TweetI felt just like you when I first heard all of this. However, the media once again isn't telling every one the WHOLE story. Part of the reason why is because the way the mortgage industry is handle is very complicated.
When a mortgage or loan is given it is classified by the person/business credit rating. Let's say they are classified A for Excellent credit, B for good, C for fair, etc. These loans are bundled (all the "A" are bundled, B's etc.) and in order for the bank or lending company to come up with more money to lend it sells these bundles. Companies buy these loans on good faith they are worth what they are told. The banks get insurance on part of these loans via AIG or another company. If the loans fault, the get paid so they have money to pay off the loan.
Clinton came into office and felt like every American should be able to have their dream of owning their own home. He pushed to relax and deregulate a lot of the credit standards. Lowering these standards made more people able to qualify for a home. People who really shouldn't have. The corruption came in to place here when lending companies start giving out loans with variable rates.
Homes and auto prices have been going up so quickly over the years and peoples incomes were not keeping up with these rising prices. It was inevitable for the bubble to burst. This started as a market correction. The housing market crashed. People with variable rates started having problems getting out of these loans therefore faulting on them. Normally this shouldn't have effected our economy that much, but you add to it the increase of gas prices and other products. Sudden loss of jobs in the housing industry causing a ripple effect on the economy. Good people who don't deserve to lose there homes are now loosing their homes. Businesses are going under as well. These loans are now going bad leaving the lending companies to make claims on the loan insurance.... AIG is having to come up with all this money.
Back to the A, B, C.. bundles. When bundles such as A which was suppose to be the top rated credit have loans that aren't worth anything and the low-end bundles that might have some loans that are still being paid. It's left all these bundles and no one knows how much they are worth.
The banks can't sell off these bundles. Therefore they can't generate more money to loan to let's say Dave who needs a business loan for payroll to pay his employees. For us... we can't get the loan for our home or joe next door who wanted a new car. All of a sudden cash flow has stopped.
Meanwhile you have collectors who need their money to pay for their obligations wither it's payroll or light bill. Your seeing business who are having to cut back because the money isn't available. Some business are going under completely. People continue to lose jobs... of course you've seen what happens to the stock market.
The other thing the media isn't telling you. That $700 billion will be used to buy stock in these companies... AIG, Fannie, Freddie, etc. AIG's stock is worth lets say $3.00 a share. The government buys 80% of AIG's stock. Then 3 or 4 years down the road when the government sells that stock it could be worth much more. 5 yrs ago AIG's stock was worth $51 a share, so can you image what the government could make off this in the long run.
I don't know if you remember the S&L bailout in the 80's when all the savings & loans were going bankrupt. This is what the government did for them and then turned around and sold off the loans years later.
Yes, now that I realize more about what's going on. I am for bailing it out, because what will be worse is 25% unemployment rate when all of these people loose their jobs. Wore case will be another depression.