What will happen to the bailout money?
I see two possibilities:
1) the objective to restore normal business will be achieved; or
2) the bailout money will be siphoned off by the sharp operators, normal business will not be restored, and the mother of all depressions will not be averted.
Congress is aware of the risk that No 2 will prevail unless it puts strong measures in place. But history has shown that the operators outsmart Congress by a big margin.
Answers
2082 points
alanj answered one year ago …
The reason the banks need a "bailout" is they are running out of cash to do everyday business. The reason they are short on cash is because they are holding bad mortgages where the home owners are no longer paying their monthly mortgage payments. By selling these mortgages to the US government this will give them the cash they need to do business. This will do in the short term. Will it be enough to keep us going into a recession or worse- a depression? Don't know. No one does.
They are supposed to be putting in place rules which will prevent siphoning off funds. I'm sure the funds are going to be watched closely. Anyone caught siphoning funds I'm sure will be prosecuted. So the odds of anyone trying to do so should be slim.
Even though this is being called a bailout it is actually much more accurate to being called an "investment" because all of the bad mortgages are secured by actual real estate. Which historically over time always increase in value after a correction to new highs. So, if the government holds on to the bad paper long enough before selling, this deal would be profitable.
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