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If The Feds Buy Credit Card Debt

It looks like there is going to be a change in how that bailout money is spent:

But Paulson said the administration has decided that the original focus of the bailout program — the purchase of distressed mortgage-backed securities and other troubled assets on the books of banks — will not be employed. He said the administration has changed the emphasis because of a need to get money into the financial system much more quickly because of a worsening credit crunch. Setting up a purchase program for the bad assets was taking too much time, officials said.

Some lawmakers applauded Paulson’s switch, saying the administration was finally recognizing that its initial plan was flawed.

“I am glad that Secretary Paulson and the rest of the Treasury team have finally seen the light,” said Sen. Charles Schumer, D-N.Y. He said he would still like to see more strings attached to make sure banks use their bailout money to increase loans.

Paulson also said the administration was exploring the possibility of setting up a program in conjunction with the Federal Reserve that would provide support for the $1 trillion market in securities that fund such vital consumer products as credit cards, auto loans and student loans. About 40 percent of consumer credit is supplied through the sale of these securities that are backed by payments consumers make on their credit cards and other loans.

Okay, I was adamantly against the bailout when it was being used to buy mortgage defaults. But, at least there was some sense to the argument that long term the value of those mortgages could increases in value.

But, now the feds are talking about buying credit card, student and auto loans? The first two are known as unsecured loans, which means there is nothing of value backing them up. You can’t repossess the meal someone charged on their credit card last week, nor can you take back their education. The auto loans are not much better as they represent loans against an asset of rapidly depreciating value.

If you thought the housing market collapse was bad. Wait until the credit card and auto loan markets collapse, and they will. After all, if people are not going to pay back the loan to keep a roof over their heads, do you really think they’ll pay back the loans on their credit cards. Whatever “investment” the government makes in the loans will never be re-couped.

However, probably scarier is the fact that government officials are now admitting that the plan that they hatched less than 30 days ago isn’t working. Remember, this was sold to us as “a must happen plan” to prevent the collapse of the economy. We were told that people much smarter than us understood the intricacies of the economy and what would work to stabilize the markets. Now, we’re being told the same thing again.

Am I the only one who gets the feeling that the federal government is sitting at a roulette wheel with the last of their savings and saying, “Put it on red. Okay, let’s try black. Can I get an advance, I know I’m about to get lucky?”

This all about to get much worse.