Well, here is the bottom line. I will make this easy to understand as I just deciphered Bernanke’s statement to explain how this will actually work. Let’s assume a bank has a security that has 100 mortgages in it. Five of those mortgages have defaulted, and ninety-five are still functioning as normal. There are two ways to value this security. One is by the “market value” or where the market is currently trading such a security – in this example let’s say this security is trading at a very distressed price of say 50%. This in effect assumes ½ of the 100 mortgages are defaulting or will shortly default. Bernanke says the market is therefore incorrectly pricing this security as the “hold to maturity value” is much higher. So, let’s assume he is correct and the hold to maturity value is say 75% because we can assume more of the mortgages will default in the near future than the current 5%, in the region of up to 25% of them.

Bernanke wants to move this security to the toxic waste taxpayer balance sheet at 75 cents on the dollar, which is above the current market value of 50 cents on the dollar. Now, the bank might be holding this security at anywhere from 50 cents to 75 cents on the dollar depending on which way they pressure their accountants, and thus the bank may take a profit when it gets sold to the American taxpayer. Supposedly, they “should” be marking this security to the current market value of 50 cents on the dollar. Therefore, this bailout is aimed at infusing capital if in fact these banks are marking to market value, or anything below this magical “hold to maturity value” which Bernanke believes is now a more realistic true value. Thus, the devil will again be in the details but make no mistake about this . . . this bailout is definitely going to buy these securities above the current distressed market price, infusing extra money into the banks and spreading the risk of these market values onto taxpayers, albeit at a price that may be beneficial . . . but perhaps not.

If this doesn’t get done then the financial system will freeze up and businesses and individuals will be unable to get any credit whatsoever, causing a massive collapse of banks and businesses . . . at least that is what they are telling us. So, this is how we are going to avoid the 2009 Depression.