$700 Billion Bailout Deal Almost Reached
Posted on Sep 29, 2008 - 1:03pm by Michael in Economy
Bailout Plan click to enlarge
Well it looks like the $700 billion bailout deal has been finalized and did not have the votes to pass the House of Representatives in Congress. The bill was finished late Sunday night with the speaker of the house stating that no more changes will be made.
Many Americans have been wondering exactly how the bailout plan will work and what exactly it will do. I think things can sometimes be explained or simplified in some cases with some sort of visual guide. I found a good representation of the bailout plan and what exactly the US Treasury will be doing on the website of The Wall Street Journal. Click on the image to enlarge.
The Treasury will hire some people that are experts with debt instruments to help manage the buying of bad debt. The people will be called the asset managers and will have a variety of duties. They will be responsible for determining the best way to buy the debt, what type of prices they will be looking for, and how they plan to make the purchases. As you can see by the image representation the first step in the plan will be for them to list assets that the Treasury will be willing to buy from banks and other financial institutions. The banks will put a price on the debt they want to sell to the Treasury in the form of bids. The asset managers will take this information and will start buying the bad debt instruments starting with the lowest bids first. The goal with this is to take the bad debt instruments off the books of banks and other financial institutions and in turn they will receive cash to recapitalize their business. This should bring back confidence among financial institutions and help them to resume lending and borrowing money again, hopefully unfreezing the financial system.
The asset managers would also be responsible for managing all the debt instruments that are purchased. The government plans to hold onto the bad debt it purchases until the economy starts to thrive again and then they will try and sale off the debt instruments and recover the money used to purchase them. There is no way of knowing for sure what the full effect of the bailout plan will be on the economy. It could turn out that when the bad debt instruments are sold back by the government there will still be a loss. There is also the chance that after selling back the debt instruments the American taxpayers could see a profit from the bailout plan.
Let’s hope that after the bailout plan is put into action that our country starts to figure out and fix the problems that got us here in the first place. Many economists would tell you that they saw this kind of melt down coming; they just didn’t know when it would happen. We need people that understand this stuff to help resolve the cause of the problems we are facing today so it doesn’t happen again. The next two or three years are most likely going to be pretty tough, but our economy should recover and thrive again. There is only one bright side about hitting rock bottom and that is there is only one way to go and that is back up again. Our economy is to big to ever fail completely, let’s just hope it heals quickly.
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(music please) You say tomato and I say tomatoe, you say potato and I say potahto, tomato, tomatoe, potato, potatoe – oh let’s call the whole thing off. I like the diagram. But, this whole mess is ridiculous. These folks all need to be run out of town. Eliminate the capital gains tax and change the law so the banks can carry the bad debt without penalty. That way they can manage the toxic loans on their own without my money. We have two men who are running for President who don’t have the balls to come up with a “real” plan. McCain is Obama as Obama is McCain. There is really little difference. Thank goodness the VP candidate has great legs, because like Biden, she is clueless. The House of Representatives are engaged in an “Animal House” food fight” including childish name calling and blame. The Senate, well, I don’t know what they’re doing. Tonight, all the members of Congress are Jewish, taking the next two days off to celebrate Rosh Hashanah. Personally, I listened to enough of all this today. I went in the FJ here in Lubbock and ordered salmon and a flat iron steak with fries. I had a really large ice cream cone with nuts watching Monday Night Football. I feel great. Tomorrow I go back to feeling lousy again.
Is this 700 billon dollar bailout good for either Obama or McCains presidential chances ?
What do you suggest???.. .How can I be helped?? … We have chatted all week on the forum at Myinvestorsplace.com and I still dont know how this will affect me… if it passes…and even if it does not pass… Can you help and clarify?