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Sunday, September 21, 2008

Daily Observation - Hank's Plan

Rather than writing my own interpretation of what could happen this week with the new bill due and to be signed by Friday, I decided to let the experts speak for themselves. So from CNN the following was taken to represent the plan.

The $700 billion plan, the most sweeping intervention in the financial markets since the Great Depression, is aimed at stemming the credit crisis roiling Wall Street and threatening the global markets.

Here's what we know so far:

The plan: According to the administration's proposal, the federal government would buy up as much as $700 billion of illiquid mortgage assets at a deep discount from banks. The Treasury Department would run the program directly, unlike the savings and loan crisis of the 1990s when Congress created the Resolution Trust Company to spearhead a financial bailout.

"The federal government must implement a program to remove these illiquid assets that are weighing down our financial institutions and threatening our economy," said Paulson.

This program is intended to fundamentally and comprehensively address the root cause of our financial system's stresses," according to a Treasury statement released Saturday. "As illiquid mortgage assets block the system, the clogging of our financial markets has the potential to significantly damage our financial system and our economy, undermining job creation and income growth."

The plan would allow the Treasury to buy up mortgage-related assets.

The aim is for the government to buy the securities at a discount, hold onto them and then sell them for a profit.

This proposal has been compared to the Resolution Trust Corp., which was put in place during the savings and loan crisis to administer and sell assets from failed thrifts.

However, experts say the Treasury's plan is more akin to the Home Owners' Loan Corp., put in place in 1933 to stem foreclosures and help refinance defaulting mortgages and boost banks' liquidity.

The mortgage plan is part of an extraordinary effort by the federal government to contain a financial crisis that has forced a major realignment on Wall Street and has started rippling out to Main Street.

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