[brewer12345]

Quote:

Originally Posted by ziggy29 Not as such, but why would the government need to "broker" something with the banks unless they were giving the banks something in exchange for "holding the bag?" It may not be a direct bailout, but it could be something as "simple" as promises in steering monetary policy in a way that makes it less painful.

Might want to loosen your tinfoil helmet.

First, it is the treasury secretary who is doing the brokering, while the wholly independent Federal Reserve OMC that sets the fed funds rates. So the Sec Treas does not have the ability to make any interest rate promises.

Second, a deal would need to be brokered because all of the affected parties have their own interests to protect and these interests are often in conflict. Left to their own devices, probably nothing would get agreed to on the securitized loans (where most of the particlarly troublesome ones are).

Third, banks are not being forced to "hold the bag." Banks do loan work-outs all the time because they are well aware that a less profitable but still performing loan is a lot more attractive than a bankruptcy/foreclosure process.