We all come to know of the difficulties the subprime mortgage crisis has brought upon us. In a nutshell - Banks lost money because they handed out money to unqualified people and unnaturally lifted the demand on housing. When the money ran out, coupled with home defaults and subsequent loss of equity, Banks were not able to lend any more (or as much). So since they gave out too many loans in an effort to make as much money as possible, we find ourselves in the situation today.
So what's being proposed? A $700 Billion Taxpayer bailout? What people don't realize is where the $700 Billion comes from. No - the taxpayers don't have $700 Billion to spare, so its not coming from your income taxes - that's already spoken for - it funds various unnecessary departments in Washington, the war in Iraq, propping up foreign governments, etc. No, the $700 Billion simply will be created by the Federal Reserve. Yes, you heard it right - the money did not exist before, so they're simply going to create it out of thin air. The idea is that the Fed creates the money, gives it to the banks in exchange for the mortgage assets - and the Fed then attempts to sell off these mortgage assets to retire its newly created money or "return to the treasury."
"I sincerely believe... that banking establishments are more dangerous than standing armies, and that the principle of spending money to be paid by posterity under the name of funding is but swindling futurity on a large scale." --Thomas Jefferson
Essentially, to solve all our problems - The government is going to give money to banks to go loan out and get themselves into trouble all over again. The Cause is being offered up as the cure... In an attempt to retain current home values, money is being injected to artificially stimulate demand. A drop in home prices would further threaten to destablize the system - if people default in mass and banks are left to dry (which already is happening) - it leads to an economic death spiral.
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