Dichromate
2008-10-07, 09:05
The US government is going to spend a lot of money buying up various mortgage backed securities which are backed by shitty loans right?
the reason they're doing this is in order to fix credit markets, as debt has become ridiculously expensive, and in many cases people can't rollover their loans.
Here's the kicker - where are they getting the however many billion dollars to do this?
The idea of this seems to be for the US government to borrow, since governments are supposedly more or less risk free, then put the money back into the market by buying these loans.
We'll ignore the issues around whether these loans are good, bad, or fucking worthless.
US raises money on markets, puts money back on markets, but into different hands.
I just can't see this helping.
Their plan seems to be that it will 'restore confidence' but that's a bit airy fairy isn't it?
When people sell their shitty-loan backed securities, are they going to immediately loan that money back out?
We better hope they do, because the money will have come off of markets in the first place. I don't know where the government is raising it, but if they manage to raise money domestically there could be a problem in that British Banks and other international lenders may well not be willing to tie up as much of their money in the US as they have previously and a not insignificant proportion of these assets are held by international investors.
That could mean a net OUTFLOW of cash from domestic credit markets, depending on what proportions of the borrowing are domestic/international.
(The other issue is to what degree lenders are going to be willing to lend to the US government. The endless spending can't go on forever. I don't think they'll have trouble with this specifically, but it's getting ridiculous)
Does anyone have any thoughts on this angle of it?
The only way I see this as helping is in that the US government is using its status as a 'risk free' government to pull money off the markets, and put it back on in the hope that things will start moving again.
Surely even as statist a solution as the US creating a government backed lender to raise cash as a low risk entity and lend it as normal to credit markets would be more likely to work then the present plan. At least it would directly target the problem that threatens to fuck up everything.
Investment banks going bust is bad, but if factories, farms and other business can't finance their operating activities everything's fucked.
the reason they're doing this is in order to fix credit markets, as debt has become ridiculously expensive, and in many cases people can't rollover their loans.
Here's the kicker - where are they getting the however many billion dollars to do this?
The idea of this seems to be for the US government to borrow, since governments are supposedly more or less risk free, then put the money back into the market by buying these loans.
We'll ignore the issues around whether these loans are good, bad, or fucking worthless.
US raises money on markets, puts money back on markets, but into different hands.
I just can't see this helping.
Their plan seems to be that it will 'restore confidence' but that's a bit airy fairy isn't it?
When people sell their shitty-loan backed securities, are they going to immediately loan that money back out?
We better hope they do, because the money will have come off of markets in the first place. I don't know where the government is raising it, but if they manage to raise money domestically there could be a problem in that British Banks and other international lenders may well not be willing to tie up as much of their money in the US as they have previously and a not insignificant proportion of these assets are held by international investors.
That could mean a net OUTFLOW of cash from domestic credit markets, depending on what proportions of the borrowing are domestic/international.
(The other issue is to what degree lenders are going to be willing to lend to the US government. The endless spending can't go on forever. I don't think they'll have trouble with this specifically, but it's getting ridiculous)
Does anyone have any thoughts on this angle of it?
The only way I see this as helping is in that the US government is using its status as a 'risk free' government to pull money off the markets, and put it back on in the hope that things will start moving again.
Surely even as statist a solution as the US creating a government backed lender to raise cash as a low risk entity and lend it as normal to credit markets would be more likely to work then the present plan. At least it would directly target the problem that threatens to fuck up everything.
Investment banks going bust is bad, but if factories, farms and other business can't finance their operating activities everything's fucked.