Analysis: What the US mortgage bailout means
The federal bailout of the US mortgage market, with a price tag of $US700 billion, dwarfs the other major events of the last week: the failure of a Wall Street investment banks and the takeover of another, and the nationalisation of the biggest US insurer, AIG.
The mortgage bailout is more than the war in Iraq has cost the US government thus far. It is larger than the GDP of Turkey and only modestly smaller than that of Australia. And that’s just for starters.
As Washington wags often like to say, the first rule of government spending is: Why buy one, when you can have two at twice the price? The US$700 billion figure, as colossal as it is, dwarfing even the Fannie Mae/Freddie Mac bailout of earlier in the month in terms of actual impact on the Treasury’s balance sheet, almost certainly has room to expand.
While the precise details of the plan were being debated over the weekend - throwing into question the White House’s desire to have Congress vote on Monday or Tuesday - the basic outline is relatively clear.
The nation’s financial czar (formerly known as the Treasury secretary) will have the authority to buy, hold and ultimately sell up to $US700 billion of mortgage-related assets from any financial institution having significant operations in the US, thereby including some foreign banks.
Read the full story.
More by by Pavel Molchanov, US correspondent
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Comments and questions4
I do not understand this mess at all... Sure, a bailout sounds good and looks good on paper... but like communism... It just won't work efficiently for the commonfolk of america.
I mean, why spend money to make money? That'd be like cutting off your p**is to get another and better one.
So what does this mean to current loan applicants with fico score of 645?
Seems a substantial conflict of interest that the Treasury Secretary is now funnelling massive taxpayers subsidies to his former cronies.
Anyone with half a brain can work out that the hugely excessive salaries,bonuses,commisions paid out over several years would eventually produce the day of reckoning.
Several billionaires are likely to be assisted and it is worth noting that this group worked vigorously behind the scenes to get US to invade Iraq. The one motive for this group was a missguided belief that Israel would be more protected.
The war can be linked to the drop in house prices so the group of billionaire bankers fooled themselves.
Now the uninformed American taxpayer is being asked to reimburse these parasites. What next?
John Key had the idea getting out of that environment but then so have several other ex Wall Street players who have been fast tracked into political positions mainly in East European states. As the war in Georgia shows this brand of New York manufactured politician is being proved inadequate.
why not bail out the people with the loans instead of the companies or at least drop interst on us home owners that have high rates .
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