Bailout Plan details thread?

[droski]

:

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.

yup it's completely irrational, but there are so many of these things on the banks balance sheets and with the defaults all of this stuff is being sold at the same time. the banks already have a lot of this so they don't want more, so therefore there aren't enough buyers out there. you need someone like the treasury to come in with billions to create a floor.

 

[Freak]

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.

There is no doubt that the first part is a huge contributing factor but it's not solely responsible for this mess. There are plenty of other factors at play not limited to: bank regulations, government lending regulations, over exposure, greed, short selling, etc, etc, etc.

The fed is forcing banks to show these on their books as basically worthless. It would seem that is allowing them to swoop in, buy all of these up at discounted prices and then sell them for a big profit once the "panic" has ceased. The government would stand to make billions, just have they have on previous bailout scenarios.

 

[rwemyss]

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.

That's hitting the nail on the head.

There is real value behind these mortgages, even if they go into default. However, because of how the housing market has plunged, the real value of any of those is hard to determine.

 

[BigPapaVol]

That's hitting the nail on the head.

There is real value behind these mortgages, even if they go into default. However, because of how the housing market has plunged, the real value of any of those is hard to determine.

and that's what Greenspan has been saying is the issue. When that level is settled, the market can begin act like a market.

The bailout plan specifically helps in that lenders can assess the values still remaining on the books to help value things going forward.

 

[VolsNSkinsFan]

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.

No but like Dorski said its a snowball effect.

You can point alot of fingers to blame here.

When a house goes to foreclosure and it sits on the market, the mortgage still exists somewhere in some fund. Someone is not getting paid, and that someone used that MBS to borrow money to buy other things, and now they have someone barking up their tree

 

[Freak]

Freak.... all you need to know is that government = failure.....

I agree. The Federal Reserve is a farse and I'm not willing to give them and/or the Treasury unchecked control. That bill in it's past form as I understood, was going to make them "above the law". They would have have free reign to do as they choose. They could decide to call these mortgages due at any time since they would be above the court system.

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.

I don't disagree with what you are saying. I just disagree with the current plan to accomplish this.

yup it's completely irrational, but there are so many of these things on the banks balance sheets and with the defaults all of this stuff is being sold at the same time. the banks already have a lot of this so they don't want more, so therefore there aren't enough buyers out there. you need someone like the treasury to come in with billions to create a floor.

I'm still trying to understand where the billions (or trillions) as it may more likely be, is going to come from?

Again, I think there is a better way to solve this rather than giving more power to the goverment/fed/treasury.

 

[droski]

I'm still trying to understand where the billions (or trillions) as it may more likely be, is going to come from?

Again, I think there is a better way to solve this rather than giving more power to the goverment/fed/treasury.

they are going to sell treasuries which are in high demand currently and buy assets that yield at least 7-10% higher than current treasury rates.

 

[T-TownVol]

I agree. The Federal Reserve is a farse and I'm not willing to give them and/or the Treasury unchecked control. That bill in it's past form as I understood, was going to make them "above the law". They would have have free reign to do as they choose. They could decide to call these mortgages due at any time since they would be above the court system.




I don't disagree with what you are saying. I just disagree with the current plan to accomplish this.



I'm still trying to understand where the billions (or trillions) as it may more likely be, is going to come from?

Again, I think there is a better way to solve this rather than giving more power to the goverment/fed/treasury.

Which is exactly why it was defeated.

 

[BigPapaVol]

There is no doubt that the first part is a huge contributing factor but it's not solely responsible for this mess. There are plenty of other factors at play not limited to: bank regulations, government lending regulations, over exposure, greed, short selling, etc, etc, etc.

The fed is forcing banks to show these on their books as basically worthless. It would seem that is allowing them to swoop in, buy all of these up at discounted prices and then sell them for a big profit once the "panic" has ceased. The government would stand to make billions, just have they have on previous bailout scenarios.

but you're describing a long term governmental conspiracy that spans back to the Reagan administration.

If our gov't is going to do that to us to make money, when they could simply tax us, we're in trouble anyway.

By the way, those funds will have very limited application should the gov't make any.

 

[VolsNSkinsFan]

they are going to sell treasuries which are in high demand currently and buy assets that yield at least 7-10% higher than current treasury rates.

BINGO!!!

Flight to quaility has everyone selling their MBS and buying the strongest investment in the world... The US Treasury Bond.

This would be a text book example of a buy low/sell high trade

 

[volsforever27]

I'm no financial guru (shocking I know), but why is no one mentioning the fact that some of the people (Barney Frank etc.) were downplaying the problem in '04 was receiving kickbacks in the form of campaign contributions? Some members of the house and even John McCain was saying this very thing may happen, yet were told there was nothing wrong. I just don't see how "cooking the books" so to speak should equal a government bailout.

 

[droski]

I'm no financial guru (shocking I know), but why is no one mentioning the fact that some of the people (Barney Frank etc.) were downplaying the problem in '04 was receiving kickbacks in the form of campaign contributions? Some members of the house and even John McCain was saying this very thing may happen, yet were told there was nothing wrong. I just don't see how "cooking the books" so to speak should equal a government bailout.

yup and all these guys were forcing fannie and freddie to lower standards so they could loan to minorities with below standard credit. whoops

 

[VolsNSkinsFan]

They werent really cooking the books... they were buying MBS (which were given good credit quality from the bond rating agencies) from Freddie and Fannie and then using those MBS as collateral to buy more MBS or other investments. (some like LEH+BS bought too much on borrowed money) Now since mortgages arent being paid... The good and bad MBS along with corporate bonds and municipal bnds are all being thrown out the door depressing the value of everything.


Do you have any idea what your house is really worth today?? No, so they have no idea what the value of the bond is

 

[droski]

They werent really cooking the books... they were buying MBS (which were given good credit quality from the bond rating agencies) from Freddie and Fannie and then using those MBS as collateral to buy more MBS or other investments. (some like LEH+BS bought too much on borrowed money) Now since mortgages arent being paid... The good and bad MBS along with corporate bonds and municipal bnds are all being thrown out the door depressing the value of everything.


Do you have any idea what your house is really worth today?? No, so they have no idea what the value of the bond is

well they were cooking the books int he sense that they listed these assets off balance sheet (think enron accounting) meaning no one had any idea they had that kind of exposure to these things.

 

[Freak]

and that's what Greenspan has been saying is the issue. When that level is settled, the market can begin act like a market.

The bailout plan specifically helps in that lenders can assess the values still remaining on the books to help value things going forward.

It seems to me to be somewhat of a contradiction with letting a market be a market along with too much government regulation.

The bailout plan, while temporarily helping lenders, stands to give way to much control and benefit to the government.

Do you realize how much money we are dealing with here? I'm not sure I do, the projected $5 trillion is unfathomable to me. However, I do know that when you are talking about dealing with that kind of an infusion of money, there are a lot less socialist ways to get us out of this mess.

Anyone know how much $5 trillion or even $700 billion is per adult in the United States?

 

[volsforever27]

well they were cooking the books int he sense that they listed these assets off balance sheet (think enron accounting) meaning no one had any idea they had that kind of exposure to these things.

That was the impression I was under.

 

[MontereyVol]

It seems to me to be somewhat of a contradiction with letting a market be a market along with too much government regulation.

The bailout plan, while temporarily helping lenders, stands to give way to much control and benefit to the government.

Do you realize how much money we are dealing with here? I'm not sure I do, the projected $5 trillion is unfathomable to me. However, I do know that when you are talking about dealing with that kind of an infusion of money, there are a lot less socialist ways to get us out of this mess.

Anyone know how much $5 trillion or even $700 billion is per adult in the United States?

if you take in the metric of voting age citizens, $700B comes out around $3500 per person.

 

[BigPapaVol]

It seems to me to be somewhat of a contradiction with letting a market be a market along with too much government regulation.

the FDIC already overregulates the hell out of the financial system.

The bailout plan, while temporarily helping lenders, stands to give way to much control and benefit to the government.

how is that? they have control of this set of assets.

Do you realize how much money we are dealing with here? I'm not sure I do, the projected $5 trillion is unfathomable to me. However, I do know that when you are talking about dealing with that kind of an infusion of money, there are a lot less socialist ways to get us out of this mess.

5 trillion is an absolute red herring. We're dealing with well less than the $700 billion that we're raising on the front end.

Anyone know how much $5 trillion or even $700 billion is per adult in the United States?

If you assume 100mm adults, $700 bn is $7K per adult.

 

[OrangeEmpire]

It seems to me to be somewhat of a contradiction with letting a market be a market along with too much government regulation.

The bailout plan, while temporarily helping lenders, stands to give way to much control and benefit to the government.

Do you realize how much money we are dealing with here? I'm not sure I do, the projected $5 trillion is unfathomable to me. However, I do know that when you are talking about dealing with that kind of an infusion of money, there are a lot less socialist ways to get us out of this mess.

Anyone know how much $5 trillion or even $700 billion is per adult in the United States?[/QUOTE]

if you take in the metric of voting age citizens, $700B comes out around $3500 per person.

Is that actually people who pay taxes?

 

[Freak]

but you're describing a long term governmental conspiracy that spans back to the Reagan administration.

If our gov't is going to do that to us to make money, when they could simply tax us, we're in trouble anyway.

By the way, those funds will have very limited application should the gov't make any.

Long term governmental conspiracy?

Not sure what you mean by doing that "to" us. Bottom line is that I just don't think it's necessary for them to buy all of these up themselves. Why not just guarantee them? Then the only infusion of money would end up being those that defaulted. Not $700 billion or $5 trillion or whatever.

A tax increase is too easy for the common person to see through. This way, people are willing to give up whatever they have to just so that the government will save us all. But I agree that we're in trouble any way you look at it.

Limited application? Can you clarify what you mean?

 

[Freak]

If you assume 100mm adults, $700 bn is $7K per adult.

Hmm. I figured that number to be higher.

 

[droski]

insuring them would cost a lot more money than buying the assets. remember they are buying these things at a 30-40% discount already. the defaults are priced in to it. and there is no way we lose $700 bil. not unless housing prices drop to zero.

 

[BigPapaVol]

Long term governmental conspiracy?

if this whole debacle is a money making scheme on the part of the gov't, then we have bigger fish to fry.

Not sure what you mean by doing that "to" us. Bottom line is that I just don't think it's necessary for them to buy all of these up themselves. Why not just guarantee them? Then the only infusion of money would end up being those that defaulted. Not $700 billion or $5 trillion or whatever.

they have essentially guaranteed them today and to what end? Gov't guarantee would have some negative ramifications IMO. It would make the default much easier and a bank willing to give in, hence pursuing the borrower less. Gov't ownership means some henchmen like the FDIC are going become the debt collectors. That will suck for the folks who default.

A tax increase is too easy for the common person to see through. This way, people are willing to give up whatever they have to just so that the government will save us all. But I agree that we're in trouble any way you look at it.

Limited application? Can you clarify what you mean?

by limited application I mean that the bill will dictate that any excess funds will be used to retire additional gov't debt, or something of that nature, but cannot be used like general funds.

 

[WA_Vol]

insuring them would cost a lot more money than buying the assets. remember they are buying these things at a 30-40% discount already. the defaults are priced in to it. and there is no way we lose $700 bil. not unless housing prices drop to zero.

They are taking ownership of millions of homes where there are no buyers. There's an oversupply of housing. I think it will be years before the market corrects itself in this respect. There was a big housing bubble and builders built like crazy to make as much as possible and now the bubble burst and the govt owns all of these empty homes aka forclosed houses where the buyers defaulted. These houses will sit on the market for years without a buyer and the govt will be waiting for years to get these offloaded. If the govt doesn't own them then these banks will and go under. It's lose, lose really. But the govt has no choice really.

 

[Freak]

You make some good points BPV. I'm not going to say that they created this whole thing just to make money, but their way out certainly stands to benefit big government over big business.

I see what you are saying about government ownership but just not certain I agree. I don't see people wanting to default on purpose and I certainly don't see how it would make it easier to default if the government insures it. Even so, the money involved to insure the defaults would require a lot less involvement than the $700 billion, not to mention the additional costs of setting up this new agency.

by limited application I mean that the bill will dictate that any excess funds will be used to retire additional gov't debt, or something of that nature, but cannot be used like general funds.

I don't recall reading this. Was it worded this way in the bill that was rejected today? I seem to recall otherwise but maybe I'm wrong.