I really don't even understand what it will do, besides giving banks an artificial profit. What does it mean for homeowners with loans they can't pay back? What will be the effects on the economy (besides inflation)?
Yes, I am a huge Dodgers fan.
Anti-state since I learned about the Cuban Revolution and why my dad had to flee the country.
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The plan has already extended the recession. I've spoken to several investors who are interested in buying these assets but are not willing to pay current offering prices. The banks that own the assets do not feel the urgency to sell them that they would in the absence of the bailout. If the banks had been allowed to go bankrupt, these assets would by now be in the hands of other investors who could decide which loans to restructure and which to write off as losses.
The savings and loans faced a similar problem with commercial real estate in the early 1990's. The Resolution Trust Corporation (RTC) was formed to facilitate the transfer of the assets of the failed savings and loans to other investors in the private market. Although, as with most government programs, this invoved a lot of waste, the assets were redeployed to other owners, and often other uses, by the mid-1990's and the RTC became one of the few government programs that actually ended. The current recession, at 15 months and counting, is already almost twice as long as the 1990-1991 recession, which was only 8 months.
Nobody knows!!!! That is the problem. The effects of this inflation, the creation of money and/or credit above what the free market would create has an enormous number of unforseen consequences. You are seeing one of them right now as the central bank has created literally twice as much money as was in circulation on Jan 1 2007 without the corresponding increases in prices as this money is in banking reserves. Nobody can forsee what will happen as the banks begin to distribute this money. Also the other banks in the world are doing the same thing if not more so.