Cramdowns

A debate is raging in Washington, D.C., about how to deal with Americas foreclosure problem. One proposal is to restructure the loans using a tool usually seen in bankruptcy courts: The cramdown. Senior Editor Paddy Hirsch explains.

Category:

Education

Tags:

• Marketplace
• business
• money
• cramdowns
• financialCrisis
• creditCrisis
• PaddyHirsch

[WolfCatz]

i believe Paddy slightly misspoke:

it is NOT the interest "Rate" that is going to be reduced.

Rather,

it is the total amount of 'Dollars paid towards the interest' that is going to be reduced.

Nonetheless, i believe his overall analogy is still valid;

the BR Judge would make the BANK EAT the CAKE.

(obviously the banks weren't going to let that fly)

[bzurvalec]

@Shebadad Yeah, that actually threw me off a little too. I don't see how a reduction in the interest rate is a PER SE thing here.

[Shebadad]

@manufactured123 I don't think that is correctly stated. I think it should be stated like this: $1M over 30yrs vs $750000 over 30yrs the rate is still 8% in both cases but the overall amount of interest you pay is less because of the reduction in principle.

[weka]

Actually it is a Scottish accent.

[matthewfog]

actually its an Irish accent

[DUBAIDREAMZ6]

can u please make a video on how bank create money and why cant countries create their own currency in crisis instead of taking loans from IMF?

[testomailt]

All these videos pertain to the USA right?

or are they in the context of the UK? The English accent has me wondering...

[manufactured123]

2 situations:

1m in 30yrs and

750k in 30yrs -> you pay less each year -> lower interest rate than 8%

quicker paydown:

assumed fred keeps paying like it would still be 1m, it will be done quicker, bc he has to pay 250k less.

[febmiddkid]

What makes it a quicker paydown and a lower interest rate if it is still 30 yrs at 8%?

[iamgabrielf]

If banks print the money they lend to the borrower, are they really losing money in a cramdown?