billddrummer

Billion $ Question: What Will Mortgage Backed Securities Be Worth? [Housing Tracker]

Hi Judy,

Thanks for asking. Without having studied the plan in detail, and knowing that Paulson's 3-page memo morphed into a 420 page bill, it's hard to say what to think. But here's what I think about the little that I know:

Raising the FDIC insurance limit is a good idea that's at least 10 years late. $100,000 just doesn't go as far as it used to.

Selecting the entities that can offload their bad assets will be interesting, if only to see whether their capitalizations will rise at the expense of the excluded ones.

If the government can make a market in the 'bad assets' that will capitalize the remaining banks so that liquidity is restored to the secondary markets and foster additional lending to middle and small market companies, that will be a good thing.

In addition, I believe that if the program is handled properly, the good assets buried within these pools will be available for securitization again once the dust settles. But doing in-depth analysis of the underlying assets will have to take place--otherwise, nothing will change from the process that got us here in the first place.

If, on the other hand, the new funds simply move impaired assets from banks to the Treasury, then it won't do much good.

But I'm speaking from a position of not really knowing what the package contains, apart from its length.

Your thoughts?