What's good and bad about the bailout

While the MSM are ignoring the fact that Democrats are mostly responsible for the problems plaguing Fannie Mae and Freddy Mac, they also are ignoring the real impact of both the bailout and no bail out.

Without the bail out the two companies, and several other companies will "go under" which means what money they owe will be either paid out slowly, or possibly not at all. Their assets, loans of which many are bad, would more than likely be sold off at the value assessed by how likely they are to be repaid. It's doubtful that any sort of domino effect would go beyond a handful of companies. Much of the fuss is being exaggerate by the MSM because anytime the Mindless Middle (moderate voters too stupid to have any real opinions) hears anything about banks, they assume it the GOP.

On the other hand the bailout is not as much of a financial burden as has been portrayed, either. Instead of the loans going to creditor organizations, the worst of the loans would be bought by the government for more than they are reasonably worth. But part of the reason they are worth less is because Fannie Mae and Freddy Mac don't have the time to deal with them. they need to show some immediate positive finances to bolster confidence in their stocks.

The government isn't under that kind of pressure, and therefore can wait the loans out.

Here's a fictional example. John Doe borrows $100,000 on the value of his home, but that value was inflated due to a heightened real estate market. Property values went down and John's home is now only worth $75,000 and he still owes $90,000 on it. Meanwhile prices are going up and he can no longer afford the payments on the loans, which he stupidly agreed to pay a variable rate on--meaning the lender could raise interest rates at any time. If John declares bankruptcy the lender can write-off the debt and reduce it's overall tax liability by about 20 to 30% of the loan amount due. That's the equivalent of cash in hand. But 25% is only acceptable on a certain percentage of loans. Meanwhile the lender is trying to hike up interest rates so they can bleed as much money as they can off John before he eventually is forced to declare bankruptcy.

In steps Uncle Sam, buy the loan for 40 cents on the dollar, lower the interest rate, works with John to arrange reasonable payments so that he's actually able to pay the ENTIRE loan off, and the taxpayers make a nice profit.

So, the bailout isn't necessarily the government throwing away taxpayers' money.

However, there's still the problem of the government using taxpayers' money to help some rich, corrupt (mostly Democrats) bankers escape the consequences of their dishonesty. Many conservatives are opposed to the bailout for that reason, and I can't blame them. It is a bad precedent.

But ultimately the bulk of the "crisis" is nothing but smoke and mirrors exaggerated by the MSM to help elect Barack Obama--as they do every election year to help out the democrat candidate.

Posted by Danny Carlton at September 25, 2008 9:00 AM