Tuesday, September 30, 2008

I have questions about this "rescue" bailout thing...

These are honest and sincere questions as I'm trying to understand this whole bailout, or rescue, package deal. If you have an answer, thought, comment, suggestion or something to read which might answer my questions or help me, please do let me know... that said, please bare with my slightly incoherent ramblings for a minute.

Suppose that the federal government bails out Wall St because of all of the bad loans that these Wall St corporations have and/or securities linked to said bad loans are dragging down the value of these corporations.  

Now the way I understand things, I (entity A) own a house (entity B).  My house is financed through a bank (entity C) which then somehow through magic paper sells my loan (entity D) to other banks/investment banks (entity E) such that the bank (C) will collect interest (entity F) on my loan (D) at the risk of profiting or losing money to another bank (E).  

If I have this much correct, then I must be understanding at least part of what I've read. If I have this much wrong, then it's back to the drawing board for me; I'm hopeless and should be selling hot dogs from a cart in Times Square.

Assuming I have setup the situation correctly, then if the Federal Gov't then gives bank (C) $X for my loan (D), then doesn't the Fed Gov't own my house (B) at that point? But as far as I understand it, I'll still be paying the bank (B) for my loan (D) right? So doesn't the bank then get paid/collect twice for my loan(D)?

And with that said, how exactly does this help me (or anyone else) to pay their loans? If the problem is that I can't afford my loan, then isn't the loan still a bad loan and doesn't bank B still have investors (E) that it owes money? So the bailout goes into the pockets of some bank (E) but bank B is still on the hook for the bad loan right? Aside from giving money to investors, who invested poorly, how am I (A) "rescued" or the bank (C) "rescued"?

So it seems like, again, if I understand correctly, the goal here is for the Fed Gov't to give $X to bank B to pay off it's bad debt so that bank B can then sell the houses it is left with at say 50% of what it paid for the house and still break even, ie, if the bank loaned me $100,000, gov't give them $60,000 for my bad loan, I might have already paid in $10,000 and they'll then sell my house for $50,000 (fire sale!) meaning the bank made $60G (gov't part) + $10G (what I've already paid) + $50G (sale price) = $120G on their $100,000?  This not to include any money they make selling my loan to investors.

Now again, if I still have ANY of this right, which I'm sure I DON'T then how can *I* buy a few mortgages (namely my own) for say 1/2 price? IE, can the gov't pay about $60,000 to MY bank on MY behalf... because I can pay the loan (it wont be a "bad loan") if someone just helps me out with 1/2 of it.... OR, can *I* buy my neighbor's mortgage/house for say 1/2 price??? If my neighbor has a bad loan, can the gov't pickup half and I'll pickup the other half so that I own that property? For that matter, aside from not defaulting on my loan, how can I stop *MY* neighbor from buying *MY* property at 1/2 price?

And as a final thought - can I take out say a $50,000 loan, buy the whole State of New Jersey at this fire sale (cause the state doesn't seem to be worth much thanks to Corzine, how big of a hole are we in now?), then I'll sell off parts of the state to surrounding states for a small profit and when my first payment is due on my $50,000 loan, I'll default on my first payment of the $50,000 and cry poor, while waiting for another bailout?

I honestly just don't think I have a good understanding of the situation and/or how/why this bailout, I mean rescue, is supposed to help We the People. If anyone who reads this non-sense has a clue and could explain in terms an Average No One would understand, and/or point me to a resource that does explain the situation in rational terms, please do pass it along, I want to learn and understand, but just don't seem to get it right now and MSM isn't explaining and our government representatives aren't shedding any light on the situation either.

And Savings & Loans scandals don't seem to be something new.... so why/how should I trust the same old people to handle the current economic situation well this time around? I suppose if there is any good news, it's that the price of oil in under $100 so we should be paying about $2.60/gallon for gas right??? hrm... why is it still closer to $3.60?

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