Quote:
Originally Posted by swazworth
ok i'm not dumb when it comes to the market, but i'm not Warren Buffet either. i just have some questions about today. and since we have 2000+ people in here then maybe someone could explain things to me.
ok the fed is going to lend $200B to banks, and take mortgage securities as collateral for 28 days. (then later they came out, and said that, they might be willing to do this again) so what happens if the banks can't pay the fed bank it the 28 day period. does the fed take control of the mortgage securities  or are the bank going to be smart this time about who they lend money to; meaning low risk people, so they are sure to pay the fed back? which in return means that people like myself who pay back the money they owe have to pay a higher interest rate, to cover the banks pervious losses?
which would cause me not to borrow the money in the first place.
thanks for the help. |
As I understand it the money is to act as seed money and to increase the attractiveness of taking out a loan. The banks, knowing that it is high risk to loan out to some people now will be more selective in who they give money to. But the idea is that if nothing was given to the banks, nothing would be taken from the banks, which is bad for the economy. By giving $200B, it is expected that the shift it will cause in the demand will cause the banks to loan out more than $200B. So then, the banks will be able to pay back the fed, and make a little money too, and consumers can go out and spread money around. Thats the idea (I think), and it should work.
the whole problem was caused by having a strong housing economy where the banks could still make money even if people couldn't pay their mortgage. Basically they were beating the curve, the mess happened when the curve caught up and everyone started to go into damage control -less loaning from the banks and less spending from consumers. Massive infusions of money from the government are the only way to break the cycle, always has been and always will be.