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What Does A Bailout Really Mean For You?

bailout

Bailout for Wall Street?

So, the administration is planning to bailout a bunch of financial institutions which made poor choices, hmmm… is that the same administration which fought against helping home owners over the past year because they “made poor choices”?

Lets look at what some of these poor choices we’re talking about really were.

The financial institutions saw an opportunity to feed their greed by selling sub-prime loans across the market. Many of which weren’t necessary at all because the borrowers could have qualified for fixed rate loans (predatroy business practices fueld by greed by these lenders), and a larger number of the borrowers should never have qualified for any loan because they were never going to be in a position to repay it once the rates ballooned.

Yet, by shifting the scales a little, the financial institutions were able to sell tons more loans then they ever should have, which in theory means tons more money for them.

The problem of course, with theory, is that the bottom often drops out when used in real world application.

See, they sold loans they shouldn’t have to people who shouldn’t have gotten them, and when the rates ballooned these people defaulted. They lost their homes. And the financial institutions converted their loans into property holdings, so they really weren’t out anything, they just traded cash for propetry upon foreclosure.

However, all of these people losing their homes caused a crash in the housing market. Here’s where the theory fell apart to the real world… now that the housing market has tanked, these financial institutions are holding property they can’t unload and convert back into cashflow.

And that’s where most of the recent trouble on Wall Street comes from. It isn’t that all of these companies are actually broke… heck, AIG who Bush just pledged an $85 Billion (that’s billion with a ‘B‘ ) bailout to is reported to have over a Trillion dollars in assetts and holdings, they just can’t convert them into cash to keep operating¬† from day to day with.

So, here’s how the wheels of the bus go round-and-round:

And what’s it all mean for me and you?–even if you are one of those people who lost your home in all this?

That we will each be personally responsible–to the tune of between $3,000 and $6,000 in future taxes–for helping save these Dumb Lenders who used shady tactics to sell bad loans to people who shouldn’t have gotten them in the first place.

Yeah, that’s seems right…

Technorati Tags: aig, bailout, wall street

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