Are we screwed? And, if so, how did we get here?
Let’s see if an amateur can get the facts straight (mostly) off the top of the head.
The government “encourages” banks and loan organizations to grant mortgage loans to persons whose incomes would normally be judged as too low to afford the house-note. Many (most?) of these persons are not required to make a down payment.
Quasi-governmental mortgage guarantors Freddie Mac and Fannie Mae buy up the loans—the goods ones and the bad ones—bundle them into securities, and sell them back to the banks.
As a result of the housing boom of early this year going bust and an economy gone rocky due to the energy crisis, many of these home-owners found themselves unable to pay their notes and lost their houses. In turn, the banks, who understandably assumed that Freddie/Fannie guaranteed securities were low risk, were left holding the bag.
And now, in case of further mass defaults, the government wants to shore up the banks to the tune of $700 billion.
In short, the government wants to take the taxpayers’ money to get the banks out of a mess which that same government virtually forced the banks into in the first place. And if the answer is no, we all make like Humpty Dumpty. Maybe. But if the answer is yes, the same may happen.
Do I have this correct?
UPDATE: The screwers.
Hmmm...who to vote for?
(Thanks to Ace of Spades HQ)