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What the Senate has agreed to buy with your money. Has anyone explained what you are buying?

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mikelewis Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Oct-01-08 10:14 PM
Original message
What the Senate has agreed to buy with your money. Has anyone explained what you are buying?
Edited on Wed Oct-01-08 10:23 PM by mikelewis
The biggest problem I see with this bill is the fact that no one seems to have any clue as to what we are actually purchasing with this money... money that will be printed up out of nowhere and used to devalue your current supply of cash, I might add.


Let me see if I can break it down into simple terms... because it is a pretty simple concept.


Customer A has agreed to buy a house for monthly payments of $100 for 20 years for a total of $1200 a year or a grand total of $24,000 over 20 years. If the customer pays that amount, the contract will yield $24,000. Let's say the house itself cost $20,000 so the bank that lends the money make $4000 and the customer then owns the house. This is a normal loan... simplified of course but something everyone can understand.

Now, since that contract will ultimately be worth $24,000 if the bank goes to another interested party and said to them... "I have a contract that will ultimately be worth $24,000 but I will sell it to you for $21,000" the interested party reviews the contract and says, "Hey, that's a good deal, I'll buy that contract for the agreed price and make $3000."

Now let's say that interested party looks around and finds 10 deals just like this one and agrees to buy them all for a total expected profit of $30,000 and a total cost of $210,000. As long as all 10 home owners pay their mortgages the interested party will make the expected profit.

Now, let's say that the economy runs into a bit of a snafu. Let's say that through some clever shenanigans, the bank has bundled together 10 such deals for this interested party except that the mortgages that were written on houses that really only were worth $10,000. Somehow, the market overvalued the houses and the interested party really didn't understand what they were buying. They knew only what they saw on paper because they never went and inspected the houses or checked the financial status of those homeowners who made the original agreement. However, as long as the customer continued to pay, the deal seemed like a good deal, at least on paper.

Now, let's say that the market began to realize that the total value of the houses were in truth over inflated and they learned this in a pretty bad way... they had to foreclose on one or two of their 10 houses and unfortunately they couldn't sell them for their original price... or even half of their original price. Now, the interested party is in a real pickle because losing $10,000 in one or two house has eaten most of their profits... days and weeks wear on and soon a few more of their homes begin to slow pay and maybe one or more drop off. Soon, interested party is in deep shit and is upside down on this deal.

And so interested party turns to who? Well, that's where you come in... you, through your Senate, have agreed to pay the full loan amount for the houses that have stopped paying. You are now the second interested party but instead of having many if not most of your accounts as good accounts, you are buying all the one's that don't pay and are paying out an amount well above the market value of the homes. You are now the proud owner of 10 overpriced accounts that will never pay... but here's the real kicker... you won't even own the houses... you're just buying the loan so in the end the only way to make your money back is if the original owner is able to complete his original mortgage. Otherwise, the property is sold by the first interested party and that money is kept not by you... but by him... with the possible provision that if the accounts should completely fail some of that money should come back to you.

This... in a nut shell... is what your Senate just agreed to embroil you in... to the tune of $1 trillion Dollars... but get this... it gets even better... they money they plan on using is money they plan on printing sometime next week. If they print up $1 trillion new dollars, the current money supply will be inflated and the value of the money you and those home owners you are currently relying on to pay their mortgages will be worth less... much less thus insuring there's no way many of those accounts will ever become solvent accounts. You will never see one dime in return for your sacrifice but guess what... interested party is making out like a bandit. America, you just got owned by your own Senate.
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Imagevision Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Oct-01-08 10:15 PM
Response to Original message
1. The bill won't prevent one single foreclosure...
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Oregone Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Oct-01-08 10:23 PM
Response to Original message
2. What's the difference between this bill, Sarah Palin, a tube of lipstick, and an old boot?
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mikelewis Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Oct-01-08 10:24 PM
Response to Reply #2
3. I'm not sure...
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Oregone Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Oct-01-08 10:25 PM
Response to Reply #3
5. Exactly
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MercutioATC Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Oct-01-08 10:37 PM
Response to Reply #5
11. Wow! You got an incredible straight man for that one.
:thumbsup:
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sandnsea Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Oct-01-08 10:25 PM
Response to Original message
4. Oh, so if low income people are helped to pay their mortgage
Then this whole thing will work out fine. Is that it? So what we need to do is take an interest in the poorest people in the country to make sure they aren't getting fucked by this deal, is that right? Because if we make sure we help the poorest keep their homes, even if we need NEW LEGISLATION to do it, then we save the home loans to the poor AND we get our money back. Right?

And I was such a fucking bitch for having said this just 12 hours ago. :eyes:
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Imagevision Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Oct-01-08 10:27 PM
Response to Reply #4
6. low income people don't have a mortgage to worry about, just rent,gas & food...
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sandnsea Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Oct-01-08 10:33 PM
Response to Reply #6
9. You've never heard of mortgage assistance programs?
Yes, low income people have mortgages. A portion of these loans were for low income people. They're blaming low income people for this crisis. We can't stop working to get help for them, or this bail-out won't work, they'll be homeless, and there won't be anymore low income mortgage programs in the future.
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tburnsten Donating Member (1000+ posts) Send PM | Profile | Ignore Thu Oct-02-08 08:18 AM
Response to Reply #9
16. Mortgage assistance?
How low income do you have to be for that anyway?
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sandnsea Donating Member (1000+ posts) Send PM | Profile | Ignore Thu Oct-02-08 11:55 AM
Response to Reply #16
17. It's regional
and very tricky. There are some programs through HUD that help pay the mortgage. There are other programs that help make the down payment, but you have to make enough to qualify for the actual loan, which in a high cost housing area is very difficult. If you need help figuring it out, I'd be glad to try to find some contacts for your area. I think we have a few mortgage brokers on DU as well.
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tburnsten Donating Member (1000+ posts) Send PM | Profile | Ignore Thu Oct-02-08 12:21 PM
Response to Reply #17
18. Well I've got a house
Just closed on it last week actually, put $20,000 down, borrowed $76,800, and the mortgage itself isn't an issue, it's that my wife has been out of call center work, which she does best, for a while and is now pregnant and working jsut a few hours at a restaraunt. The place she works is great, but the job itself can't pay her way and I can't pay all of our bills and save money at the same time by myself. She is working on getting back to her first great job, if she does than we will be able to breathe easy.


But right now our income level is probably close to $40,000 a year, before taxes. Pathetic.


Thank you, and if you know anything Maine specific please PM me.
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mikelewis Donating Member (1000+ posts) Send PM | Profile | Ignore Thu Oct-02-08 07:07 AM
Response to Reply #4
15. Yes, helping a homeowner stay in their homes is a much better way of...
...stabilizing the credit market... which is why I argue for a strong dollar. Only, the problem is... how long do we help them and in what form do we help them? Wall St. has no interest in helping them because it does not provide for a profit. Helping them stay in their homes does not really address the value of the assets we are purchasing but I agree... it is not only the smart thing to do but is also the moral thing to do.
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Rancid Crabtree Donating Member (138 posts) Send PM | Profile | Ignore Wed Oct-01-08 10:31 PM
Response to Original message
7. we're buying a very large ovegrown amoeba type organism
that has been terrifying New York and is threatening the Jersey shore...word on the street has it that it has an intake and an exhaust, though there is some confusion as to which is which, and these appendages are an advance on the simple cell creatures of days of yore, most scientific...however, volunteers are needed to feed the thing as it continues to grow...nobody is sure the thing isn't going to just implode...or maybe explode...some have even considered plugging the tubes to advance, a kind of monkey-wrenching that has left some squeamish...though the view from space calls it a circle with no ending and out here in the penniless wilds, I'm inclined to buy some more microwave popcorn and hope the hockey season comes early...or sumpin.
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gopbuster Donating Member (715 posts) Send PM | Profile | Ignore Wed Oct-01-08 10:33 PM
Response to Original message
8. That is not the way I understand the way they will finance it (by printing more dollars)
Edited on Wed Oct-01-08 10:34 PM by gopbuster
They will be issuing T-bills and bonds according to:http://www.prospect.org/cs/articles?article=how_much_wi...

The bundles may contain some value after they unbundle them audit them and create a market for them.

Otherwise they can enact a STET Securities excise tax to recoup
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wtmusic Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Oct-01-08 10:41 PM
Response to Reply #8
13. You are correct, although printing more dollars might be better
The American public is completely at their mercy as to their judgement of what the bundles are worth. If they're worthless, we lose not only what was paid, but the interest we must fork over on the bonds/T-bills.

This whole escapade makes me want to punch a wall.
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mikelewis Donating Member (1000+ posts) Send PM | Profile | Ignore Thu Oct-02-08 05:51 AM
Response to Reply #8
14. That is essentially the same thing as printing dollars out of thin air...
T-bills are generally printed up in $1000 denominations and sold for less than the face value with the expectation that when they mature the pay out will be more. An investor buys a $1000 T-bill for about $950 and in about a month the investor can cash that bill in for $1000. When they print up $1 trillion dollars worth of T-bills, it will expand the money supply and lower the dollar significantly. The average consumer doesn't understand what a T-bill is but they do understand the concept that when you add more currency without adding value that devalues their current capital supply causing inflation and decreasing their paycheck.
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mike_c Donating Member (1000+ posts) Send PM | Profile | Ignore Thu Oct-02-08 02:01 PM
Response to Reply #14
19. yup, it really doesn't matter what form the money is issued as....
New money added to the monetary supply by gov't fiat-- or by the Federal Reserve, whatever-- devalues the existing money supply. It seems that a lot of folks are having trouble getting their heads around this.
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ProSense Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Oct-01-08 10:34 PM
Response to Original message
10. More on the
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mike_c Donating Member (1000+ posts) Send PM | Profile | Ignore Thu Oct-02-08 02:02 PM
Response to Reply #10
20. more political propaganda....
:crazy:
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Neshanic Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Oct-01-08 10:41 PM
Response to Original message
12. Excellent. Exactly what just happened.
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