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I strongly doubt the bonds/underlying is being sold at market value - I assume its similar to factoring (? I forget if thats the precise term) but these are li
by intended 14y ago
I strongly doubt the bonds/underlying is being sold at market value -
I assume its similar to factoring (? I forget if thats the precise term) but these are likely Non Performing loans. The original debt would be sold at fractions of the original price by banks to a collection agency.
From what I remember of economic theory, this is essentially a stimulus directed at those who have the hardest time dealing with debt. So on a simple superficial take - not bad at all, it seems even more targeted than a full stimulus to maintain all aspects of the economy.
Edit: TO be clear - I agree with your final point. Essentially you are saying that if we invest in growth and growth increases, it would be the best way for people to get out of their quagmires.
In that respect, such a debt forgiveness is linked with increasing growth from what I recall.
- JumpCrisscross 14y agoMarket value of a non-performing loan is a fraction of par, often pennies on the dollar. The lender will likely not sell to OWS for less than what they are being offered by the market. If these are NPLs the borrower has not been making payments - they go from not making payments on an NPL to not making payments on a forgiven loan. The lender, on the other hand, goes from owning worthless paper to having cash on hand. The stimulus comes only if performing or distressed loans still being serviced are bought, but the price for these will be much higher.
- intended 14y agoAh sorry - I thought you were using market value as in terms of the original value of the loan. Not its impaired value. edit: I recall that debt forgiveness to consumers was considered a better form of stimulus - economically speaking.
- deleted 14y ago[deleted]