I'm not exactly well versed in macro-economics so a stupid question.

How is the temporary infusion of cash from the government going to help
the market? The banks need to pay that money back don't they?

In article <daniel_t-702571.09593012082007@news.earthlink.net>,
"Daniel T." <daniel_t@earthlink.net> wrote:

There is a run on the banks and other financial institutions
as people try to escape from the funds that invested in these
shaky mortgages. These financial institutions need cash to
pay off the people who are withdrawing. Unlike a mutual fund,
they cannot ask a person with a 30 year mortgage to pay up
early (where as a mutual fund can simply sell some of its stock).
The situation will eventually calm down. Not everyone will pull
out. The banks will earn money from other deals, so they
will be able to pay the loans back.

-john-

"Daniel T." <daniel_t@earthlink.net> wrote:

I'm not exactly well versed in macro-economics so a stupid
question.

How is the temporary infusion of cash from the government going to
help the market? The banks need to pay that money back don't they?

There is a run on the banks and other financial institutions as
people try to escape from the funds that invested in these shaky
mortgages. These financial institutions need cash to pay off the
people who are withdrawing. Unlike a mutual fund, they cannot ask a
person with a 30 year mortgage to pay up early (where as a mutual
fund can simply sell some of its stock). The situation will
eventually calm down. Not everyone will pull out. The banks will
earn money from other deals, so they will be able to pay the loans
back.

So the assumption is that they still have a positive cash flow even
after taking on these extra emergency loans. How long do they have to
pay back these emergency loans? At what interest rate? What would happen
if the loans were not provided? Can this money properly called a "bail
out"? It seems to me that borrowing this "emergency money" in order to
keep their investments in play will be very profitable to them...

I'm wondering why the government is so quick to send money to banks that
made risky investments in providing these loans, but not willing to send
money to individuals who made the risky move to accept the loans.

"John A. Weeks III" <john@johnweeks.com> wrote:

There is a run on the banks and other financial institutions as
people try to escape from the funds that invested in these shaky
mortgages. These financial institutions need cash to pay off the
people who are withdrawing.

I'm wondering why the government is so quick to send money to banks that
made risky investments in providing these loans, but not willing to send
money to individuals who made the risky move to accept the loans.

I'm not exactly well versed in macro-economics so a stupid question.

How is the temporary infusion of cash from the government going to help
the market? The banks need to pay that money back don't they?

"Daniel T." <daniel_t@earthlink.net> wrote:

So the assumption is that they still have a positive cash flow even
after taking on these extra emergency loans. How long do they have to
pay back these emergency loans? At what interest rate? What would happen
if the loans were not provided? Can this money properly called a "bail
out"? It seems to me that borrowing this "emergency money" in order to
keep their investments in play will be very profitable to them...

What is the definition of a "bail out"? To me, it would be providing
funds to keep a bank or institution from going under and closing. That
isn't the case here. If the government didn't step in, the banks would
have two options. First, they would freeze these accounts, and not let
people take their money out. That would give the situation time to
settle down.

Second, they would tighten up on lending to try to
preserve capital. That means that folks could not get their money
out, and businesses would not be able to borrow to operate and expand.
These are bad for society as a whole, so it is proper for the
government to step in and help smooth things out.

A bail out also seems to me to be a gift. Again, this is not gift
money. It comes from the fed system. It has to be paid back, and
it does have an interest rate. I think I heard 4%. That is about
normal for fed funds right now.

I'm wondering why the government is so quick to send money to banks that
made risky investments in providing these loans, but not willing to send
money to individuals who made the risky move to accept the loans.

You don't want to set up another welfare system, and we certainly
do not want to pay people for being dumb.

have an 800 beacon if that matters.) What kind of security are these
banks putting up?

I've heard these loans referred to as temporary from many sources now,
what exactly does "temporary" mean in this case? Aren't all loans
temporary?

These days, the Federal Reserve is the source of cash. It lends money to banks
who have sudden withdrawals beyond the usual day to day operations. This money
is not lent to the banks to cover risky investments, it is lent so they can pay
their depositors. These loans are temporary and made at the Fed funds rate,
currently 5.25%.

All these foreclosures are bad for society as a whole too though aren't
they? The government's decision helps the banks stay solvent, while they
continue to foreclose on people.

I'm not exactly well versed in macro-economics so a stupid question.

How is the temporary infusion of cash from the government going to help
the market? The banks need to pay that money back don't they?

Subprime Mortgages account for 20% of all mortgages (even in the most
heavily exposed states). Of those about 20% are reported as delinquent
(4% total). Of those banks expect only half to go into foreclosure (2%
total) and of those that do foreclose the liquidation of the property
will recover 50% of the mortgage. That's only a 1% loss to the total
market. Even if the delinquency rate doubled it would only constitute
a 2% loss.

The following seems a good explanation of some of this:

http://www.nytimes.com/imagepages/2007/08/05/weekinreview/20070805_LOAN_GRAPHIC.html

"Daniel T." <danie...@earthlink.net> wrote:

I'm not exactly well versed in macro-economics so a stupid question.

How is the temporary infusion of cash from the government going to help
the market? The banks need to pay that money back don't they?

Yes they do. I believe it's due today (monday) plus interests.

PeterL <po.ning@gmail.com> wrote:
"Daniel T." <danie...@earthlink.net> wrote:

I'm not exactly well versed in macro-economics so a stupid question.

How is the temporary infusion of cash from the government going to
help the market? The banks need to pay that money back don't they?

Yes they do. I believe it's due today (monday) plus interests.

So, on Thursday they didn't have enough money to meet their obligations.
They were given money, and used it, then raised enough in three days to
be able to pay it back?