true losses.
The bailout also protects the preferred share-holders, and in this case that means other nation's central banks (particularly China) So pay your mortgages, because we owe that money to China!
Korr makes an excellent point. I've had arguments with EarlPearl in the past about where the current level of prosperity is coming from, and I don't think any serious observer would discount how much of it is being fueled by foreign capital and low cost countries (for manufacturing). We know that there is a negative savings rate, so obviously someone is providing the low prices and cheap credit to keep everyone spending like it's 1999. Unfortunately, I fear that reality won't set in until a lot of people are in bad shape. Everyone pays lip service to being debt free and saving, but very few people are actually doing it. Instead they are adding 4 and 6 cell phone plans to their family budget, and looking to buy a 3rd car. This sort of overconsumption is unsustainable, and I only say overconsumption because I am not an anti-capitalist, but when you spend more than you make, then you are over consuming. Right now, the Chinese are profiting from the interest payments on their capital. They have leveraged their savings to create more wealth. At everyone in the West's expense.
I couldn't agree with you more. The individual taxpayer has gotten themselves into bad financial shape due to financial gluttony and the government is the scapegoat.
We don't agree. I am all for fiscal conservatism and personal responsibility, but the government and banks have intentionally manipulated the money supply, by creating massive amounts of inflationary credit, which destroys the incentives to save. Right now, interest rates should be over 10%. They can't put them that high, because the velocity of money is already stalling (stagflation). And it would exacerbate the mortgage crisis because everyone on an ARM would get wiped out. If you had money in a savings account, you should be earning the rate of inflation, and independent studies show inflation around 12%. With the FED setting the rate of interest not at the market level, but a political level has been destroying the incentive for people to work more, save more and build wealth through capital accumulation. I mean, that is how you get wealthy. By earning more than you spend and saving. By being shrewd with your money. Not by borrowing and leveraging yourself to the hilt. This situation is a crisis, but no one is talking about it, certainly not Obama or McCain. The government is like a heroin addict, it can't stop inflating, but if it doesn't stop, it will die.
i still do not get it. they go bankrupt their assets sold so what? what is the problem with that? then investors will buy these assets and new companies are formed. what is wrong with that? and if chineese and the other loose so what?
I can see some of what you are saying here based on my own personal experience. I have been listening to Dave Ramsey lately and I am currently trying to follow his steps. But, I am finding that the incentive to save is not there. Shopping around trying to find a good place to put my money where I will earn more sucks right now because of the interest rates.... So are you against the feds bailing out these companies, Guerilla? If so, what would be a better solution?
People can stop buying on credit instead of taking out loans or using credit cards. PPL should be able to buy consumer items like a pc with cash instead of paying 22% credit card interest.
Do you really believe that Bernanke and Goldman Sachs Paulson serve the people, and not Wall Street? Do you really believe that big business doesn't drive what the government does? If they piss off the Chinese, the Chinese have been threatening to revoke their lines of credit and to start divesting of the dollar. That would probably trigger a global collapse of the dollar as a reserve currency. Simply put, the Chinese are more dangerous than 100 Bin Laden's, Afghanistans or Russias. The FEDs are facilitating the bail out. You are paying for it. Every citizen is paying for it, the FED is deciding that it is time to destroy your savings, and to lower your standard of living to bail out these guys. That is what inflation does, and that is how these enterprises will be bailed out. Not with taxes, because that would be stopped at the voting booths. The government will just print more money, which will depress the dollar. Sorry for the bad news. Yeah, but what about a middle class single income family that has 2 cars, a boat, a vacation home, 2 or 3 iPods, iTouchs, couple laptops, big screen entertainment center, home theater, plastic surgery, designer handbags etc etc etc.? I am like you. I buy what I can pay cash for. I don't live on debt or credit. Most people do not have the discipline. They are suckers for shopping. That's why there are malls everywhere, not libraries or parks.
I see this all too often. And people don't realize that they are putting themselves in sooooo much danger by buying all this crap with loans or with credit cards, racking up thousands upon thousands of dollars in debt just to "keep up with the Johnsons". Several close friends have a house they can barely afford, 2 brand new cars with huge payments, and the highest quality crap that they can buy. No emergency fund, no savings of any type. So what's going to happen if one of them gets sick, or in an accident, or laid off? All of these people are in the early 20s and are starting their adult lives completely the wrong way. Yikes. If I can't pay cash for it, I don't buy it. And with the shape of the economy, I'm building up my emergency fund so if I do get laid off, I won't be screwed trying paying the only debt I have, which is the mortgage. Dave Ramsey's the man. Even when I told my parents about following his plan and not using credit cards ever again, I was told I was absolutely crazy. "Everyone needs credit and SOME debt". Uh no thanks. And I want to give a shout out to the Feds for making my money worth less. Way to go guys! Pizza: what are you not understanding?
Just like when the Fed stepped in to bail out Bear Stearns, the initial step of a bailout was taken so as to avert a complete breakdown of the entire banking financial system. The Bear Stearns situation did not lead to a financial system meltdown. I'd assume the same thing will happen with the Fannie, Freddie situation. Want to live thru a complete financial system collapse? speak to argentinians. Speak to me re: a total breakdown and collapse of all financing options with regard to commercial real estate. That is what happened thruout the entire US at the tail end of the 1980's and beginning of the 1990's. If you live in Texas it happened earlier there. If what had happened in just commercial real estate had moved thru the entire economy, it would have been a gigantic disaster. It didn't occur. The rest of the economy slugged forward albeit at a severely reduced rate with much tighter financial lending capabilities. The commercial real estate market was dead in its tracks for about 2 full years. Slowly....things got better. As to ramifications going forward they are severe and lousy. No doubt.
The rumormill is abuzz with talks about a Lehman Brothers collapse: http://abcnews.go.com/Business/MarketTalk/story?id=5756016&page=1 I have also heard people afraid that WaMu will be next as well. What do you see happening Guerilla if these take a nosedive as well?