Ahrenl
join:2004-10-26
North Andover, MA
 ·Verizon FIOS
| reply to Matt
Re: Oh no, here it comes ....
You do realize they're not SPENDING $700B. They're buying $700B in interest paying assets, by issuing debt with a lower interest rate. The trick is weather they get the credit risk right or not. IMO they won't, but that won't result in losses for 5-10 years anyway. |
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Ulmo
join:2005-09-22
San Jose, CA
 ·Comcast
 ·SONIC.NET
| said by Ahrenl  :You do realize they're not SPENDING $700B. They're buying $700B in interest paying assets, by issuing debt with a lower interest rate. The trick is weather they get the credit risk right or not. IMO they won't, but that won't result in losses for 5-10 years anyway. Don't get me wrong: that they owe us is better than they not owing us. But, from what I understand, this is undercollateralized debt, so it is bad debt, and shouldn't be loaned. I don't want to dig up a bunch of vials of creamated remains of baby boomers who sent all my money to China and yell at them that they still owe me; I'd rather not give them the money in the first place. |
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Ahrenl
join:2004-10-26
North Andover, MA
·Verizon FIOS
| It's whatever debt they purchase. There's very little "undercollateralized debt", as you put it, that hasn't already been written off, as there wasn't a whole lot of it to begin with. Regardless, buying it at less than the hold-to-maturity value (especially if it is properly written off) protects the investor from this.
The biggest problem is with ALL debt regardless of it's creditworthiness. This being priced at implied default rates implying 2 of every 3 americans will file bankruptcy is what is sinking financial firms. Generally banks, insurance companies, and other related firms will hold large amounts of debt (assets is what is usually called) that is deemed very safe, and still is. But when half the buyers in that market are vaporized, and those that are left have their capital drastically haircut, there is no where for the price of these assets to go but down, as there are NO buyers. |
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