I cannot even imagine how much money that is. The real question is will this bail out have the desired effect of liberating the commercial credit markets from non-performing, or under performing “sub prime” loans allowing them to start lending to banks and businesses. And will it happen soon. Another question without an answer is what are the long-term effects of this bail out. Will this fix a current problem and create a long-term one? I don’t know the answers to any of these.
What I do know is too many people are talking about this. The problem is on every ones mind. This type of issue can become a self-fulfilling prophecy if left un attended and un addressed. I have also seen commercial lending change even in Iowa City lately. Loans are being scrutinized, and LTV ratios are falling. Easy loans last year are tough loans this year. And, an active real estate market requires available financing. I have also seen business startup and expansion plans be put on hold pending the shakout of this problem.
My hope is that this plan returns liquidity to US credit markets and takes the heat off banks and businesses. I hope that we are able to also drill down through the mortgage backed securities aspect of the bail out to the actual home loans and deal with them on an individual basis. This will require a lot of administration, but it will also protect our $700 Billion investment and will help restore a healthy resale housing market.
This thing is unfolding in real time, so we will all see what happens very soon. Buckle up.