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Rescue Funds Fueling Buyout Deals Instead of Loan Increases

GeminiAtlas has just scored a Bingo! Now you can see why Paulson put in Article 8 (Treasury's decisions can't be reviewed by any court or administrative body) rather than rules for the use of funds.

At some point along the way here I hope we can amend the antitrust laws to now forbid the "too big to fail" companies. Break 'em up! Competition is healthy for all (except the fat cat CEOs).


On Nov 01 09:58 PM GeminiAtlas wrote:

> So let me get this straight, the government is bailing out banks
> which are "too big to fail," and then those banks turn around and
> get even bigger. That's hilarious. Law of unintended consequences
> at work again...

Banks Should Forget the Moral Hazard for Now

Some 75% of the ARM-type mortgages used LIBOR as their base, adding a fixed premium to set the total interest rate. The concept was that the base rate would reflect inflation, protecting the lender against any increase in inflation, but simultaneously providing a small decrease in the overall rate for borrowers as the lender no longer had to factor future inflation into his consideration.

But today we find that the LIBOR is no longer a proxy for inflation; rather it is a proxy for fear -- fear that the principal itself is at risk. As a result there are millions of otherwise well-performing loans now put at risk as the underlying loan rate jumps some 3 percentage points above inflation, unfairly costing such borrowers additional hundreds to thousands of dollars per month.

With all the talk about the home prices in decline, and what to do for the relatively small number of borrowers who bought at a peak, we need to keep in mind the millions of additional homeowners who are seeing their loan payments skyrocket by being tied to a malperforming metric.