Government to payoff mortgage debt
The US government has maid a huge announcement through the Fed, indicating that they will be assuming two hundred billion dollars worth of bad mortgage debt, debt which will likely never be paid off. Mybudget360 reports:
Unless you’ve been living under a rock, you are probably aware of the JP Morgan/Fed orchestrated bailout. The amazing thing about this entire situation is how quickly Bear Stearns went under. In the matter of one year, the once fifth largest investment bank was bought out for a pittance of its once mighty price. Bear Stearns has a long and storied legacy going back to 1923. Bear has lived through numerous recessions and the Great Depression. The company has approximately 14,000 people and as of last November, was generating a net income of $233 million.
Bear even as recently as 2005 to 2007 was listed as “most admired” securities firm according to Forbes magazine. If anything, it seemed like the mighty Bear could do no wrong. That is until the credit crunch hit.In June of 2007 Bear had to come up with over $3 billion to bail out one of its funds that was dabbling in collateralized debt obligations (CDOs). Incredibly these funds were seized at the time by Merril Lynch for $850 million who was only able to get $100 million for them on the auction block. Talk about mark to market. This little hiccup turned out to be the tip of the iceberg as we entered August and the market pummeling credit crunch.
With the government agreeing to payoff mortgage debt, the US doubtlessly has a huge economic crisis close at hand. Bear Sterns was just the big domino that will topple over countless others.
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