Don"t Be Too Quick to Judge the Government Bail Out
You might be for it or you might be against it, but it is important to understand why it is needed.
If the government doesn't bail out these financial institutions, the economy is going to continue to drop.
Yes, there are individuals losing their homes to foreclosures.
When this happens, the value of mortgage backed securities declines and money is lost.
Yes, the financial institutions lose out in multiple ways when someone doesn't pay their mortgage.
However, stop and think about the fact that the U.
S.
has approximately 301 million people in it.
The average percentage of homeowners is around 70%, which means that there are approximately 201 million homeowners.
It is estimated that two million families will face foreclosure by the end of 2008.
That means there are still 199 million homeowners.
Not all of them pay mortgages, but most of them do.
This does have an impact on the market, but not necessarily to the point that the entire market crashes.
It would take a heck of a lot more homeowners to default on mortgages to crash an entire economy.
Now you're probably saying, "But it is this domino effect that has been created by these bad mortgages.
" Yes, investor confidence has gone down considerably, but there are other factors at play here.
There is the fact that there are traders out there all over the world embarking upon naked short selling.
This is selling stocks that don't exist with the intention of not filling that empty space with a viable stock.
This makes things look better than what they are.
When it is discovered the stock doesn't exist, the market drops.
Combine that with the number of defaulted mortgages and you have disaster.
This makes it fair to say that the financial institutions should not carry all of the blame.
Bad business decisions are made all of the time, but we rely on our financial industry to keep our economy flowing.
The SEC already cracked down on naked short selling in September and they are doing what they can to stop it.
The bailout plan will provide banks with what they need to get the economic gears turning again, while naked short selling is being combated.
As a result, homeowners will be able to keep their homes, lending will continue, investor confidence will be back up, and the stock market will not be so tainted with these imaginary stocks.
If the government doesn't bail out these financial institutions, the economy is going to continue to drop.
Yes, there are individuals losing their homes to foreclosures.
When this happens, the value of mortgage backed securities declines and money is lost.
Yes, the financial institutions lose out in multiple ways when someone doesn't pay their mortgage.
However, stop and think about the fact that the U.
S.
has approximately 301 million people in it.
The average percentage of homeowners is around 70%, which means that there are approximately 201 million homeowners.
It is estimated that two million families will face foreclosure by the end of 2008.
That means there are still 199 million homeowners.
Not all of them pay mortgages, but most of them do.
This does have an impact on the market, but not necessarily to the point that the entire market crashes.
It would take a heck of a lot more homeowners to default on mortgages to crash an entire economy.
Now you're probably saying, "But it is this domino effect that has been created by these bad mortgages.
" Yes, investor confidence has gone down considerably, but there are other factors at play here.
There is the fact that there are traders out there all over the world embarking upon naked short selling.
This is selling stocks that don't exist with the intention of not filling that empty space with a viable stock.
This makes things look better than what they are.
When it is discovered the stock doesn't exist, the market drops.
Combine that with the number of defaulted mortgages and you have disaster.
This makes it fair to say that the financial institutions should not carry all of the blame.
Bad business decisions are made all of the time, but we rely on our financial industry to keep our economy flowing.
The SEC already cracked down on naked short selling in September and they are doing what they can to stop it.
The bailout plan will provide banks with what they need to get the economic gears turning again, while naked short selling is being combated.
As a result, homeowners will be able to keep their homes, lending will continue, investor confidence will be back up, and the stock market will not be so tainted with these imaginary stocks.
Source...