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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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