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I think one of the commonly held misconceptions about this whole 'bailout' thing is that fixing the mortgage market NOW will fix the problem. Fixing the mortgag

I think one of the commonly held misconceptions about this whole 'bailout' thing is that fixing the mortgage market NOW will fix the problem. Fixing the mortgage market in 2006 might have helped, but it also might not have. We'll never know. While subprime mortgages got this whole ball rolling, the credit crisis extends way beyond that now, and has taken on a life of its own. This bailout plan was to try and fix the credit crunch by restoring confidence in the financial sector, taking toxic assets off their books, and giving them a more stable capital base. The housing crisis is now a separate issue, and if lawmakers want to address it, it should be in a separate bill. If the housing crisis continues, it hurts a lot of people that made bad borrowing decisions and it hurts a lot of banks that made bad lending decisions, but the turmoil is mostly in the financial/construction/materials sectors. If the credit crunch continues, just about anything could fail unexpectedly, including things as diverse as insurers and big manufacturers, which could leave a lot of people out of work, and turn this from a Wall St crisis into a Main St crisis.

gscott 18y ago
No one clicked on my link above or they would have understood what I meant.
- netcan 18y ago
  I did. No offence, but it's a poor explanation. Actually I think it's flat wrong. There's a crucial link in the chain she is missing.
  - gscott 18y ago
    If you mean the credit default swaps, those are worthless pieces of paper peddled by companies that didn't have the means to keep up with those contracts. In other words, they are fraudulent. There was one hedge fund that setup a company with $4.5 million dollars to be able to cover a possible default of into the billions. Those contracts are worse then worthless and should be annulled like a marriage to Britney Spears.
    - netcan 18y ago
      This is what I meant: "You deposit $100,000 into a CD. The bank creates three loans based on the original $100,000 deposit. Loan /Asset #1 = $90,000 Loan/Asset #2 = $81,000 Loan/Asset #3 = $72,900. The total = $243,900 in assets for the bank. This is $243,900 in new money."... ..."After it pays you 5% interest, the bank has made a tidy profit of $238,900. ($243,900 - $5,000 = $238,900.)" The crucial link that wasn't mentioned is that when as loan is issued that money is returned to a bank as a deposit (usually). Only then can then re-issue it as a loan.

gscott 18y ago

No one clicked on my link above or they would have understood what I meant.

netcan 18y ago
I did. No offence, but it's a poor explanation. Actually I think it's flat wrong. There's a crucial link in the chain she is missing.
- gscott 18y ago
  If you mean the credit default swaps, those are worthless pieces of paper peddled by companies that didn't have the means to keep up with those contracts. In other words, they are fraudulent. There was one hedge fund that setup a company with $4.5 million dollars to be able to cover a possible default of into the billions. Those contracts are worse then worthless and should be annulled like a marriage to Britney Spears.
  - netcan 18y ago
    This is what I meant: "You deposit $100,000 into a CD. The bank creates three loans based on the original $100,000 deposit. Loan /Asset #1 = $90,000 Loan/Asset #2 = $81,000 Loan/Asset #3 = $72,900. The total = $243,900 in assets for the bank. This is $243,900 in new money."... ..."After it pays you 5% interest, the bank has made a tidy profit of $238,900. ($243,900 - $5,000 = $238,900.)" The crucial link that wasn't mentioned is that when as loan is issued that money is returned to a bank as a deposit (usually). Only then can then re-issue it as a loan.