............Some Bailout Math For Ya Baby
I haven't seen either presidential candidate, or Treasury Secretary Hank Paulson, or, any other government official describe the bailout in terms of the mortgage investments, and, how the government might get capital gains eventually as opposed to losses, and, WILL earn a respectable income.
If the entire $700 Billion is used, and, if the mortgage investments are bought for 50 cents on the dollar (original price), and, if the mortgage investments earn a net 7% annual interest after delinquencies (conservative, could be 10%ish, since they'll be bought (this example assumes) at roughly 50 cents on the dollar), and, they are sold in five years for 70 cents on the dollar (original price), the US government will have made 40% (20 cents profit versus a 50 cent purchase price) in 5 years, plus 7%+ interest pre year, which is a very respectable 13% to 14%ish per year return (40% in 5 years is less than 8%/year due to compounding obviously, so, it's NOT 15% per year).
7% interest on $700 Billion is a healthy $49 Billion/year, that might actually be $70 billion/year if the yield is 10% instead of 7% (original yield of 5% for this example). So, the US government should earn 5 times $49 Billion/year over 5 years, which is $245 Billion. The bailout doesn't look so bad LONG TERM and could conceivably be a good money maker, depending on what price is paid for the mortgage investments. Short/intermediate term the budget gets squeezed at a bad time.
If the US government is careful about how they buy the mortgage investments (at what price), a capital gain is likely once real estate recovers. Certainly a capital loss may occur, but it should be far less than $700 Billion, maybe $100 Billion or $200 Billion at most, which should be more than offset by the interest earned (about $245 Billion or more). So, the bailout long term probably isn't that bad for the US, and, a respectable 7%+ (could be close to 10% since they'll be bought at roughly 50 cents on the dollar) in interest should be earned each year ($49+ Billion/year).
.......http://www.JoeFRocks.com/
NEM XAU HUI
If the entire $700 Billion is used, and, if the mortgage investments are bought for 50 cents on the dollar (original price), and, if the mortgage investments earn a net 7% annual interest after delinquencies (conservative, could be 10%ish, since they'll be bought (this example assumes) at roughly 50 cents on the dollar), and, they are sold in five years for 70 cents on the dollar (original price), the US government will have made 40% (20 cents profit versus a 50 cent purchase price) in 5 years, plus 7%+ interest pre year, which is a very respectable 13% to 14%ish per year return (40% in 5 years is less than 8%/year due to compounding obviously, so, it's NOT 15% per year).
7% interest on $700 Billion is a healthy $49 Billion/year, that might actually be $70 billion/year if the yield is 10% instead of 7% (original yield of 5% for this example). So, the US government should earn 5 times $49 Billion/year over 5 years, which is $245 Billion. The bailout doesn't look so bad LONG TERM and could conceivably be a good money maker, depending on what price is paid for the mortgage investments. Short/intermediate term the budget gets squeezed at a bad time.
If the US government is careful about how they buy the mortgage investments (at what price), a capital gain is likely once real estate recovers. Certainly a capital loss may occur, but it should be far less than $700 Billion, maybe $100 Billion or $200 Billion at most, which should be more than offset by the interest earned (about $245 Billion or more). So, the bailout long term probably isn't that bad for the US, and, a respectable 7%+ (could be close to 10% since they'll be bought at roughly 50 cents on the dollar) in interest should be earned each year ($49+ Billion/year).
.......http://www.JoeFRocks.com/
NEM XAU HUI
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posted by Joe Ferrazzano at
9:58 AM
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