Congress hears testimony today from the Treasury Secretary and the Chairman of the Federal Reserve Board on why a $700 billion (or more) financial bailout should be quickly passed, "warning that letting problems persist would have dire consequences for the national economy".
Everyone seems to agree that there is a financial crisis that threatens the economy. I'm trying to understand what it's all about. My understanding is that banks were allowed to make loans to consumers who probably should not have qualified. Those mortgages were the recipe for exotic mortgage back securities and derivatives that probably should have been regulated, except for a Congress and a Federal Reserve that pushed it to happen. These mortgage backed securities apparently became the backbone of the world's largest investment banks. When those debt securities lost their value because people couldn't pay the mortgage it all started with, the investment banks were toast.
But what's in this plan for actual people, not companies, that are in trouble. Someone please comment below and explain to me why the bailout shouldn't be for the Americans who took out those mortgages? Why shouldn't the money the Federal Government is throwing at the problem pay the banks back the money owed on the mortgages? The banks get the cash, the people get their debt forgiven. I'm not saying everyone who defaults on a mortgage deserves a bailout, but they deserve it at least as much as Fannie Mae, AIG or Morgan Stanley? What's wrong with that?
