Federal Homeowner Preservation Corporation
That’s the new buzzword on the street. Bank of America which is hurting greatly from the subprime credit crunch, has proposed an offer to Congress, asking for the creation of the Federal Homeowner Preservation Corporation.
Essentially this new corporation would use US Government funds to buy mortgages at a deep discount from Bank of America to protect people from losing their homes. The corporation would forgive debt greater than the loans value and use federal loan guarantees to lower the rates on mortgages. What this really is, is a giant corporate buyout meant to keep Bank of America from losing its shirt on bad loans.
Bank of America has proposed this offer secretly to Congress members while warning that $739 Billion of loans are moderate to high risk of defaulting.
This new corporation would be fueled entirely from inflation. The $739 Billion in loans has been already created but the US Government would now buy the debt from Bank of America at a lower value. Sounds like a great way to dump bad mortgage debt on the taxpayers while corporate execs enjoy their million dollar bonuses.
If the US Government follows through to create this new group to protect the people (special interests) the result is record levels of inflation from forgiven debts and more credit flowing into the system. Current M2 money statistics sit at $5-6Trillion dollars, the total amount in bank accounts, money markets, cash, etc. An additional $739Billion flowing into the system is likely to send prices sky-high. If it comes in the form of new credit, it will be added to the $9.2Trillion current government debt. For all intents and purposes, if this bill goes through the amount of credit in the system will spike by 7% almost overnight.
If homeowners fail to pay, the new credit will never leave the system sending inflation even higher. On news of this bailout, expect commodity prices to shoot upwards. This hasn’t hit front page news yet, but expect it to in the next few days.
