Question by MissDeviance: Why not offer new Guaranteed US Bonds for the bailout? As it is, the proposed $ 700,000,000 bailout will cost every one of the 138,000,000 US taxpayers approximately $ 5. But a bailout rewards the incompetence of government (who made the corruption possible), the bankers (who were happy to play along while they were making billions in the real estate market), foolish investors (who likewise figured they could buy a house for $ 500,000 and then sell it for $ 600,000 a year later), unqualified borrowers (who knew they were overcommitting themselves), and crooked CEO's in the affected companies (who were happy to give themselves huge multi-million dollar bonuses for allowing this to happen). The US government CONSTANTLY sells bonds to raise money, and so does every single municipality, from states to cities to small towns. So why isn't a US Government Guaranteed Bond being considered as the simplest solution to this problem, at a high interest rate (say 10%)vs. standard financial documents, and limited to US taxpayers only with a cap of say $ 50,000? THIS WAY, honest, hard-working americans WHO PLAYED BY THE RULES, saved their money, waited on extravagent purchases, didn't get those home equity loans overreaching their ability to pay, didn't buy the "flip this house" investments, and have GOOD CREDIT and SAVINGS (which is what the gov always claims it wants to see more of) end up reaping the rewards for this fiasco? If you have good credit, you qualify, and you can buy up to $ 50,000 of these special bonds. And it is guaranteed to pay 10% APR. And it is backed 100% by the US Treasury. Guaranteed, WITHIN DAYS they would raise the $ 700,000,000 from TAXPAYERS who are willing and able to participate. The economy would be stimulated, the problem would be solved, and the people who PLAYED BY THE RULES will FINALLY be REWARDED for their hard work and honesty. It's been decades since Americans can get a sound and solid financial investment that yields double-digits. Isn't this a golden opportunity vs. a problem? If you have good credit, would you like to get 10% on your money (for lets say 3 or 5 years minimum), GUARANTEED INTEREST from the government? Remember, this would be like a Certificate of Deposit... locked in for 3 to 5 years, guaranteed not to lose value by the gov, and earning 10% APR if you lock it for 3 years, 12% APR if you lock it for 5. Supposedly, the gov stands to make billions of profit on this bailout, when real property value is realized. So this way, instead, WE THE PEOPLE make the billions, and the gov doesn't suddenly find a huge chunk of money that it can squander as usual. Best answer for Why not offer new Guaranteed US Bonds for the bailout?:
Answer by superman
I can assure you that you're not "hard working" if you have $ 50 000 stashed away. That's probably daddy's money you inherited. Been born with a silver spoon is nice isn't.
Answer by Gyrine77
Yea! What MissDeviance said!
Answer by Dr Suess OB/GYN
Foreign investors would buy them up resulting in the US being more in debt to Japan and China
Answer by michael w
I could be wrong but I think the British did it during WW2 only then they were called war bonds and that worked, so maybe your guaranteed US bonds would do the same
Answer by CrowT
Who would be stupid enough to buy anything from a collapsing, bankrupt, and insolvent US government?
Answer by Skatta
i think if the bonds worked out, the government would not have to pay now, but would have to pay more later, rather than the government paying for it now, and taxing the interest. the way it is now, saves the government money, costs the taxpayers money. you want to cost the government and give some back to those that bought bonds, whereas the government will need more money later on and will have to tax it anyways. what i heard though that would be a good idea, is force the private institutions the government is bailing out, to give the government stake in their enterprises, that way, when they recover the government can make some of its money back, that would save some money from the taxpayers. so basically it would be kind of like what you're saying except the government would be instead of selling bonds to people, buying essentially bonds from the institutions it is bailing out, and in the long run will be able to recover some percentage of what it invested. the other way around in the long run, the government would be more in debt, since the point of bonds is that they increase in value at a greater rate than inflation. if they didn't then the bonds wouldn't be useful to the average person and would be basically lending the government money for free, which is sort of what they are doing in the end except even worse since they won't cough up the 7000$ a head in one easy installment, it will need to be over time, and so the government will need to borrow money, which will have interest on it, so the 700 billion$ by the time it gets payed off will have increased to some greater value. at least that's how i understand the situation to be. i don't know, i understand the necessity but really this problem to me, seems like if you're in a sinking boat and you use another piece of your hull to fill the hole you already have. people will have less money to spend, which the opposite of what you want for a good economy. basically you want your government to spend on investment, or necessities/lifestyle choices like health care, or roads and stuff. you want to keep the rest as much as possible in the hands of people, so they buy stuff from each other and make each other richer so they can buy more stuff and so on. this will have the opposite effect, of people buying less from you, so you have less to spend, so you buy less, so others sell less, so have less money etc... i don't think this is very good news for the future. and i really think the government should force that they have a stake in the institutions so that they profit from the recovery and at least give back to the taxpayers to help alleviate the situation. all of those other things you mentioned are like you said the government's fault, republican economic policies, but is also the nature of capitalism for some of those things. money is the deciding factor of what occurs, people just follow the rules they don't make them. so the problem cannot be the people, it must be the rules.
Answer by First L
That's a good idea. I think the problem would be to get the bonds sold quickly. Because of the inflation issues (oil prices and food prices with the lower dollar value), bondds are generally considered not a good investment. Bonds tend to go down in value at times when inflation rises. I think that could be a potential issue and the fact that many regular folks couldn't afford the bonds. i.e. myself, i got outsourced 3 years ago from my job by a foreign company. i now make a lot less $ $ $ now than i did then. and, i bought a cheap house. never had a late payment. but, am cash strapped. i bought smart but my income fell. so, now i have only enough to make that payment on time.
putnam.com -- Putnam High Yield Advantage Fund Manager Paul Scanlon discusses the different advantages of high-yield bonds and bank loans.
http://leafgardenpress.com/ High-yield bonds and bank loans: both may offer benefits
Yields on a Credit Suisse index tracking leveraged loans fell to 6.5% this month, from 7.72% in May. While yields on fixed-rate high-yield bonds are higher, around 7.32%, loans with floating rates offer the security of claims on company assets and a ... Loan-Market Pipeline Gushes With New Deals
I'm 10 years old and sitting at the kitchen table with my grandfather. I remember it like it was yesterday. He was reading the paper and I kept asking him questions about the stock market. I must have been on my 3,000th question when he told me something shocking. At least to my 10 year old brain...
You could loan money to people, and they'd give you more money back.
It was a very simple concept, learning about interest. But I was blown away at the time. My mind raced with thoughts of making lots of money. That's how my first introduction to bond investing went. Loan out money, get more money back.
Over the years I've learned a great deal about investing from my grandfather. He's explained stocks, bonds, commodities, even real estate. I remember the discussion about bonds most clearly.
Right now many high-yield bond investors are feeling the same way I felt then...
excited and happy!Last week, High Yield Corporate Bond funds received the largest inflow of cash in many years - $ 882 million in all. This is on top of the $ 690 million and $ 731 million invested during the last two weeks of December.
That's a lot of money being put to work.
Why are investor dollars flowing into these funds at such a high rate?
Before we get to that... let me tell you a little bit about high yield bonds.
High yield bonds are bonds with a great PR (public relations) firm. You may know these bonds by their less flattering name - Junk Bonds.
High yield or junk bonds are typically issued by companies with a credit rating below "BB." Their stated interest rates are usually three or four percentage points higher than those of government bonds.
Why the higher rate?Because they have a higher risk of default.
Most high yield bonds are issued for one of two reasons - general corporate purposes or to fund an acquisition. In the 1980s the junk bond industry became famous for financing the leveraged buyout boom. Today the high yield industry has issued more than $ 600 billion in bonds and has offerings from nearly every industry.
So what's so special about these bonds? Why is all this money flowing into high yield bond funds now?
I've got one word for you - YIELD.
Right now a 10-year U.S. Treasury Note (T-Note) is yielding about 2.3%.
High yield bonds normally provide 4 or 5 percentage points of yield over T-Notes. That's known as the spread. Today the Merrill Lynch High Yield 100 has a yield of more than 12%, a spread of more than 10 percentage points over T-Notes.
That's more than double the normal spread.
But that's nothing. Earlier this year the yield was over 17% - that's a spread of almost 15%.
The spread's a great indicator of fear. The bigger the spread, the bigger the fear companies will be going bankrupt. Clearly the market was very, very fearful when yields were 17%. Now yields are falling and the spread is tightening... a good sign the markets are returning to normal.
The opportunity to grab part of these big yields is quickly slipping away. As investors on the sideline become disgruntled with government bonds only paying 2%, it won't be long before they're looking for something with a better return.
Now there is a risk. Some of these companies could go bankrupt rendering their bonds worthless. Investors might lose a chunk of their hard earned money... to some that's a risk worth taking.
If you want to buy into these funds you might look at a high yield bond mutual fund. According to Morningstar there are more than 150 to choose from. I know Vanguard has the High-Yield Corporate Fund (VWEHX), or you might look at the Fidelity Capital & Income Fund (FAGIX).
There's an ETF you can trade as well.
One I like is the iShares iBoxx High Yield Corporate Bond (HYG). It boasts heavy trading volume and a 12% yield. With assets just under $ 1 billion, they're not as big as the mutual funds, but big enough to provide some decent diversification.
Take a close look if you want to add a high yielder to your portfolio.
More How to Invest in High-Yield Bonds Articles
