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Saturday, September 27, 2008
The $700 Billion Bailout
So let's say that they strike a deal and the government buys up all that bad paper. Then what? People still can't make the mortgage payments and the defaults continue? I don't understand why the lenders don't just renegotiate or freeze the interest rates to keep people from defaulting on their mortgages. Propagate the lower earnings from those mortgages up the food chain into the ABCP. Everybody ends up getting less, except the little guy ie. the homeowner gets to continue living in their home and make payments towards eventually owning it. Have the government issue coupons attached to the mortgages, the value of such coupons dropping each year. This allows both the homeowner and lending institution to be weaned out of the situation slowly. This also avoids needing to have all the $700 billion up front, apart from having to buy up enough of the currently worthless paper to keep the system afloat right now
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