In all the talk about the bailout (which is really, in essence, an emergency recapitalization of the banking system and the federal reserve; but to admit outright that there is literally no money whatsoever backing up deposits right now would cause a panic), writers are continually acting on the assumption that banks are holding simple mortgages that went a little south, and hence still hold substantial value. Not so. What almost everybody is forgetting is that with securitization, mortgages have been grouped together and then sliced and diced into different "tranches", which are treated as separate securities, and which have different risk levels, different cash flows, and different rights to repayment if a mortgage is defaulted on. Because the riskiest tranches are "last in line" in any liquidation process, they have almost no chance of repayment should a mortgage default. This means that the banks are sitting on a lot of truly worthless paper.
Therefore, the whole idea that the bailout is intended to free up a seized market is spurious. The bailout is intended to provide banks with working reserves. That's all. I would expect the banks to simply hoard the cash, and would not expect an inflationary explosion due to the bailout, since this money is not going to be lent and multiplied via fractional reserve mechanisms. This is merely the deployment of airbags before the economy hits the wall. We're still going to get a severe recession, but perhaps with an intact banking system (but then again, perhaps not; if housing has fallen this far sans a severe recession, how much further will it go with one?). There is no way the government will make a profit on this deal, since the tranche mechanism has created hyper-concentrated securities representing pure loss, and this is what will be bought.
I could be wrong about this, of course, since I'm no financial expert. But food for thought.
These thoughts are inspired by the "Kevin K." comment to this post.
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