Bailout Plan details thread?

#1
Freak

Freak

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#1
As many of you know, I don't spend a lot of time in the Politics forum but I'm interested if there has been a discussion of the points of the bailout plan?

I wasn't for it based on the parts I heard. Anyone have a breakdown?
 
#3
#3
Where's my MC Hammer?


I'll try to find the most succinct description of what the plan is.
 
#5
#5
There was so much garbage added in the last few days I doubt anyone knows the true scope of this proposal, outside of the white house.
 
#7
#7
BigPapaVol said:
Where's my MC Hammer?
Click to expand...

:lol: It disturbs me a bit that I got that.

I am interested in this thread as well. I am no financial guru, but the level of angst by the "money guys" in this forum has me a tad uneasy.
 
#11
#11
From all of the details I heard about the plan, to me it sounded to be like a blueprint for tyrannical socialism.
 
#13
#13
vol_freak said:
From all of the details I heard about the plan, to me it sounded to be like a blueprint for tyrannical socialism.
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unfortunetly it is. but unfortunetly it's been screwed up so much at this point that we have no choice but to do this. we've reached the point of no return.
 
#15
#15
vol_freak said:
From all of the details I heard about the plan, to me it sounded to be like a blueprint for tyrannical socialism.
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We have many rules set up for tyrranical socialism if the gov't goes awry.

New admin. is very likely to exacerbate that little problem.
 
#16
#16
Well when you buy a house and get a mortgage, that mortgage company takes your mortgage at 6% and bundels it with 1000's of other mortgages with similar credit and interest rates and sells them to whomever (pension funds, bond mutual funds, banks, overseas investors, etc) as a bond paying 6%. These bonds traded freely throughout the market for years. Once the housing market started to turn south, and people stopped paying their mortgage, those pension/mutual funds/banks had to do something with the bonds. Due to accounting rules, they are required to check the market (aka "Mark to Market") what the bonds are worth. For the past several months that market doesnt exist anymore since the only ones who really had mortgage backed securites trading floors were Bear Sterns and Lehman brother (Other do but not as big as BS+LEH) Since no market exists, those bonds are essentially worthless. Now here is the problem, those bonds were backed by Freddie and Fannie and were deemed good quailty (most still are good quaility) and were used as collateral to buy more MBS or to finance other deals, some were even used for money markets.
 
#17
#17
Since funds/banks have been using these MBS for collateral and since they are dropping in value, other banks/funds are "margin calling". The bank/fund is forced to sell the MBS and the kitchen sink to meet the cash demand. Since no market exists for the MBS they are getting pennies, so they have to sell other assets to raise cash. This drepessed the value of everything, to the point where banks/funds stop all lending so you wont be able to get a loan for a car/mortgage/boat/student loan/TV at best buy, etc.
 
#18
#18
I don't think anyone will argue that banks are in trouble because they can't sell their MBS, however I think blaming it all on a few people not able to pay their mortgage is a vast oversimplification of what has taken place to this point.
 
#19
#19
vol_freak said:
however I think blaming it all on a few people not able to pay their mortgage is a vast oversimplification of what has taken place to this point.
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Are you sure this isn't just sour grapes since you might have lent some of those people money?:p
 
#20
#20
vol_freak said:
I don't think anyone will argue that banks are in trouble because they can't sell their MBS, however I think blaming it all on a few people not able to pay their mortgage is a vast oversimplification of what has taken place to this point.
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it's a spiral effect. one thing spreads to other things. they can't sell these mortgage-backs therefore they sell what they can sell.
 
#21
#21
Now what the governemt "Bailout" was going to do was open a "market" where that fund/bank could take their MBS/bond and sell it to the govt fund. The govt was going to buy the bonds for half or 1/3 their orginal worth. That fund/bank now free of the ill-liquid bond could use the cash to do more lending (under tighter standards) In addition if the bank/fund wanted to use the government fund, it would have to give the govt "warrants". Warrants are an IOU for stock (hey we owe you 100 shares of XYZ corp in 2015) Now the government would hold thoses bonds till the crazyness stopped and could either sell the bonds for more then they orginally got them for to another investor (warren buffet, some overseas fund, etc) or hang onto them till they matured (30 year mortgage) and then they have these warrants which would in theory would be worth more over time, and they could sell them to you and me or whomever and keep the cash.
 
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#22
#22
vol_freak said:
I think blaming it all on a few people not able to pay their mortgage is a vast oversimplification of what has taken place to this point.
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I think blaming it on hundreds of thousands who qualified and were planning to use property appreciation and refinancings to make payments is absolutely the problem. The fed is forcing writedowns below true market pricing, to liquidation values, which is deepening the capital whack lenders and MBS pools are taking so the problem is overstated.
 
#23
#23
GAVol said:
Are you sure this isn't just sour grapes since you might have lent some of those people money?:p
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:the_finger:

droski said:
it's a spiral effect. one thing spreads to other things. they can't sell these mortgage-backs therefore they sell what they can sell.
Click to expand...

I'm just having a hard time rationalizing it all. The mortgage backed securities aren't worthless, not everyone is going to default on their mortgage. I haven't seen the numbers but I'd say that national of foreclosures is still relatively low at least for a panic of this magnitude.

Maybe I just don't understand, but to me it seems to be more of a panic situation than anything. The short sellers have triggered this sudden insolvency and now the banks aren't able to unload the MBS because no one wants to buy them. Why? I guess because of the uncertainty of what they are actually worth -- although they aren't worthless.
 
#25
#25
vol_freak said:
:the_finger:



I'm just having a hard time rationalizing it all. The mortgage backed securities aren't worthless, not everyone is going to default on their mortgage. I haven't seen the numbers but I'd say that national of foreclosures is still relatively low at least for a panic of this magnitude.

Maybe I just don't understand, but to me it seems to be more of a panic situation than anything. The short sellers have triggered this sudden insolvency and now the banks aren't able to unload the MBS because no one wants to buy them. Why? I guess because of the uncertainty of what they are actually worth -- although they aren't worthless.
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but the MBS stuff has a huge overhang to anyone with them because they have huge amounts of capital allocated to potential losses. That's why capital has gone so low in all these institutions.

Setting that debt aside will free up many of the bank balance sheets out there and allow them to operate and borrow themselves.
 
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