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NeedToUseYou -> RE: Just what is going on ? (9/29/2008 8:24:20 PM)
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quote:
ORIGINAL: snappykappy
why cant the banks repo the items and just sell them off for what ever is left because from i understand they do not want to be landlords or own property
My understanding is the problem is they used the "supposed" value of those mortgages as collateral for other risky investments. Those investments, require a certain amount of collateral to stay afloat, thus it doesn't much help them, to sell them out, and best to keep them floating on the books at an unrealistic valuation, or until they are forced to revalue them, then the shit hits the fan. And a paper company built on fantasy goes poof.
Thus enters the government, who is trying to add artificial demand, that will artificially drive up the value, which will artificially support the leveraged investments built off of them. In theory, the companies would get real money for some of their bad holding, which is much better than holding unstable paper. And could fulfill their holding requirements for their investments. It seems that this is more about the derived investments based on the mortgages, rather than the mortgages themselves. Thus the situation is orders of magnitudes greater than mortgages.
Even if it works then the job becomes how to undo the layers of leveraged investments, without causing another downward spiral, or how to keep the housing market from dipping again, as at present it doesn't look like the housing market is going to recover for sometime. So, the government would have to buy all of them, or mimic the buying behavior of good economic times in that market for some time to come. It simply doesn't reason that it would hold.
This is why IMO, 700 Billion would be step one, 700 billion again would be step 2, another 700 billion would be step three. And after it is all said and done, all the leveraged investments may still be there.
We are all forgetting, about countrywide, which was already billions of risk on the government, Fannie and Freddie which was billions of risk, now the government absorb some of the risk of Wachovia. Anyway, it's not like there hasn't already been 100's of billions of risk absorbed by the government(correction, Federal Reserve, acting on the wishes of the banks). I mean if this 700 billion passes, we are already in over a trillion dollars. So, question is how much more are you willing to give to prop this crap up. It's not even started to unwind.
And another question that is pivotal, let's say they stabilize all this, do you think that these same financials will give up the now performing risky investments on the rebound. NOPE. They never bail on the boom.
I'm no expert either, just been reading a lot lately. Someone correct me if I'm wrong here.
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