"Bernanke noted yesterday (if I heard him correctly) that the plan didn't intend to reinvest any proceeds after a sale."
However, my read on what Ben and Hank have been saying is that they (or their successors?) intend to go "back to the well" (a bucks-for-bazookas program) until this liquidity thing is "fixed". Less would be on the line this time, but the intention would be to keep banging our collective heads against the wall until things got better.
I think that the $700B figure was mostly aimed at market psychology..."shock and awe" if you will. The intention was always to "keep doing stuff with taxpayer money" until things got fixed.
Of course they won't re-invest it directly. Instead, they will spin the $50B proceeds as 'profits' so as to convince Congress to extend them another $250B.
IAskStupidQuestions writes:
If this is such a profit making opportunity, then why aren't the billionaires of the world scooping up these securities in the deal of the centuy?
They did. They're just on the other side of the trade.
The market is throwing in the towel short-term as bad data failed to bolster prices and trade rolls with the bailout stock bounce. Spreads tell a less optimistic story though, suggesting that funding across the spectrum has all but evaporated which will eventually (if not already) have larger repercussions on hiring and capital budgeting for 09. S&P says the default rate on 3-yr junk paper could top 23.2% soon (worst since 81) while mortgage rates are blowing out again. None of the this is good news to markets and while the bailout may be the low water mark for financial shops, it may be too late for the real economy. That sentiment could keep bonds in the game and possibly weather the tidal wave of supply about to hit.
btw, it is driving me CRAZY that bubblevision keeps talking about how Buffet is behind this plan, without discussing Wells Fargo. Given they've been avoiding marking anything to market, he'll gain quite a bit out of this bailout.
IF THE PLAN ACTUALLY WORKS, OR SUPPORTS THE ECONOMY LIKE PURPORTED...WHY THE F SELL THE SECURITIES FOR A LOSS IF THEY'RE PURCHASED AT THE PROPER HTM PRICE????
Why not just hold em to maturity and let the rebound in home values and economic prosperity take care of the "real" value...this way citizens would actually benefit from their own turnaround!!!!!!!!!!!!!!!!!!!!!!!
"The intention was always to "keep doing stuff with taxpayer money" until things got fixed".
Which they never will be. They can't avoid the collapse of the credit bubble no matter what they do. They can, however, postpone it until after the election.
Sorry if this was discussed in the previous post. Been away for a bit and did not have a chance to read all of it. Trying to Keep up with the threads these past two weeks has been insane.
Understood. I'm telling my rep mark-to-market prices. The idea is not to make financial institutions whole, but to make taxpayers whole against the fallout of the failing institutions. And clawbacks, and compensation ceilings, and warrants, and regulations, and oversite, and then and only then can they come out of their room and have dinner with the rest of the family.
Bill Gross is one of the biggest damn pigmen is this whole sordid mess. That guy is a lying piece of crap and if this is such great damn crap Bill why in the hell aren't you loading your funds up with this shit? Bastard!
Maybe Im giving the Dems too much credit for political savvy but bear with me.
House Republicans wont go on record as supporting this to avoid backlash back home from both rednecks and local community banks (BB&T?). Dems knew this soft spot so they keep saying its gonna pass so when it doesnt they can blame the Repubs.
Some on this blog hypothesized that the $700 bil price tag plus the infamous Section 8 were there to force the Dems to be the bad guys killing the bailout. Remember, rank in file Repubs only understand simple yes or nos and cant understand nuances like section 8.
McCain has nothing to do with the Dems strategy and hes just doing anything he can to avoid being on stage with Obama. Remember how bad Nixon looked opposite Kennedy and at least Nixon knew policy. Keep in mind that all the Dems stipulations have nothing to do with the House Repiblicans objection to this bill. They oppose the entire premise of a Wall St. bailout. To use a tired phrase, they dont care what kind of lipstick is put on this pig.
I wouldnt be surprised if Bush expected the Dems to object only to be caught off-guard when his own party objected, hence his belated prime time speech.
Somebody was asking about the TED spread on a previous thread. The TED spread is only a rule of thumb indicator that has signaled a few previous credit episodes, but it tells you very little about current fundamentals. The current TED spread is mostly caused by the t-bills being very low, not by LIBOR being very high. Neither side of the equation tells you how much money anybody is really willing to borrow or lend at LIBOR (or any other rate) which is what matters to unfreeze the credit market.
At this point, the low interest on t-bills primarily means that a bunch of people currently prefer to put their money in t-bills at no interest rather than lend it in the market. The interest rate has gone so low because the supply of bills is finite and people in need of a safe haven are bidding up prices. The interest rate could easily have gone negative if this continued.
The bailout will add an enormous supply of t-bills, which should indeed raise the t-bill rate and close the TED spread if LIBOR stands still. But if people would really rather have a t-bill than lend in the market, we may very well see the first clear, large scale example of government borrowing crowding out private borrowing. In other words, the bailout could cause the opposite of what was intended giving people a way to put large amounts of money in cold storage instead of lending the money in the market.
It's quite obvious that this bailout will get passed one way or another.
If not now, then when DOW drops 5000pts in some crisis day in the future, then it'll come back again with a vengeance and get passed in a few hours.
The main focus now should be:
Will this work?
What will it do to the market?
My personal vote is that it won't work, despite all the assurances, beyond buying a few months at most.
What it will do is to shut down proper bottom-formation and formation of vulture funds. This in turns makes the depression deeper and more painful. There's also a risk that this actually can backfire and remove all (other) sources of credit and cause the govt to be the sole source of credit left. If this happens, there's no way the govt can support the while credit market, and corp credit will dry up.
Companies will BK by the thousands and even relatively good ones will be dragged down by unpaid invoices to BK corps.
The issue of churning came up in one of the numerous Q/A sessions I watched over the last 2 days. I can't recall which congressman was asking the question, but when Paulson said that the intent was not to reinvest the funds, the congressman said something to the effect of "then you will not mind if we add that sort of language to the plan" - which was met with silence.
A lack of churning seems like a fundamental problem with the plan to me. Not that I'm unhappy with the sale proceeds not getting fed back into the system (at least at above market prices), but the universe of debt instruments that are distressed is too large here for $700B.
If the Treasury succeeds in getting higher book values for illiquid assets, than bank balance sheets might look better, but there will have only been a modest recapitalization of the banking system when all is said and done.
If housing and the economy continue on their current trajectories, the banks will have higher marks on their assets, but will still be holding those assets (after all, when you pay above market rates and don't churn, you don't get to buy too many of them...) instead of cash or cash equivalents, so we still have a problem with the banks having illiquid assets, and we still have an insolvency issue with the banks if the payments on those illiquid assets only pay off at rates close the current market expectations (i.e. high default rates).
There is a lot of game theory here. If there is a window to unload your illiquid assets, do you try to be first in line, or do you instead wait for others to look weaker than you and let them go first (and just get to play with the higher marks)?.
wouldnt be surprised if Bush expected the Dems to object only to be caught off-guard when his own party objected, hence his belated prime time speech.
tbapple | Homepage | 09.25.08 - 4:40 pm | #
New claims for unemployment benefits jumped last week to their highest level in seven years ........The number of people continuing to draw jobless benefits last week was 3.54 million, up 63,000 from the previous week and nearly a five-year high.
Congress has alot of angry unemployed citizens seeing red as Wall St. is being bailed out.
CR think that using 700bil is not realistic.
The Paulson plan is dead and I do believe that the outline of the new plan has been disclosed So lets talk 250bil Still a significant sum
Also churning etc doesn't seem to be going to happe
What they're really negotiating right now, in effect, is which Reps and Dems will get tossed out in the election. It's all CYA at this point, and all the players know it. I'd love to be a fly on the wall watching the dinosaurs duking it out around the "negotiating" table.
Expect a best seller or two and a movie out of this next year. If there's any credit left in Hollywood.
WB has $120 Billion of this paper on its books. It's alt-a crap and will go off at MAX 50c on the dollar.
There is $60 billion right there.
Tell me exactly how the gov will make money on this unless they pay 20c on the dollar or something and STILL let things crash. There is NO way to avoid a crash.
How would America suffer if we don't rescue Wall Street? They keep repeating this but they don't explain what would happen. It is like going to the doctor who feels because you didn't go to med school you would never be able to understand a medical issue.
Let's be clear on the big big BIG picture here. Yes, people will lose jobs, loans will get harder to get, companies will fail. But there will be winners as well as losers. And in the end, all of that "buying things you cannot afford" poop will be flushed from the system. The main reason that the "big wigs" are panicking, however, boils down to:
This capitalism model keeps on tanking every couple of years with bubbles bursting after the foxes have eaten all the chickens again and again......
I say dump our current model and opt for the Denmark model...
The Scandinavian welfare model acts within a controlled capitalist market economy in which inequalities in income distribution and the concentration of wealth and power are allowed less free play...
further characteristic of the Scandinavian welfare model is the fact that rather than cash benefits, citizens are entitled to a wide range of service benefits provided by the authorities; these are often either free or subsidised. Both the health service and education are free. ErrorPage
HP wants the $700 billion is a working capital fund otherwise no bail-out. HP knows the biggest part of the problem is the derivatives and swaps which total close to $62 trillion. $700 billion would never be enough!
The most important lasting impact has been the way this issue has galvanized a new coalition of lunch-bucket types, free enterprisers, blacks, Hispanics, poor people, etc. to oppose govt. tax hijacks for Wall Street.
Who would have thought black leaders and free-enterprise Republicans could get on the same side of the fence so vocally?
The next time Ben and Hank try one of these heists, they'll be stopped dead in their tracks.
So these banks bought the assets AND a put option along with it.
That is, they bought an asset that they can put back to the government at cost basis. Hell, they didn't have to even pay a premium on it. With Paulson watching out for them, no wonder they levered up.
"That would require a country with low degree of corruption, where people trust and respect each other."
And that only happens in a relatively small and racially and culturally homogenous society.
""That would require a country with low degree of corruption, where people trust and respect each other."
And that only happens in a relatively small and racially and culturally homogenous society".
Keep the race thing out of it, and I agree. As long as there is a rather uniform culture, races of course don't matter.
"Anyone who's sold houses in the last little while, anyone who's successfully been in and out of the commodity markets, etc, has piles of cash, and keeping it in the bank is a risky business," Merryn Somerset Webb from Money Week said. "We do have the (UK) government's bank, Northern Rock which offers fantastic rates of interest."
"There are a variety of gold funds , there are various gold-related ETFs and you can always buy it physically and keep it under your mattress it would be the safest possible thing you could do," Somerset Webb advised.
"All you can do in a situation like this, as a retail investor, is preserve your capital, and that involves not going near the equity markets not going near the property markets and maybe buying a few Guilts."
Re: How would America suffer if we don't rescue Wall Street?
The allusion is that there will a run on mutual fund money markets and banks, as people panic and run around chasing yields as all Treasury securities collapse in value; then, you and yours will have zero access to cash.
Actually, all the studies on social capital do come to the conclusion that race makes a difference. Harvard researcher Robert Putnam has writen a lot on it if you're interested.
"I say dump our current model and opt for the Denmark model..."
Just like that? How would we do that, politically? It's been a long time since I've been in Denmark, but I think that its resemblance to the US is still not close.
I am very confused. Why Treasury needs to sell the mortgages? Wouldn't that depress market prices again? And operationally, that is a lot more complicated. They should just hold them to their natural ends (repaid, refinanced, or in case of foreclosure, re-sold the house). If Treasury can borrow at the current 4 percent rate to finance the purchase of the mortgages, it's quite possible they can pay above market prices (presumably depressed right now) for these mortgages and still breakeven. Besides, holding the mortgages to their natural ends are much simpler operationally -- they don't need to worry about the timing and method of the reselling the mortgages, and they don't need a single economist. And they will have cashflows in the mean times.
About borrowing money for the 700 B bailout.. ahem..
China banks told to halt lending to US banks-SCMP
Wed Sep 24, 2008 9:52pm EDT
BEIJING, Sept 25 (Reuters) - Chinese regulators have told domestic banks to stop interbank lending to U.S. financial institutions to prevent possible losses during the financial crisis, the South China Morning Post reported on Thursday.
"Actually, all the studies on social capital do come to the conclusion that race makes a difference. Harvard researcher Robert Putnam has writen a lot on it if you're interested".
Thanks.
When we're onto looks, is it also important for a population to have a uniform BMI?
HOW THE NATIONS RANKED ON HAPPINESS
1st - Denmark
2nd - Switzerland
3rd - Austria
4th - Iceland
5th - The Bahamas
23rd - USA
41st - UK
90th - Japan
178th - Burundi
In an international context, Denmark is characterised as being one of the countries in the world with the most equally distributed incomes after taxes and transfer payments.
a. Requires Treasury Secretary to set standards to prevent excessive or inappropriate executive compensation for participating companies
b. To minimize risk to the American taxpayer, requires that any transaction include equity sharing
c. Requires most profits to be used to reduce the national debt
Oversight and Transparency
a. Treasury Secretary is prohibited from acting in an arbitrary or capricious manner or in any way that is inconsistent with existing law
b. Establishes strong oversight board with cease and desist authority
c. Requires program transparency and public accountability through regular, detailed reports to Congress disclosing exercise of the Treasury Secretarys authority
d. Establishes an independent Inspector General to monitor the use of the Treasury Secretarys authority
e. Requires GAO audits to ensure proper use of funds, appropriate internal controls, and to prevent waste, fraud, and abuse
Homeownership Preservation
a. Maximize and coordinate efforts to modify mortgages for homeowners at risk of foreclosure
b. Requires loan modifications for mortgages owned or controlled by the Federal Government
c. Directs a percentage of future profits to the Affordable Housing Fund and the Capital Magnet Fund to meet Americas housing needs
Funding Authority
a. Treasury Secretarys request for $700 billion is authorized, with $250 billion available immediately and an additional $100 billion released upon his or her certification that funds are needed
b. final $350 billion is subject to a Congressional joint resolution of disapproval
"If the government makes anything over its cost of borrowing, this deal will come out with a profit. And I would bet it will come out with a profit, actually."
Of course, he made a very different bet (in Goldman preferred).
I never ceased to be amazed at what this character gets away with. He should put HIS money where his mouth is -- not the taxpayers.
Ok, guys, so I'm sitting here compulsively reading CR, Glod forbid I should be working, with a ring-side seat at the end of the world, secys gone.
A knock on the door.
It's a bird, it's a plane, it's. . . Wamu guy, trying to set me up with a 5% CD. Yep, door to door. To my office!!
True desperation. I tell him the only reason WaMu isn't taken over by FDIC yet, is the FDIC doesn't have enough employees, and if I were in his position, I'd be looking for a job.
Poor fellow, he kept on smiling.
This is the first time ever, any financial type has ever come to the door selling CDs.
Something novel: Will the Banks backstop the program? or Will PIMCO backstop the FED? or Will the wealthiest 10% donate the money? or Can the Army and Navel Wives Clubs across Amerika have a bake sale every sunday and donate the money?
True desperation. I tell him the only reason WaMu isn't taken over by FDIC yet, is the FDIC doesn't have enough employees, and if I were in his position, I'd be looking for a job.
The deal here, is all about short term money mkt cash connected to Treasury and the race to zero. As soon as your money market cash, begins to break the buck, people will be pissed off that this backstop was not in place weeks ago!
Doc Holiday writes:
Re: How would America suffer if we don't rescue Wall Street?
The allusion is that there will a run on mutual fund money markets and banks, as people panic and run around chasing yields as all Treasury securities collapse in value; then, you and yours will have zero access to cash.
The allusion is that there will a run on mutual fund money markets and banks, as people panic and run around chasing yields as all Treasury securities collapse in value; then, you and yours will have zero access to cash.
Which is why this plan is useless - banks are already protected by FDIC; if you want to secure that just shore up the FDIC. MM funds own short-term obligations - very little MBS. The things that count aren't helped by the plan.
Doc Holiday writes:
Re: How would America suffer if we don't rescue Wall Street?
The allusion is that there will a run on mutual fund money markets and banks, as people panic and run around chasing yields as all Treasury securities collapse in value; then, you and yours will have zero access to cash.
Got it?
But i will still haz my debit and credit cardz, right?
Money-market rates soared on September 24th as banks hoarded cash. Investors moved again into safe havens such as US Treasury bills, sending one-month rates below zero at one point during the day.
LawyerLiz, that is surreal. If somebody came to my door peddling 5% WAMU CDs I'd be freaked out and figure it was some kind of nut case. Weren't door to door salesmen a common thing in the Depression?
Does Shelby mean there's not a deal or that he's not participating? I understand he's opposed to the whole idea and not involved in the dealmaking process.
If there are too many redemptions from money mkts, they have to sell at a loss and then find cash to protect cash, and then buy Treasury shit at a premium, while people panic and move to even less safe places. If these funds are not contained and protected, It's A Wonderful Life 2008...
Unintended consequences every time a politician says "keep people in their homes"..
There is a very large backlash of prudent threatening to not pay their mortgage.. I am amazed no one is speaking about this or calculating the consequences. This would mean most everyone who got a loan in the last 5 years will walk away. Why? Because their neighbor just got a loan modification and paying 1/2 as much.
He didn't have an abnormal pinky; was a handsome, tho short (I like 'em tall) Cuban guy in a a nice new green WaMu shirt. Also, i am old enough to be his mom.
I actually sold World Book door to door in the early 70s with some degree of success. I have nothing against door to door if they aren't selling religion, and even then, if I'm in the mood, I will have fun with Mormons. Jehovah's witnesses are generally poor souls and I avoid mixing it up with poor souls.
Sept. 25 (Bloomberg) -- GMAC LLC's best chance of riding out the financial crisis intact may involve the lender finding its way into the U.S. government's $700 billion bank-rescue plan, analysts say.
Bernanke said they didn't plan on reinvesting the proceeds. Yeah, right. Not now. But in a month, when BAC and JPM are tanking, you can bet they will (or else we'll have a financial meltdown).
Lies, lies, lies. When the U.S. Government is insolvent in February, you apologists who are too busy sucking Hank's c**k will realize what has happened, but it will be too late.
MM runs are a big threat; that's why the Feds should be working on protecting the MMs or finding alternatives to them. Not on blowing Vast sums propping up things that aren't in MM fund accounts.
"They should buy them at the kind of prices that are available in the market."
If Buffett truly said this, senility is setting in. That is a brainless statement. If they are priced now on the market, then there is a market price and a market. If that is the case, then the government 'giveaway' adds nothing. Buying this stuff 'at matket' has utterly zero effect on the balance sheet of anybody selling anything, it merely changes the identity of the buyer.
Here are some comment I posted elsewhere that show a real relevant example of how and why money will be made ... along with some of the other very real benefits:
... key triggers were the subprime losses, inflated in importance by a sensationalizing media, which tipped the balance of confidence, caused the confidence crisis, which froze the credit market virtually overnight ... which then triggered the flaw with mark to market rules, entering the market into the self fueling death spiral
Paulson and Bernanke tried many interim measures and none of them could break the fundamental flaws - the technical problem caused by the mark to market rules in a frozen market, and the confidence problem that resulted
This plan addresses these issues - brings back solvency and liquidity, recapitalizes the banks (without simply writing them checks as loans - instead the Fed gets assets in return), most importantly it breaks the mark to market death spiral
And it does it with a plan that has the taxpayers owning 100% of the assets, which they will buy at 25% to 50% discounts to face value - assets which, with the Feds ability to hold long term will make the taxpayers billion in profit
As importantly this plan puts assets in hands of the Fed who can then modify or rewrite to help the holders afford the loans ... all those homeowners who are underwater or in trouble with high rates ...
The Fed - because they've bought at a significant discount, can rewrite, waive penalties, waive interest, write down loan amounts etc - help get these loans back to performing - to what owners can afford - they can eliminate many or most of the bad loans and make them into good ones - they can help the borrowers (many who don't deserve it) and help bring stability to the markets and still make money for taxpayers
For example - the Fed buys a $300,000 loan on a home a buyer put 5% down on - value was $315,000 ... say a subprime loan - the interest rate went to 9% and the area prices dripped 15% and the buyer can't afford anymore and can't sell ... the Fed buys the loan for a 40% discount as it in default - they pay $190,000 for the loan
The house is now worth 15% less than the $315,000 orig paid - $268,000 value now ... so the Fed:
+Waives all past due interest and fees - there is probably a years worth interest (at 9%) plus foreclosure costs, late fees etc - more than $30,000 - cost the Fed zero to waive these
+Reduces the loan amount to 95% of the current $268,000 value = $254,000 loan
+Rewrites the loan to a 30 year fixed rate at 6.5% ...
The payment originally was $2,413 on $300,000 at 9% ... now on $254,000 at 6.5% it is $1,605 ... $809 a month less, almost $10,000 a year less
The govt paid $190,000 and now has a loan of $254,000 that the buyer can, and has a reason to, pay ... the buyer has saved more than $75,000 in write downs and waived costs and fees and now has a payment they can afford
The govt will make $64,000 on the principal amount alone, plus they get $16,500 a year in interest for the life of the loan ....
Say the typical loan is paid off in 5 years - for a $190,000 investment the taxpayer receives $254,000 in principal repayment plus nearly $83,000 in interest - a total of appx $337,000 for a $190,000 investment - a profit of appx $147,000 on a $190,000 investment over just 5 years
A BAD loan with a borrower about to lose their home turned into a good loan, a saved borrower, and a huge profit for the govt
And I would take this plan a step further ...
I would use a Fannie or FHA loan to rewrite these - and would charge an insurance premium of 3.5% - which can be added to the loan amount - in this case $8900 on the $254,000 mtg... this will go into a pool to cover defaults on these new loans largely eliminating costs of that risk
I would also make the borrower give back ... in a couple ways ...
+First I would require a shared appreciation agreement - that on sale the govt was entitled to a share of any profits ... I would make that share equal to the percentage written down on their mortgage with a minimum of 10% and maximum of 25% - only fair
+Second I would require any borrower receiving this assistance to be required to perform community/volunteer service - for every $1000 forgiven they have to perform 2 hours of community or volunteer service ...
... and I would take that a step further as well by taking the percent change in any interest rate reduction - here 6.5% is a 27% reduction in rate - and using that as a multiplier on the hours reqd above
So in this case the borrower saves $46,000 up front in reduced principal, plus waived costs and fees of appx $30,000 - total saved $76,000 = 152 hours + 27% = 193 hours community service reqd
I would require this time to be served within 24 months of rewriting of the loan ...
I would also allow any member of family living in property to help fulfill - AND I would give some premiums; a 15% premium where both spouses worked together in a comm service endeavor, a 15% premium for any individual effort by anyone 18 years old or less, or a 25% premium for any comm service in which ALL members of the household participated together
The family the volunteers together sees lots of benefits ...
The economy will survive, it will just be driven underground, where the IRS can't get at it. As we speak I'm looking at several construction projects in my neighborhood, being done mostly by unlicensed good 'ol boys getting paid under the table. Maybe some of them are being paid in meth and pot, but whatever.
i think paulson was an offensive lineman in college and that's how he got his gnarled up pinky. those football linemen typically get their fingers mangled playing that sport.
The problem of course is "the price". Sure if they pay fair market value then the taxpayer may come out with a small profit but the due to the high leverage of the banks, the writedowns that that the banks will sustain would wipe them out. For this plan to work, Paulson has to to pay above market prices, the taxpayer is gonna get screwed.
MLM said: "220mph - you are almost as confused as Sebastian."
At least it's an attempt to put real-world numbers to the problem and the possible solution, as opposed to "we're all gonna die and there's no way out!":)
MLM said: "220mph - you are almost as confused as Sebastian."
At least it's an attempt to put real-world numbers to the problem and the possible solution, as opposed to "we're all gonna die and there's no way out!":)
Yep - just the usual ignorant response - anytime anyone here seems to attempt intelligent thought or present a detailed analysis you get this kind of brilliant response in return
They never have a reasoned rational rebuttal - or even any comment on what was wrong with the comments
A very few - once in a while - at least make an effort to debate if they disagree - but it is pretty rare
So MLM ... do you have an intelligent rebuttal or reply to my comments?
sales clerk to shopper, can I help you find something?, shopper I am looking for a gift (un named. Clerk, how much is your budget?, shopper, $50. Clerk, says great! we can find something with that price range.
After the purchase is rang up, the clerk says "so who is the gift for?", shopper says my mom.........Clerk thinks to self WHY SO LITTLE??
Price - who is doing the paying or benefiting has a lot to do with the price...... ya the think the DC Cats are going to get a good price?
BTW, (although I don't really like agreeing with him), on a previous thread poster "mock turtle" had an interesting thought that I don't think anyone really followed-up on.
With a median home price in the U.S. of around $200,000, $700 billion would buy 3.5 million homes outright, far more than even the total number of homes now in foreclosure.
JMO, but I think Paulson/Bernanke just wanted to make sure they had access to more than they really thought they would need.
I also put this plan idea together a few days ago - which is along lines of what you comment on above:
And one more "program" idea:
Create a US Govt Housing Purchase Authority - for the US Govt to purchase new homes from current inventory:
+Goal - to reduce current excess inventory from appx 9.8 months to a "balanced" market with appx 5.5 months
+Current finished new home inventory appx 450,000 homes - to get to 5.5 months is appx a 44% reduction - or appx 197,000 homes reduction
+A 197,000 home purchase at current median price of appx $215,000 would represent appx $42.5 billion in face value
+The govt would purchase these homes at a discount - say 10% (consider they are already marked down significantly from recent values)
Homes would be held for future sale and released back into market as demand warrants
+Appropriate valued homes could be used for affordable housing goals - 50% equity participation for example (sell for 50% with Govt retaining 50% of equity/appreciation)
Other homes could be rented during holding period
Homes in appropriate areas could be used to improve off-base housing for military families
+Initial total acquisition costs appx $38.2 billion (assuming 10% discount)
+Rather than owning questionable distressed loans govt would own brand new homes outright
+Govt would have up front initial equity of appx 10%
+New home as asset is easily and more accurately valued than investment paper
+Far more transparency
Immediate and significant impact to economy - with strong cascading benefits
+Minimal risk of long term loss, high likelihood of long term profit
how bout...sell now at 75c on the dollar....loan it now at 50c on dollar with a 5-7 year add on of the defferred 25c.....and pay all closing costs. Tie in with IRS to verify income etc.
220mph (& Seb) - Unless I'm reading the wrong "plan", the Treasury will be not be buying whole mortgages (that's so 80's). They will be buying tranches of various mortgage securities. How they will go from owning tranches of mortgage securities to following your carefully reasoned plan, I do not follow. I am ready to be enlightened however.
So with this plan is the Treasury buying mortgages or slices of revenue for pools of mortgages?
I don't understand how an owner of a small fraction of a large pool of contracts would have the authority to modify any one contract in that pool. Could you explain that to me?
From CBO office:
The Congressional Budget Office (CBO) has reviewed the Troubled Asset Relief Act of 2008, as proposed by the Administration. The act would authorize the Secretary of the Treasury to purchase, hold, and sell a wide variety of financial instruments, particularly those that are based on or related to residential or commercial mortgages issued prior to September 17, 2008.
--
As I said, involves more than just residential mortgage securities.
"For example - the Fed buys a $300,000 loan...the Fed buys the loan for a 40% discount as it in default - they pay $190,000 for the loan"
So, what you are saying is that, in large part, it all comes down to WHAT THE FEDERAL GOVERNMENT PAYS FOR THESE LOANS. Pay 10 cents on the dollar, the taxpayer makes out like bandits, and the banks go broke (talk about a lending freeze). Pay 100 cents on the dollar, the banks make out like bandits (although they are still not guaranteed to lend money put!), and the taxpayer "goes broke".
It's all dependent on:
How much you initially pay for these things.
What the economy and the housing market do between the time you purchase them and the time you sell them.
How long you can hold on to them.
What rate you are paying to hold them (remember, the government will borrow money for this).
It all depends on what numbers you plug into #1, #2, #3, and #4.
"Current finished new home inventory appx 450,000 homes - to get to 5.5 months is appx a 44% reduction - or appx 197,000 homes reduction"
However, there is the "used home" inventory as well. I remember reading somewhere that we have a 1 million + inventory of unoccupied homes (both used and 'pre-owned').
"+New home as asset is easily and more accurately valued than investment paper "
Add in the monthly deterioration of these as the government holds these...or maintenance fees for people to water the lawns, kick out squatters, etc.
However, at least here in California, I have a problem with using my tax dollars to keep house prices artificially high (ie higher than they would have been had the government not tried to prop up the market). I own two house, and stand to gain handsomely when prices start going up again; however, there are unintended consequences of having housing stock prices well above what the average homeowner in the area can afford without using 'exotic' loan products.
Look at it this way. To keep prices high, the government would be attempting to sell houses at prices they couldn't afford with 'standard' loan products. Are you advocating that the government then give them 'exotic' financing to buy these government homes? Stated income? No money down? Cash back at closing? Teaser rate? Payment option ARM?
In other words, if people can't afford the houses at current prices (remember, sales were going down massively even BEFORE the 'credit crisis'), what makes you think that they could afford them a year or two from now? The government would have to resurrect the same flawed lending practices that got us here in the first place.
I'm sorry, Sebastian etc., your plan won't work. From Brad Setser:
There are a broad set of institutions that have effectively made the same bad bet (levered long US housing credit) on a large scale. A scale measured in trillions, not billions. The increase in outstanding mortgage debt in the US since 2004, counting commercial mortgages, is in the order of $5 trillion, according to the Fed flow of funds. That means there are many weak institutions looking to get rid of the same bad bet not just one.
Add language to the TARP legislation that puts a Gag Order on Buffet and Gross from running their mouths that the Government might make a little money on the deal until they both invest their own fucking money in the bailout.
Buffet is welcome to invest his $50 billion first - he said he would "bet" on it, right? Then Paulson and Bernanke can add their fortunes - along with every other person who thinks this is such a great deal for the taxpayer. Count me out, I think this sucks!
MLM - I noted by example was simplistic basic view - to show the relation of the numebers
The govt will buy it appears buy all sorts of debt - and each will need to be treated separately according to its provisions
I have heard talk of unwinding CDO's etc which the govt could do
Also as I understand it much if not majority of these assets are the AAA stuff - there are ironically buyers for the high risk lower tranches because of the high rates of return
And the AAA stuff because it represents and controls majority of the investment - would seem to be easier to unwind
The Feds have capability the market doesn't - long term hold is no big deal - even if they borrow money their costs are tiny by comparison
They can hold these assets to maturity and simply collect on them - they have no mark to market pressure, no lender pressure, no shareholders nothing - none of the issues the existing holder have
Thy can by their strength and flexibility do things others cannot
Americans are in such deep debt, that bailout or no, the economy will be years before recovering. The first thing our government could do would be to withdraw from Iraq immediately, saving $12 billion/month. Eliminating all foreign aid, with the possible exception of humanitarian purposes, no underwriting Israeli arms sales to Georgia. Reducing government spending 10% across all departments. Likewuse, states should reduce spending by 10%. This would be a beginning of extracting ourselves out of the debt hole we have created (democrats and republicans).
Nemo?
The more important issue is the precedent that is being set. If the precedent is followed later, we just keep sliding down this slippery slope.
"Bernanke noted yesterday (if I heard him correctly) that the plan didn't intend to reinvest any proceeds after a sale."
However, my read on what Ben and Hank have been saying is that they (or their successors?) intend to go "back to the well" (a bucks-for-bazookas program) until this liquidity thing is "fixed". Less would be on the line this time, but the intention would be to keep banging our collective heads against the wall until things got better.
I think that the $700B figure was mostly aimed at market psychology..."shock and awe" if you will. The intention was always to "keep doing stuff with taxpayer money" until things got fixed.
O Nemo, Where Art Thou?
And where the hell is Tanta in these trying times?
If this is such a profit making opportunity, then why aren't the billionaires of the world scooping up these securities in the deal of the centuy?
Of course they won't re-invest it directly. Instead, they will spin the $50B proceeds as 'profits' so as to convince Congress to extend them another $250B.
How about a $billion/day through 2009 ($365B)? Nice sounding.
About half of Paulson's number, so we'd look 'frugal'.
CR, they authorize $700 billion- the losses will be $900 billion.
Government accounting!
Someday this war's gonna end...
Market rejecting a 3% up day during the biggest financial heist of all time is bearish!
There is a reason distressed assets are distressed.
IAskStupidQuestions writes:
If this is such a profit making opportunity, then why aren't the billionaires of the world scooping up these securities in the deal of the centuy?
They did. They're just on the other side of the trade.
Breaking News on CNN:
Key lawmakers: We have a plan
Anyone see this today:
The market is throwing in the towel short-term as bad data failed to bolster prices and trade rolls with the bailout stock bounce. Spreads tell a less optimistic story though, suggesting that funding across the spectrum has all but evaporated which will eventually (if not already) have larger repercussions on hiring and capital budgeting for 09. S&P says the default rate on 3-yr junk paper could top 23.2% soon (worst since 81) while mortgage rates are blowing out again. None of the this is good news to markets and while the bailout may be the low water mark for financial shops, it may be too late for the real economy. That sentiment could keep bonds in the game and possibly weather the tidal wave of supply about to hit.
btw, it is driving me CRAZY that bubblevision keeps talking about how Buffet is behind this plan, without discussing Wells Fargo. Given they've been avoiding marking anything to market, he'll gain quite a bit out of this bailout.
Here's a question:
IF THE PLAN ACTUALLY WORKS, OR SUPPORTS THE ECONOMY LIKE PURPORTED...WHY THE F SELL THE SECURITIES FOR A LOSS IF THEY'RE PURCHASED AT THE PROPER HTM PRICE????
Why not just hold em to maturity and let the rebound in home values and economic prosperity take care of the "real" value...this way citizens would actually benefit from their own turnaround!!!!!!!!!!!!!!!!!!!!!!!
IF this works like you say... otherwise GFY
It's $700 B "at one time". Churning is expected.
"The intention was always to "keep doing stuff with taxpayer money" until things got fixed".
Which they never will be. They can't avoid the collapse of the credit bubble no matter what they do. They can, however, postpone it until after the election.
Sorry if this was discussed in the previous post. Been away for a bit and did not have a chance to read all of it. Trying to Keep up with the threads these past two weeks has been insane.
we need some adjectives on distressed:
barely distressed
moderately distressed
mostly distressed
toxically distressed
FUBAR distressed
burn-immediately distressed
radioactively distressed
So let me see if I've got this right...we could make money or lose money, isn't that gambling?
... tidal wave of supply about to hit
Remain calm, find good banks that use GAAP!
CR,
Understood. I'm telling my rep mark-to-market prices. The idea is not to make financial institutions whole, but to make taxpayers whole against the fallout of the failing institutions. And clawbacks, and compensation ceilings, and warrants, and regulations, and oversite, and then and only then can they come out of their room and have dinner with the rest of the family.
It's $700 B "at one time". Churning is expected.
No, it's not. This was explicitly asked and answered during the hearings yesterday.
In Soviet Amerika, Treasury Bailout run numbers on you.
Bill Gross is one of the biggest damn pigmen is this whole sordid mess. That guy is a lying piece of crap and if this is such great damn crap Bill why in the hell aren't you loading your funds up with this shit? Bastard!
Senator Bennet (R) warms to warrants.
Video - CNBC.com
Of course, warrants would be worthless if the gov't pays too much for the assets. So the purchase price is really the lynchpin of this whole scheme.
I'm losing much respect for Warren over the last few days. He sounds like just another wall street pimp.
IAskStupidQuestions is right. If it's such a great deal, where are the buyers?
Smart investors see beyond the psychological b.s. Buffett buying into GS is a good example.
In addition, the problem is not the securities. The problem is the people paying their mortgages and living beyond their means.
It's not sustainable. Hence the $700B.
Do we get warrants for common stock like Warren Buffet? That would technically have potential for an upside.
Maybe Im giving the Dems too much credit for political savvy but bear with me.
House Republicans wont go on record as supporting this to avoid backlash back home from both rednecks and local community banks (BB&T?). Dems knew this soft spot so they keep saying its gonna pass so when it doesnt they can blame the Repubs.
Some on this blog hypothesized that the $700 bil price tag plus the infamous Section 8 were there to force the Dems to be the bad guys killing the bailout. Remember, rank in file Repubs only understand simple yes or nos and cant understand nuances like section 8.
McCain has nothing to do with the Dems strategy and hes just doing anything he can to avoid being on stage with Obama. Remember how bad Nixon looked opposite Kennedy and at least Nixon knew policy. Keep in mind that all the Dems stipulations have nothing to do with the House Repiblicans objection to this bill. They oppose the entire premise of a Wall St. bailout. To use a tired phrase, they dont care what kind of lipstick is put on this pig.
I wouldnt be surprised if Bush expected the Dems to object only to be caught off-guard when his own party objected, hence his belated prime time speech.
Question:
Who is going to buy depreciating assets from the Government at a price higher than the Government paid?
Who is the final bagholder?
It is doubtful that there will be one.
Hey Bill Gross - the jerk store is running out of you!
Updates No Short List> don't ask me why.
Stocks added to the NYSE No-Short List on Wednesday and Thursday
FUR... Winthrop Realty Trust
LPS... Lender Processing Services
CVS... CVS Caremark
UDR... UDR
SLG... SL Green Realty
KRG... Kite Realty
WSH... Willis Group
ATN... Atlas Energy Resources
MVC ... MVC Capital
MHS... Medco Health Solutions
ABR... Arbor Realty Trust
DDR... Developers Diversified Realty Corporation
HRB... H&R Block
IBM... International Business Machines Corporation
MFA... MFA Mortgage Investments
ASI... American Safety Insurance Holdings
LFG... Landamerica Financial
PHH... PHH Corporation
BAP... Credicorp
LXP... Lexington Realty Trust
BEE... Strategic Hotels & Resorts
Somebody was asking about the TED spread on a previous thread. The TED spread is only a rule of thumb indicator that has signaled a few previous credit episodes, but it tells you very little about current fundamentals. The current TED spread is mostly caused by the t-bills being very low, not by LIBOR being very high. Neither side of the equation tells you how much money anybody is really willing to borrow or lend at LIBOR (or any other rate) which is what matters to unfreeze the credit market.
At this point, the low interest on t-bills primarily means that a bunch of people currently prefer to put their money in t-bills at no interest rather than lend it in the market. The interest rate has gone so low because the supply of bills is finite and people in need of a safe haven are bidding up prices. The interest rate could easily have gone negative if this continued.
The bailout will add an enormous supply of t-bills, which should indeed raise the t-bill rate and close the TED spread if LIBOR stands still. But if people would really rather have a t-bill than lend in the market, we may very well see the first clear, large scale example of government borrowing crowding out private borrowing. In other words, the bailout could cause the opposite of what was intended giving people a way to put large amounts of money in cold storage instead of lending the money in the market.
RIMM misses by 1 penny and gets destroyed. QQQQ down 50 cents after hours. Where's my 100 point SPX rally following financial heist?!
It's quite obvious that this bailout will get passed one way or another.
If not now, then when DOW drops 5000pts in some crisis day in the future, then it'll come back again with a vengeance and get passed in a few hours.
The main focus now should be:
My personal vote is that it won't work, despite all the assurances, beyond buying a few months at most.
What it will do is to shut down proper bottom-formation and formation of vulture funds. This in turns makes the depression deeper and more painful. There's also a risk that this actually can backfire and remove all (other) sources of credit and cause the govt to be the sole source of credit left. If this happens, there's no way the govt can support the while credit market, and corp credit will dry up.
Companies will BK by the thousands and even relatively good ones will be dragged down by unpaid invoices to BK corps.
This can actually trigger GD 2.
"losses probably 0-300 billion?"
talk about a spread!
The issue of churning came up in one of the numerous Q/A sessions I watched over the last 2 days. I can't recall which congressman was asking the question, but when Paulson said that the intent was not to reinvest the funds, the congressman said something to the effect of "then you will not mind if we add that sort of language to the plan" - which was met with silence.
A lack of churning seems like a fundamental problem with the plan to me. Not that I'm unhappy with the sale proceeds not getting fed back into the system (at least at above market prices), but the universe of debt instruments that are distressed is too large here for $700B.
If the Treasury succeeds in getting higher book values for illiquid assets, than bank balance sheets might look better, but there will have only been a modest recapitalization of the banking system when all is said and done.
If housing and the economy continue on their current trajectories, the banks will have higher marks on their assets, but will still be holding those assets (after all, when you pay above market rates and don't churn, you don't get to buy too many of them...) instead of cash or cash equivalents, so we still have a problem with the banks having illiquid assets, and we still have an insolvency issue with the banks if the payments on those illiquid assets only pay off at rates close the current market expectations (i.e. high default rates).
There is a lot of game theory here. If there is a window to unload your illiquid assets, do you try to be first in line, or do you instead wait for others to look weaker than you and let them go first (and just get to play with the higher marks)?.
wouldnt be surprised if Bush expected the Dems to object only to be caught off-guard when his own party objected, hence his belated prime time speech.
tbapple | Homepage | 09.25.08 - 4:40 pm | #
well, that wasnt convoluted
CFC alone used to originate over $30b in mortgages a month. Think about that. At 50c on the dollar it doesn't take long to lose that $700 billion.
Don't be fooled they will lose it all and then some. Gross is completely full of it.
SR
And what part of ruling class you did not understand...?
Did any of you call 911?
Because it looks like U just got raped.
Ok not churning the money is better, but I still think we should get equity. If we don't it just encourages this behavior.
On that note we should change the rules now or Rethugs will just balk at changing them come January 20th.
New claims for unemployment benefits jumped last week to their highest level in seven years ........The number of people continuing to draw jobless benefits last week was 3.54 million, up 63,000 from the previous week and nearly a five-year high.
Congress has alot of angry unemployed citizens seeing red as Wall St. is being bailed out.
No, it's not. This was explicitly asked and answered during the hearings yesterday.
Eric | 09.25.08 - 4:38 pm | #
Unless it is specifically WRITTEN to forbid churning . . . you can expect churning, regardless of what they claim their current intent to be.
You learn a lot of valuable stuff in law school. One is the value of the word "intend".
CR think that using 700bil is not realistic.
The Paulson plan is dead and I do believe that the outline of the new plan has been disclosed So lets talk 250bil Still a significant sum
Also churning etc doesn't seem to be going to happe
What they're really negotiating right now, in effect, is which Reps and Dems will get tossed out in the election. It's all CYA at this point, and all the players know it. I'd love to be a fly on the wall watching the dinosaurs duking it out around the "negotiating" table.
Expect a best seller or two and a movie out of this next year. If there's any credit left in Hollywood.
Bill Gross ? Again ? Hasn't he robbed the american people enough alreday ?
WB has $120 Billion of this paper on its books. It's alt-a crap and will go off at MAX 50c on the dollar.
There is $60 billion right there.
Tell me exactly how the gov will make money on this unless they pay 20c on the dollar or something and STILL let things crash. There is NO way to avoid a crash.
SR
How would America suffer if we don't rescue Wall Street? They keep repeating this but they don't explain what would happen. It is like going to the doctor who feels because you didn't go to med school you would never be able to understand a medical issue.
Let's be clear on the big big BIG picture here. Yes, people will lose jobs, loans will get harder to get, companies will fail. But there will be winners as well as losers. And in the end, all of that "buying things you cannot afford" poop will be flushed from the system. The main reason that the "big wigs" are panicking, however, boils down to:
"Help! Things are changing".
This capitalism model keeps on tanking every couple of years with bubbles bursting after the foxes have eaten all the chickens again and again......
I say dump our current model and opt for the Denmark model...
The Scandinavian welfare model acts within a controlled capitalist market economy in which inequalities in income distribution and the concentration of wealth and power are allowed less free play...
further characteristic of the Scandinavian welfare model is the fact that rather than cash benefits, citizens are entitled to a wide range of service benefits provided by the authorities; these are often either free or subsidised. Both the health service and education are free.
ErrorPage
HP wants the $700 billion is a working capital fund otherwise no bail-out. HP knows the biggest part of the problem is the derivatives and swaps which total close to $62 trillion. $700 billion would never be enough!
The most important lasting impact has been the way this issue has galvanized a new coalition of lunch-bucket types, free enterprisers, blacks, Hispanics, poor people, etc. to oppose govt. tax hijacks for Wall Street.
Who would have thought black leaders and free-enterprise Republicans could get on the same side of the fence so vocally?
The next time Ben and Hank try one of these heists, they'll be stopped dead in their tracks.
Repost.
So we now know the official order of bubbles.
1) Technology
2) Housing
3) Commodities
4) Bonds
5) Bailouts
6) Unemployment
Someone should write a book or something.
"I say dump our current model and opt for the Denmark model..."
That would require a country with low degree of corruption, where people trust and respect each other.
If you watched B'Berg right at 4:30pm EST you now know my real name.
Pimm did his best to present the reason however his source "Craig" doesn't really understand it at all.
Too much of a coincidence that they did the reverse repo. today.
It's not a liquidity issue is you are actively taking it out of the market and then saying it's all about that very issue.
This whole thing stinks and that proves it.
Ciao
MS
So these banks bought the assets AND a put option along with it.
That is, they bought an asset that they can put back to the government at cost basis. Hell, they didn't have to even pay a premium on it. With Paulson watching out for them, no wonder they levered up.
I've never seen Washington use such a FEAR TACTIC to get a response.
"Someone should write a book or something".
Von Mises and Marx already did.
"That would require a country with low degree of corruption, where people trust and respect each other."
And that only happens in a relatively small and racially and culturally homogenous society.
We are at the table. We are the patsy. We know it and just don't care. Unbelievable! Why not just give the money and reduce transaction costs?
RImm missess...please add them to the banned short list...
""That would require a country with low degree of corruption, where people trust and respect each other."
And that only happens in a relatively small and racially and culturally homogenous society".
Keep the race thing out of it, and I agree. As long as there is a rather uniform culture, races of course don't matter.
"Anyone who's sold houses in the last little while, anyone who's successfully been in and out of the commodity markets, etc, has piles of cash, and keeping it in the bank is a risky business," Merryn Somerset Webb from Money Week said. "We do have the (UK) government's bank, Northern Rock which offers fantastic rates of interest."
"There are a variety of gold funds , there are various gold-related ETFs and you can always buy it physically and keep it under your mattress it would be the safest possible thing you could do," Somerset Webb advised.
"All you can do in a situation like this, as a retail investor, is preserve your capital, and that involves not going near the equity markets not going near the property markets and maybe buying a few Guilts."
This all comes down to trust....should we trust the same people who help to create the problem to solve the problem...I don't know about this.
RIMM down 20% after hours...For the love of god SEC wake up, stocks only go up!!!
"This all comes down to trust....should we trust the same people who help to create the problem to solve the problem".
Or rather, it all comes down to fundamentals, and they've got the fundamentals wrong. If they don't learn some Economy 101 soon, the dollar is doomed.
liquited all my stocks today. canceled further contributions to 401k (now all in cash acct).
I can't believe that fewer crackberries are being sold.
WSJ has the text of the Agreement on Principles.
"b. Requires loan modifications for mortgages owned or controlled by the Federal Government"
WTF? You can get a loan mod even if you are current just because Uncle Sam owns it.
This all comes down to trust....should we trust the same people who help to create the problem to solve the problem...I don't know about this.
I think HP, BB and Bush understand we dpn't trust 'em. They are trying go get folks we might trust to take over the plan.
Re: How would America suffer if we don't rescue Wall Street?
The allusion is that there will a run on mutual fund money markets and banks, as people panic and run around chasing yields as all Treasury securities collapse in value; then, you and yours will have zero access to cash.
Got it?
Actually, all the studies on social capital do come to the conclusion that race makes a difference. Harvard researcher Robert Putnam has writen a lot on it if you're interested.
"I say dump our current model and opt for the Denmark model..."
Just like that? How would we do that, politically? It's been a long time since I've been in Denmark, but I think that its resemblance to the US is still not close.
I am very confused. Why Treasury needs to sell the mortgages? Wouldn't that depress market prices again? And operationally, that is a lot more complicated. They should just hold them to their natural ends (repaid, refinanced, or in case of foreclosure, re-sold the house). If Treasury can borrow at the current 4 percent rate to finance the purchase of the mortgages, it's quite possible they can pay above market prices (presumably depressed right now) for these mortgages and still breakeven. Besides, holding the mortgages to their natural ends are much simpler operationally -- they don't need to worry about the timing and method of the reselling the mortgages, and they don't need a single economist. And they will have cashflows in the mean times.
WTF? You can get a loan mod even if you are current just because Uncle Sam owns it.
Nostradamus | 09.25.08 - 4:57 pm | #
Sweet!! Maybe I can buy out my mortgage for 0.75 on the dollar.
Orszag answers most of the questions and indicates which ones are unanswerable because of lack of details.
Federal Responses to Market Turmoil
So Warren Buffet and Bill Gross are admitting that there is a market price for these securities?
So there is a market setting prices.
Why does the Treasury have to enter the market as buyer of last resort then?
Oh, because the banks don't like the price they are being offered. Well tough sh*t.
About borrowing money for the 700 B bailout.. ahem..
China banks told to halt lending to US banks-SCMP
Wed Sep 24, 2008 9:52pm EDT
BEIJING, Sept 25 (Reuters) - Chinese regulators have told domestic banks to stop interbank lending to U.S. financial institutions to prevent possible losses during the financial crisis, the South China Morning Post reported on Thursday.
China banks told to halt lending to US banks-SCMP
| Reuters
Warren a pimp?
He said flat out that he wouldn't have done the Goldman deal if the gov'mt wasn't getting involved.
Market Heretic: Warren Buffett Jumps Shark?
"Actually, all the studies on social capital do come to the conclusion that race makes a difference. Harvard researcher Robert Putnam has writen a lot on it if you're interested".
Thanks.
When we're onto looks, is it also important for a population to have a uniform BMI?
For some details on how they are stealing our money read:
Paulson, Bush and the Grifters – The Manufacturing of a Crisis « Your Mortgage or Your Life…
satan,
Thank you being nice! Re: ahem..
HOW THE NATIONS RANKED ON HAPPINESS
1st - Denmark
2nd - Switzerland
3rd - Austria
4th - Iceland
5th - The Bahamas
23rd - USA
41st - UK
90th - Japan
178th - Burundi
In an international context, Denmark is characterised as being one of the countries in the world with the most equally distributed incomes after taxes and transfer payments.
O.K., its done more or less,,where to from here,,what is next,, just how aware are we???
Did anybody made a topdown list yet?
I'm still waiting for someone to answer my two questions: Will you have to raise my taxes to pay for this, and if so, when? (Time for some truth!)
I'm also still waiting for some of my brethren in the big-time media to ASK this obvious question.
It's been pointed out here before. The working stiffs like me don't care about the principal and interest. What's my monthly payment?
"b. Requires loan modifications for mortgages owned or controlled by the Federal Government"
Is there a link for this?
Agreement on Principles
a. Requires Treasury Secretary to set standards to prevent excessive or inappropriate executive compensation for participating companies
b. To minimize risk to the American taxpayer, requires that any transaction include equity sharing
c. Requires most profits to be used to reduce the national debt
a. Treasury Secretary is prohibited from acting in an arbitrary or capricious manner or in any way that is inconsistent with existing law
b. Establishes strong oversight board with cease and desist authority
c. Requires program transparency and public accountability through regular, detailed reports to Congress disclosing exercise of the Treasury Secretarys authority
d. Establishes an independent Inspector General to monitor the use of the Treasury Secretarys authority
e. Requires GAO audits to ensure proper use of funds, appropriate internal controls, and to prevent waste, fraud, and abuse
a. Maximize and coordinate efforts to modify mortgages for homeowners at risk of foreclosure
b. Requires loan modifications for mortgages owned or controlled by the Federal Government
c. Directs a percentage of future profits to the Affordable Housing Fund and the Capital Magnet Fund to meet Americas housing needs
a. Treasury Secretarys request for $700 billion is authorized, with $250 billion available immediately and an additional $100 billion released upon his or her certification that funds are needed
b. final $350 billion is subject to a Congressional joint resolution of disapproval
Buffett
"If the government makes anything over its cost of borrowing, this deal will come out with a profit. And I would bet it will come out with a profit, actually."
Of course, he made a very different bet (in Goldman preferred).
I never ceased to be amazed at what this character gets away with. He should put HIS money where his mouth is -- not the taxpayers.
Hummm,,,only copy and paste,, thought so.
Nemo was at lunch.
I have not fully automated posting "FIRST!!1!!" because that would be stupid.
Shelby says NO DEAL.
Richard Shelby is a pimp. Fight this thing!
Sen. Shelby on CNBC:
"No agreement"
SHELBY - NO DEAL!
Wish he was my representative
"HOW THE NATIONS RANKED ON HAPPINESS
1st - Denmark"
Copenhagen is very nice, despite their annoying free hospitals.
Requires loan modifications for mortgages owned or controlled by the Federal Government
If Uncle Sugar buys my house, I'm in.
Let's see, with 15% mortgages.... it's probably worth about 75k. Reduce it to that and I wear the arm band.
Bill Gross is a liar.
Re: Will you have to raise my taxes to pay for this
I say yes, because The Fed needs your revenues to support programs and mange debts
Ok, guys, so I'm sitting here compulsively reading CR, Glod forbid I should be working, with a ring-side seat at the end of the world, secys gone.
A knock on the door.
It's a bird, it's a plane, it's. . . Wamu guy, trying to set me up with a 5% CD. Yep, door to door. To my office!!
True desperation. I tell him the only reason WaMu isn't taken over by FDIC yet, is the FDIC doesn't have enough employees, and if I were in his position, I'd be looking for a job.
Poor fellow, he kept on smiling.
This is the first time ever, any financial type has ever come to the door selling CDs.
Amazing.
Home of the brave LiZ
Something novel: Will the Banks backstop the program? or Will PIMCO backstop the FED? or Will the wealthiest 10% donate the money? or Can the Army and Navel Wives Clubs across Amerika have a bake sale every sunday and donate the money?
True desperation. I tell him the only reason WaMu isn't taken over by FDIC yet, is the FDIC doesn't have enough employees, and if I were in his position, I'd be looking for a job.
Poor fellow, he kept on smiling.
That's some tough love Liz!!
LawyerLiz
Did he have one crooked pinky??
The deal here, is all about short term money mkt cash connected to Treasury and the race to zero. As soon as your money market cash, begins to break the buck, people will be pissed off that this backstop was not in place weeks ago!
Did he have one crooked pinky??
LMAO!
Go Shelby Go!
Doc Holiday writes:
Re: How would America suffer if we don't rescue Wall Street?
The allusion is that there will a run on mutual fund money markets and banks, as people panic and run around chasing yields as all Treasury securities collapse in value; then, you and yours will have zero access to cash.
Got it?
That's what they want you to believe.
The allusion is that there will a run on mutual fund money markets and banks, as people panic and run around chasing yields as all Treasury securities collapse in value; then, you and yours will have zero access to cash.
Which is why this plan is useless - banks are already protected by FDIC; if you want to secure that just shore up the FDIC. MM funds own short-term obligations - very little MBS. The things that count aren't helped by the plan.
Re above discussion of countries happiness rating. Here's map and scores:
Forbidden
It seems Scandinavia, Canada, Venezuela, Australia, New Zealand, Malaysia, Oman and Ireland have got something right.
Notice Bhutan being in the top 10. It's as far as I know one of the world's poorest countries.
But then, what is the use of happiness. Others would argue that pride, dignity, many children or freedom would be better measures.
Doc Holiday writes:
Re: How would America suffer if we don't rescue Wall Street?
The allusion is that there will a run on mutual fund money markets and banks, as people panic and run around chasing yields as all Treasury securities collapse in value; then, you and yours will have zero access to cash.
Got it?
But i will still haz my debit and credit cardz, right?
It seems Scandinavia, Canada, Venezuela, Australia, New Zealand, Malaysia, Oman and Ireland have got something right.
They deported all the malcontents?
Comrade Baron Von Helmut III ,
Did you look yesterday at this?
Premium content | Economist.com
Money-market rates soared on September 24th as banks hoarded cash. Investors moved again into safe havens such as US Treasury bills, sending one-month rates below zero at one point during the day.
Comrade Baron Von Helmut II..
One more thing, as you look at your money market prospectus, what percent of short term bills are now close to zero??
LawyerLiz, that is surreal. If somebody came to my door peddling 5% WAMU CDs I'd be freaked out and figure it was some kind of nut case. Weren't door to door salesmen a common thing in the Depression?
Does Shelby mean there's not a deal or that he's not participating? I understand he's opposed to the whole idea and not involved in the dealmaking process.
If there are too many redemptions from money mkts, they have to sell at a loss and then find cash to protect cash, and then buy Treasury shit at a premium, while people panic and move to even less safe places. If these funds are not contained and protected, It's A Wonderful Life 2008...
Unintended consequences every time a politician says "keep people in their homes"..
There is a very large backlash of prudent threatening to not pay their mortgage.. I am amazed no one is speaking about this or calculating the consequences. This would mean most everyone who got a loan in the last 5 years will walk away. Why? Because their neighbor just got a loan modification and paying 1/2 as much.
How the do we ask the prudent to swallow this?
Re: But i will still haz my debit and credit cardz, right?
YES! There are more being sent to you today! Piss off!
He didn't have an abnormal pinky; was a handsome, tho short (I like 'em tall) Cuban guy in a a nice new green WaMu shirt. Also, i am old enough to be his mom.
I actually sold World Book door to door in the early 70s with some degree of success. I have nothing against door to door if they aren't selling religion, and even then, if I'm in the mood, I will have fun with Mormons. Jehovah's witnesses are generally poor souls and I avoid mixing it up with poor souls.
Excuse me, I haven't been outside in a week, my compost pile calls...
GMAC's Future May Hinge on Inclusion in U.S. Rescue
GMAC's Future May Hinge on Inclusion in U.S. Rescue (Update2) - Bloomberg.com
Sept. 25 (Bloomberg) -- GMAC LLC's best chance of riding out the financial crisis intact may involve the lender finding its way into the U.S. government's $700 billion bank-rescue plan, analysts say.
Bernanke said they didn't plan on reinvesting the proceeds. Yeah, right. Not now. But in a month, when BAC and JPM are tanking, you can bet they will (or else we'll have a financial meltdown).
Lies, lies, lies. When the U.S. Government is insolvent in February, you apologists who are too busy sucking Hank's c**k will realize what has happened, but it will be too late.
Doc Holiday writes:
Excuse me, I haven't been outside in a week, my compost pile calls...
I hope you aren't referring to your retirement account.
Its certainly possible if done right for the Treasury to make money for the tax payer, Gross said.
What the hell does anyone expect Gross to say? He's got a major vested interest in this, so he's talking his book now.
mp,
Yah, Gross makes me sick and I don't think any cash will be made on this shit, but somehow future cash flow from taxpayer revenue has to be sustained!
MM runs are a big threat; that's why the Feds should be working on protecting the MMs or finding alternatives to them. Not on blowing Vast sums propping up things that aren't in MM fund accounts.
Comrade Bagholders,
Well, since they're going to churn things, section 3 foreclosure work out ain't got no teeth.
8 AM Treasury buy toxic crap for $.90
8:15 AM Treasury sells toxic crap at market for $.10
Barney Fudd: You were supposed to do workouts.
Hanky: We didn't get the phone list before we sold 'em.
@El Jefe Nemo
"I didn't totally automate, that would be stupid."
Erm but some automation is NOT stupid.
Nostrovia
"They should buy them at the kind of prices that are available in the market."
If Buffett truly said this, senility is setting in. That is a brainless statement. If they are priced now on the market, then there is a market price and a market. If that is the case, then the government 'giveaway' adds nothing. Buying this stuff 'at matket' has utterly zero effect on the balance sheet of anybody selling anything, it merely changes the identity of the buyer.
Gotta keep the peeps working and buying Starbuck snaxs
Money can and will be made on this "shit"
Here are some comment I posted elsewhere that show a real relevant example of how and why money will be made ... along with some of the other very real benefits:
... key triggers were the subprime losses, inflated in importance by a sensationalizing media, which tipped the balance of confidence, caused the confidence crisis, which froze the credit market virtually overnight ... which then triggered the flaw with mark to market rules, entering the market into the self fueling death spiral
Paulson and Bernanke tried many interim measures and none of them could break the fundamental flaws - the technical problem caused by the mark to market rules in a frozen market, and the confidence problem that resulted
This plan addresses these issues - brings back solvency and liquidity, recapitalizes the banks (without simply writing them checks as loans - instead the Fed gets assets in return), most importantly it breaks the mark to market death spiral
And it does it with a plan that has the taxpayers owning 100% of the assets, which they will buy at 25% to 50% discounts to face value - assets which, with the Feds ability to hold long term will make the taxpayers billion in profit
As importantly this plan puts assets in hands of the Fed who can then modify or rewrite to help the holders afford the loans ... all those homeowners who are underwater or in trouble with high rates ...
The Fed - because they've bought at a significant discount, can rewrite, waive penalties, waive interest, write down loan amounts etc - help get these loans back to performing - to what owners can afford - they can eliminate many or most of the bad loans and make them into good ones - they can help the borrowers (many who don't deserve it) and help bring stability to the markets and still make money for taxpayers
For example - the Fed buys a $300,000 loan on a home a buyer put 5% down on - value was $315,000 ... say a subprime loan - the interest rate went to 9% and the area prices dripped 15% and the buyer can't afford anymore and can't sell ... the Fed buys the loan for a 40% discount as it in default - they pay $190,000 for the loan
The house is now worth 15% less than the $315,000 orig paid - $268,000 value now ... so the Fed:
+Waives all past due interest and fees - there is probably a years worth interest (at 9%) plus foreclosure costs, late fees etc - more than $30,000 - cost the Fed zero to waive these
+Reduces the loan amount to 95% of the current $268,000 value = $254,000 loan
+Rewrites the loan to a 30 year fixed rate at 6.5% ...
The payment originally was $2,413 on $300,000 at 9% ... now on $254,000 at 6.5% it is $1,605 ... $809 a month less, almost $10,000 a year less
The govt paid $190,000 and now has a loan of $254,000 that the buyer can, and has a reason to, pay ... the buyer has saved more than $75,000 in write downs and waived costs and fees and now has a payment they can afford
The govt will make $64,000 on the principal amount alone, plus they get $16,500 a year in interest for the life of the loan ....
Say the typical loan is paid off in 5 years - for a $190,000 investment the taxpayer receives $254,000 in principal repayment plus nearly $83,000 in interest - a total of appx $337,000 for a $190,000 investment - a profit of appx $147,000 on a $190,000 investment over just 5 years
A BAD loan with a borrower about to lose their home turned into a good loan, a saved borrower, and a huge profit for the govt
And I would take this plan a step further ...
I would use a Fannie or FHA loan to rewrite these - and would charge an insurance premium of 3.5% - which can be added to the loan amount - in this case $8900 on the $254,000 mtg... this will go into a pool to cover defaults on these new loans largely eliminating costs of that risk
I would also make the borrower give back ... in a couple ways ...
+First I would require a shared appreciation agreement - that on sale the govt was entitled to a share of any profits ... I would make that share equal to the percentage written down on their mortgage with a minimum of 10% and maximum of 25% - only fair
+Second I would require any borrower receiving this assistance to be required to perform community/volunteer service - for every $1000 forgiven they have to perform 2 hours of community or volunteer service ...
... and I would take that a step further as well by taking the percent change in any interest rate reduction - here 6.5% is a 27% reduction in rate - and using that as a multiplier on the hours reqd above
So in this case the borrower saves $46,000 up front in reduced principal, plus waived costs and fees of appx $30,000 - total saved $76,000 = 152 hours + 27% = 193 hours community service reqd
I would require this time to be served within 24 months of rewriting of the loan ...
I would also allow any member of family living in property to help fulfill - AND I would give some premiums; a 15% premium where both spouses worked together in a comm service endeavor, a 15% premium for any individual effort by anyone 18 years old or less, or a 25% premium for any comm service in which ALL members of the household participated together
The family the volunteers together sees lots of benefits ...
"Comrade Bagholders"
Misean, no offense intended, but if they insist on my taking their bag, I'll hand it back to them with their balls in it.
That does not work with me anymore.
The economy will survive, it will just be driven underground, where the IRS can't get at it. As we speak I'm looking at several construction projects in my neighborhood, being done mostly by unlicensed good 'ol boys getting paid under the table. Maybe some of them are being paid in meth and pot, but whatever.
"Comrade Bagholders"
Conjure says, "Wishful thinking on their part."
220mph,
Whatcha' smokin today?
220mph - you are almost as confused as Sebastian. Hey, wait a minute...
i think paulson was an offensive lineman in college and that's how he got his gnarled up pinky. those football linemen typically get their fingers mangled playing that sport.
The problem of course is "the price". Sure if they pay fair market value then the taxpayer may come out with a small profit but the due to the high leverage of the banks, the writedowns that that the banks will sustain would wipe them out. For this plan to work, Paulson has to to pay above market prices, the taxpayer is gonna get screwed.
MLM said: "220mph - you are almost as confused as Sebastian."
At least it's an attempt to put real-world numbers to the problem and the possible solution, as opposed to "we're all gonna die and there's no way out!":)
Sebastia
Doesn't Plan on?
Spare me.
They have absolutely zero trustworthiness. Zero.
They are lying and grabbing for power.
The more they talk about taxpayers, the more you know they are lying.
MLM said: "220mph - you are almost as confused as Sebastian."
At least it's an attempt to put real-world numbers to the problem and the possible solution, as opposed to "we're all gonna die and there's no way out!":)
Yep - just the usual ignorant response - anytime anyone here seems to attempt intelligent thought or present a detailed analysis you get this kind of brilliant response in return
They never have a reasoned rational rebuttal - or even any comment on what was wrong with the comments
A very few - once in a while - at least make an effort to debate if they disagree - but it is pretty rare
So MLM ... do you have an intelligent rebuttal or reply to my comments?
sales clerk to shopper, can I help you find something?, shopper I am looking for a gift (un named. Clerk, how much is your budget?, shopper, $50. Clerk, says great! we can find something with that price range.
After the purchase is rang up, the clerk says "so who is the gift for?", shopper says my mom.........Clerk thinks to self WHY SO LITTLE??
Price - who is doing the paying or benefiting has a lot to do with the price...... ya the think the DC Cats are going to get a good price?
BTW, (although I don't really like agreeing with him), on a previous thread poster "mock turtle" had an interesting thought that I don't think anyone really followed-up on.
With a median home price in the U.S. of around $200,000, $700 billion would buy 3.5 million homes outright, far more than even the total number of homes now in foreclosure.
JMO, but I think Paulson/Bernanke just wanted to make sure they had access to more than they really thought they would need.
S.
Isn't this supposed to cover all sorts of bad debt - CMBS/CLO etc. I thought they were aiming for more than just RMBS.
Sebastien
I also put this plan idea together a few days ago - which is along lines of what you comment on above:
And one more "program" idea:
+Goal - to reduce current excess inventory from appx 9.8 months to a "balanced" market with appx 5.5 months
+Current finished new home inventory appx 450,000 homes - to get to 5.5 months is appx a 44% reduction - or appx 197,000 homes reduction
+A 197,000 home purchase at current median price of appx $215,000 would represent appx $42.5 billion in face value
+The govt would purchase these homes at a discount - say 10% (consider they are already marked down significantly from recent values)
Homes would be held for future sale and released back into market as demand warrants
+Appropriate valued homes could be used for affordable housing goals - 50% equity participation for example (sell for 50% with Govt retaining 50% of equity/appreciation)
Other homes could be rented during holding period
Homes in appropriate areas could be used to improve off-base housing for military families
+Initial total acquisition costs appx $38.2 billion (assuming 10% discount)
+Rather than owning questionable distressed loans govt would own brand new homes outright
+Govt would have up front initial equity of appx 10%
+New home as asset is easily and more accurately valued than investment paper
+Far more transparency
Immediate and significant impact to economy - with strong cascading benefits
+Minimal risk of long term loss, high likelihood of long term profit
how bout...sell now at 75c on the dollar....loan it now at 50c on dollar with a 5-7 year add on of the defferred 25c.....and pay all closing costs. Tie in with IRS to verify income etc.
And or modify ARMs from Libor to 1yr CMT
220mph (& Seb) - Unless I'm reading the wrong "plan", the Treasury will be not be buying whole mortgages (that's so 80's). They will be buying tranches of various mortgage securities. How they will go from owning tranches of mortgage securities to following your carefully reasoned plan, I do not follow. I am ready to be enlightened however.
...can they mix into a sub prime, alt a, etc tranch....some of new and super clean conforming loans to add value?
220mph and Sebastian,
So with this plan is the Treasury buying mortgages or slices of revenue for pools of mortgages?
I don't understand how an owner of a small fraction of a large pool of contracts would have the authority to modify any one contract in that pool. Could you explain that to me?
From CBO office:
The Congressional Budget Office (CBO) has reviewed the Troubled Asset Relief Act of 2008, as proposed by the Administration. The act would authorize the Secretary of the Treasury to purchase, hold, and sell a wide variety of financial instruments, particularly those that are based on or related to residential or commercial mortgages issued prior to September 17, 2008.
--
As I said, involves more than just residential mortgage securities.
"For example - the Fed buys a $300,000 loan...the Fed buys the loan for a 40% discount as it in default - they pay $190,000 for the loan"
So, what you are saying is that, in large part, it all comes down to WHAT THE FEDERAL GOVERNMENT PAYS FOR THESE LOANS. Pay 10 cents on the dollar, the taxpayer makes out like bandits, and the banks go broke (talk about a lending freeze). Pay 100 cents on the dollar, the banks make out like bandits (although they are still not guaranteed to lend money put!), and the taxpayer "goes broke".
It's all dependent on:
It all depends on what numbers you plug into #1, #2, #3, and #4.
thank you sebastian for the credit
lets let the hard feeling go bye
They may not "intend to" churn, but without anything to prevent them from doing so...
How many times have we been told that they don't intend to do _____
220mph writes:
"Current finished new home inventory appx 450,000 homes - to get to 5.5 months is appx a 44% reduction - or appx 197,000 homes reduction"
However, there is the "used home" inventory as well. I remember reading somewhere that we have a 1 million + inventory of unoccupied homes (both used and 'pre-owned').
"+New home as asset is easily and more accurately valued than investment paper "
Add in the monthly deterioration of these as the government holds these...or maintenance fees for people to water the lawns, kick out squatters, etc.
However, at least here in California, I have a problem with using my tax dollars to keep house prices artificially high (ie higher than they would have been had the government not tried to prop up the market). I own two house, and stand to gain handsomely when prices start going up again; however, there are unintended consequences of having housing stock prices well above what the average homeowner in the area can afford without using 'exotic' loan products.
Look at it this way. To keep prices high, the government would be attempting to sell houses at prices they couldn't afford with 'standard' loan products. Are you advocating that the government then give them 'exotic' financing to buy these government homes? Stated income? No money down? Cash back at closing? Teaser rate? Payment option ARM?
In other words, if people can't afford the houses at current prices (remember, sales were going down massively even BEFORE the 'credit crisis'), what makes you think that they could afford them a year or two from now? The government would have to resurrect the same flawed lending practices that got us here in the first place.
I'm sorry, Sebastian etc., your plan won't work. From Brad Setser:
There are a broad set of institutions that have effectively made the same bad bet (levered long US housing credit) on a large scale. A scale measured in trillions, not billions. The increase in outstanding mortgage debt in the US since 2004, counting commercial mortgages, is in the order of $5 trillion, according to the Fed flow of funds. That means there are many weak institutions looking to get rid of the same bad bet not just one.
Add language to the TARP legislation that puts a Gag Order on Buffet and Gross from running their mouths that the Government might make a little money on the deal until they both invest their own fucking money in the bailout.
220mph? Seb? Bueller?
Buffet is welcome to invest his $50 billion first - he said he would "bet" on it, right? Then Paulson and Bernanke can add their fortunes - along with every other person who thinks this is such a great deal for the taxpayer. Count me out, I think this sucks!
MLM - I noted by example was simplistic basic view - to show the relation of the numebers
The govt will buy it appears buy all sorts of debt - and each will need to be treated separately according to its provisions
I have heard talk of unwinding CDO's etc which the govt could do
Also as I understand it much if not majority of these assets are the AAA stuff - there are ironically buyers for the high risk lower tranches because of the high rates of return
And the AAA stuff because it represents and controls majority of the investment - would seem to be easier to unwind
arroyo
The Feds have capability the market doesn't - long term hold is no big deal - even if they borrow money their costs are tiny by comparison
They can hold these assets to maturity and simply collect on them - they have no mark to market pressure, no lender pressure, no shareholders nothing - none of the issues the existing holder have
Thy can by their strength and flexibility do things others cannot
How do you rationalize the gov buying a mixture "AAA" CDO^2. Nobody should have problems holding the upper un-sliced traunches of CDO MBS.
I call Shenanigans on Paulson and Bush! Look at the simple math:
11,666,666 Home Owners Could be Rescued from Foreclosure « Your Mortgage or Your Life…
Americans are in such deep debt, that bailout or no, the economy will be years before recovering. The first thing our government could do would be to withdraw from Iraq immediately, saving $12 billion/month. Eliminating all foreign aid, with the possible exception of humanitarian purposes, no underwriting Israeli arms sales to Georgia. Reducing government spending 10% across all departments. Likewuse, states should reduce spending by 10%. This would be a beginning of extracting ourselves out of the debt hole we have created (democrats and republicans).