Word: bankses
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Instead, there is a better, cheaper, less risky, more direct way to improve banks' balance sheets and restore confidence. Here's how:
If homeowners owe less money on their mortgages, they will be less likely to stop making their payments. The plan is equivalent to a universal renegotiation of terms that improves the situation for both homeowners and banks. As a bonus, mortgage-backed - and, indeed, all mortgage-based - securities will become...
Geithner hopes to encourage private investors to buy these asset-backed securities, giving the banks cash and eliminating further downside risk to their portfolios. But why not try to make the securities more valuable in reality, so that investors want to buy them from the banks without receiving government support...
Further, there is currently a crisis of confidence in the banking world. Because of the uncertainty surrounding the future of asset values and the prices of complicated derivatives like mortgage-based securities, banks are hoarding money. They lack the confidence even to lend to one another. Reducing mortgage principal addresses...
It is also true that the banks will probably want to discriminate: Why should they lower the principal on "good" mortgages? Why not just on those that are most likely to be foreclosed on? Thanks to the way the debts have been bundled and then cut into tranches, the good...