November 26, 2008
Tuesday's $800 Billion Credit Market Bailout: An Incentive to Sercuritize??
Monday was the Citigroup bailout and Tuesday was the $800 Billion credit market bailout. The goal of the new bailout is to free up credit in consumer credit markets -- mortgages, car loans, student loans, and credit card loans. The mechanism of choice is interesting -- $200 billion (in a Term Asset Backed Securities Loan Facility --TALF) and $500 billion to buy MBSs (mortgage backed securities) guaranteed by Fannie Mae and Freddie Mac. The government is buying ABSs (asset backed securities) generated by the now notorious securitization process (structured finance). Academics and journalists argue that the securitization process so dilutes accountability that no one is responsible for taking excessive risks (the borrower, the originator, the bundler, the rating company, the underwriter). So to get people to loan we are going to stimulate the securitization process, reward the securitization process, by buying securities securities to encourage more borrowers, originators, bundler, and underwriters. Great.
November 26, 2008 | Permalink
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The cause of the crisis becomes the fix of the crisis. Right. But whats different now is that private industry won't feel the effect when we get a blowup of this new securitization, the government will, and apparantly nobody cares about our national deficit or total debt level. We just keep issuing bonds and FOR NOW people keep buying them. The overwhelming mentality about federal spending in Congress at the moment is "we'll deal with it later."
Currently, the federal debt level is $10.6 Trillion. That is $35,000 per citizen. But remember that 90% of the taxes in this country are paid by the top 10%. That means that roughly each person in the top 10% (which is defined as an income over $110,000) will have to sholder an eventual tax burden of $350,000 PER PERSON. Awesome.
Posted by: Mike Rosemeyer | Nov 26, 2008 12:29:07 PM