Debt Relief Forum

Federal Debt Relief System is at the forefront in the battle to restore the Constitution and liberty by arming millions with the sobering information and vital education designed to restore America’s freedom which today is sadly and urgently under attack and duress from all sides.

I found this one at Federal Debt Relief System. Like many of you, all of the point-counterpoint on the current economic collapse has me searching for the answers.

Here’s the straight talk on what’s wrong with the newly passed so-called “bailout” plan. The Treasury plan was originally predicated on buying $700 billion of collateralized residential mortgage-backed securities that banks could not unload.

The idea was that the banks would get the money, which they could then turn around and lend to keep the credit markets open and credit flowing throughout the economy. In the meantime, the Treasury Department would sit on the securities until it is able to sell them, hopefully at a profit.

The idea, from a theoretical standpoint, isn’t stupid. It is, however, impossible to implement to any degree that will result in the desired economic recovery.

Here’s why:

• There are more than $1 trillion worth of subprime collateralized mortgage-backed securities out there – and that’s just one type of problematic derivative security. The bottom line: $700 billion isn’t enough. Period.

• Treasury is going to hire banking-industry managers to manage the process. Those managers are going to serve themselves – just as they served themselves to get us into the crisis.

• The purchase plan is not limited to just residential mortgage-backed securities. Surprise! What else will Treasury buy? Experts predict that toxic credit card debt will require another multi-billion dollar “bailout” in the coming weeks as well.

• This government deception is even more under-funded than people realize, for it doesn’t authorize the full $700 billion: Indeed, it starts with only $350 billion, leaving an even greater shortfall. Did we mention that $700 billion wasn’t enough?

• Since Treasury can’t buy all the problem securities, if it prices what it’s going to buy too low, all remaining holders will have to mark down their holdings and take more writedowns and losses. How will that create confidence and facilitate “liquidity”?

• However, if the Treasury Department prices the securities too high, several problems quickly emerge: Hedge funds will rush to sell their current holdings, and may very well speculate by buying up more securities to sell them at a higher price (profit) to Treasury, meaning that the Treasury Department plan won’t necessarily be helping banks directly. What’s more, if those securities are priced too high, and the market for them continues to fall, taxpayers will eat the losses – a reality that likely will lead to an end to further program funding.

• There is no defined mechanism to determine what price the Treasury Department will pay for what it buys. For argument’s sake, even if Treasury were to only buy the problem securities its leadership speaks of in public – residential mortgage-backed securities – there are problems if it prices them too low: If that happens, some holders won’t sell them, taking the chance that if they hold them long enough they will be worth more than Treasury is willing to pay. How will those financial institutions regain liquidity if they won’t sell the securities needed to make this happen?

• Who’s going to fight off the lobbying groups out to influence the managers that the Treasury Department hires to direct money to their masters? Did we mention that $700 billion wasn’t enough?

The Federal Debt Relief System is dedicated to sounding the alarm while there is still time to do something about it.

Learn more at Federal Debt Relief System now.