Tuesday, 23 September 2008

The Bush administration plan to buy all the bad debt from the banks and thus free up the financial system. With no worry about the liquidity of the people you are buying and selling from everything should return to normal. I have a couple of questions

1. What is there to stop the banks running up more bad debts (and making profit for their shareholders) knowing that they are too important for the government to let them go bust.
2. What price are the government going to buy the debt at? If they set the price too high then they will beggar the US economy, too low and they put the banks back in financial peril.
3. How much of the debt do the US expect to recoup or sell on? It is after all bad debt. If the banks had been able to collect it, or being received payments on it, then they will not need to sell it to the US government.

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