Nappy Headed Black Child

Okay Well The Treasury Secretary Paulson has got a plan. 

Wanna hear it, here it go

The problem is pretty much like this. These large Investment Banks and Insurance companies that have bought all the shitty mortgage loans that have failed because people couldnt pay for the homes becasue they got played into buying something they couldn't afford/were living beyond thier means causing these homes to go into foreclosure. And it happend on a massive enough scale to cause people to quickly snatch their money out of the housing market. Now these investment banks and insurance comapanies that arent connected to a regular bank like Wachovia or Suntrust, have about 1 dollar deposited for like every 10 they have invested. If large amount of people pull their money out there's no way they are gonna be able to meet that demand over a short period of time thus they go bankrupt.

So the government bails them out. Now the goverment just cant contiune to bail companies left and right they have to solve the crisis so these companies can stablize on their own. The things is that the companies that own the loans have missing some critical pieces of the puzzle

1. They dont know which mortgage goes to which person or any of the specifcs they just bought these loans in a bundle thinking they were gonna make a ton of money off of them

2. The Goverment wants the companies to be able to report losses and gains these companies cant do this becasue they dont know what the mortgages are actually worth becasue nobody wants to buy them. The way these companies are structured is that they value a financial instrument (in this case the homes) at their price on the market but since nobody wants to buy these homes (and in turn take over the mortgage) they have no way of figuring their value and reporting them to the government

....yeah I know, Sounds like we're FUCKED right well maybe not

Paulson the treasury secretary has a plan

He basically want to spend about 700-800 billion....yes you read correctly....700-800 billion dollars to buy up these mortgage loans. Think of it like debt consolidation on a massive scale. If it works in the long run the goverment could possible end up making money on this deal. The government would basically take each loan and say ok everyone under who has under an "X" amount of debt we are gonna lower you interest rate to "X" and let you keep your house thus allowing for some money to be made. 

*sidebar*

An Adjustable rate mortgage is basically you buy a house at say 3% interest and then say 3 to 5 years later you interest rate jumps to 7%. The premise is that it give people the ability to own a house that weren't able to before assuming that in that time they will get a promotion and eventually be able to afford to pay the mortgage at 7% interest basically letting you "afford" you couldnt pay for with a fixed rate mortgage. This was also done in conjucntion with not requiring people to having to put a substantial amount of capital down to buy the house like 20% of the worth just in case something happened.

What ended up happening was that people couldn't pay the increased interest, the housing market stopped booming so they couldn't sell the house and break even so rather than end up in debt just let the bank have it. 

*end sidebar*

<-----Likes the plan but there some big issues

1. The specifics of the plan give the Secretary of the Treasury way too much unaccountable power

2. The plan specifics heavily favors the companies to the tune of 700-800 billion. 

Congress is trying to get their collective shit together and fix the problems with the plan or devise a better one within the next week because its reelection time and they kinda wanna go home so they can campaign cuz the nature congressional elections is all about the candidate and not the party (but thats another blog post for another day).

Good Luck

additional info here