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"""The US Government can still print Dollars and channel them thru Fannie Mae and Freddie Mac to lend to the private banks. That?s how the newly printed dollars get accounted in the government?s balance sheet. Ireland or any Euro Zone country for that matter, can?t go around printing Euros at will and use any of its own banks to incorporate those in their balance sheets."""
It's interesting to contemplate the above statement from a financial blog. The US govt has agreed to an unlimited bailout of Fannie and Freddie over the next several years. Printing money in general is inflationary leading to a weakening of the dollar. Where is this cash going? Fannie and Freddie are about the only mortgage market that is viable as they have this govt guarantee. They are at least starting to improve their lending standards. Fannie and Freddie have essentially guaranteed many many very bad loans made in an often predatory fashion by banks. So they are sending the money back to these banks to try and recapitalize them and repair the holes in their balance sheets. But this money is also leaking out into hefty bonuses for executives who caused this mess and is being paid to bank bondholders as dividend payments. Roubini and others think the bank bondholders should also share the pain by doing a debt for equity swap. This means that their bonds would be converted to stock shares in the bank. Thus we wouldn't have to cover their dividend payments and their investment would be more tied to the future performance of the bank. This is one measure to reduce debt. Another would be to offer more homeowners principal reductions. This would also lead to less bad loans that would need to be covered by the printing presses.
It's interesting to contemplate the above statement from a financial blog. The US govt has agreed to an unlimited bailout of Fannie and Freddie over the next several years. Printing money in general is inflationary leading to a weakening of the dollar. Where is this cash going? Fannie and Freddie are about the only mortgage market that is viable as they have this govt guarantee. They are at least starting to improve their lending standards. Fannie and Freddie have essentially guaranteed many many very bad loans made in an often predatory fashion by banks. So they are sending the money back to these banks to try and recapitalize them and repair the holes in their balance sheets. But this money is also leaking out into hefty bonuses for executives who caused this mess and is being paid to bank bondholders as dividend payments. Roubini and others think the bank bondholders should also share the pain by doing a debt for equity swap. This means that their bonds would be converted to stock shares in the bank. Thus we wouldn't have to cover their dividend payments and their investment would be more tied to the future performance of the bank. This is one measure to reduce debt. Another would be to offer more homeowners principal reductions. This would also lead to less bad loans that would need to be covered by the printing presses.