As we all know, with the financial markets in turmoil right now, there is a proposal on the table to inject $700 billion into the financial sector in an effort to shore up the economy. Since this is a pretty big deal, there is a lot of discussion surrounding the plan and whether or not it will even help, or if taxpayers will be left holding the bag.
The proposal would allow the government to buy up soured mortgage-backed securities held by banks and other financial institutions. This would free up cash at the financial institutions so they can resume business as usual and get their financial books in order. But what about the government? Obviously, many of these mortgage securities they buy would still have some value. Some would clearly lose even more money or become worthless, but there are also good loans bundled into many of these securities.
I heard one story yesterday that said the government could actually end up making a profit from this after all is said and done. Others have talked about adding provisions that would allow taxpayers to profit at some point in the future as well. It is all very complicated, and the details are still sketchy, but it’s obvious something will be done. So, how do you feel about it?
Author: Jeremy Vohwinkle
My name is Jeremy Vohwinkle, and I’ve spent a number of years working in the finance industry providing financial advice to regular investors and those participating in employer-sponsored retirement plans.