September 25, 2008
Wallstreetbailout at treasury dot gov Is this letter a hoax? truth or lie?
September 29, 2008
The stock market has been dropping today, I think at one point it dropped more than 700 points. Want to know how we got to this point? As I understand, it is actually rather simple. Someone came up with the idea that banks could in essence sell the risk they were taking and the potential profits they could make by loaning money. Banks could do this by packaging multiple loans then selling the loan packages to companies with names like Fannie Mae, Ginny Mae or Freddie Mac who would then assume the potential risks and the potential profits. These companies would then sell these loan packages to other investment companies.
Loans earn interest and a loan instrument has value to an investor because of the potential interest income that loan can generate during the amortization period of the loan. This is only true though if the borrower is a good credit risk and pays off the loan as promised and per the terms of the loan.
Banks over time became excellent at assessing whether or not borrowers were good risks and banks used to have a reputation for being extremely cautious about who they would lend money to. With the advent of being able to sell their risks to companies like Freddie Mac, banks became less concerned about assessing risk and instead focused their concerns on being able to sell loan packages per the criteria established by companies like Fannie Mae and Freddie Mac. This created a situation where their risk assessment was no longer of a high quality so the loan instruments they were selling as investment quality were also of low quality.
To make a long story short, the loan packages ended up be sold to retirement fund investment groups and most retirement accounts are heavily invested in these faulty instruments. So, people who are near retirement age are really going to take it in the shorts if this bailout does not go through.
Fix the problem then figure out who is at fault. Follow the money and make them pay. Seize assets and fortunes. Don’t throw them in jail, tax them for the rest of their lives at really high tax rates like 95%. Let them keep enough to survive but that is all.
You will find the viral, funny letter about the bailout below v.
I recently received this email, do you think it is a hoax or should I respond?
Dear Friend:
I need to ask you to support an urgent secret business relationship with a transfer of funds of great magnitude.
I am Ministry of the Treasury of the Republic of America. My country has had crisis that has caused the need for large transfer of funds of 800 billion dollars US. If you would assist me in this transfer, it would be most profitable to you.
I am working with Mr. Phil Gram, lobbyist for UBS, who will be my replacement as Ministry of the Treasury in January. As a Senator, you may know him as the leader of the American banking deregulation movement in the 1990s. This transaction is 100% safe.
This is matter of great urgency. We need blank check. We need the funds as quickly as possible. We cannot directly transfer these funds in the names of our close friends because we are constantly under surveillance. My family lawyer advised that I should look for a reliable and trustworthy person who will act as a next of kin so the funds can be transferred.
Please reply with all of your bank account, IRA and college fund account numbers and those of your children and grandchildren to wallstreetbailout@treasury.gov so that we may transfer your commission for this transaction. After I receive that information, I will respond with detailed information about safeguards that will be used to protect the funds.
Yours Faithfully Minister of Treasury,
The Honourable Hank Paulson
Lie of the Day 