Bailout Plan details thread?

#51
#51
vol_freak said:
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.
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I think that's one of the reasons the bill was rejected. Very few Republicans want the next regime to have carte blanche with anything.
 
#52
#52
oklavol said:
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.
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the majority of the loans in the bonds are not in default. i very much doubt that the govt will end up owning millions of homes or something. and you can always sell a home at some price. i do agree the housing market is still overvalued from a cost basis though. but a floor has to be reached even if it is artificial.
 
#53
#53
droski said:
the majority of the loans in the bonds are not in default. i very much doubt that the govt will end up owning millions of homes or something. and you can always sell a home at some price. i do agree the housing market is still overvalued from a cost basis though. but a floor has to be reached even if it is artificial.
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I've been reading that the market is just now priced at a point where per capita incomes can pay for real estate per the ratios that lenders need to generate decent CDOs.
 
#54
#54
vol_freak said:
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.
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yes it would cost a lot less than $700 bill. probably like $400 billion. but insuring them is a straight loss. buying these assets is a likely gain. the housing market woudl have to drop 50% further (literally) for the loss on these bonds to be $400 bil.
 
#55
#55
droski said:
yes it would cost a lot less than $700 bill. probably like $400 billion. but insuring them is a straight loss. buying these assets is a likely gain. the housing market woudl have to drop 50% further (literally) for the loss on these bonds to be $400 bil.
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agreed. The insurance would be egregious and would represent easy outs for the lenders. Recovery rates would likely be cut in half.
 
#56
#56
BigPapaVol said:
I think that's one of the reasons the bill was rejected. Very few Republicans want the next regime to have carte blanche with anything.
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And that's one of this big issues I had with the plan in its current form.

droski said:
the majority of the loans in the bonds are not in default. i very much doubt that the govt will end up owning millions of homes or something. and you can always sell a home at some price. i do agree the housing market is still overvalued from a cost basis though. but a floor has to be reached even if it is artificial.
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some good points. If the government owned all of the MBS in the country, they would technically own all of the homes with a mortgage, right? Who would make them honor the terms of the original notes if they are above the court system (that's how I've understood it anyway).


droski said:
yes it would cost a lot less than $700 bill. probably like $400 billion. but insuring them is a straight loss. buying these assets is a likely gain. the housing market woudl have to drop 50% further (literally) for the loss on these bonds to be $400 bil.
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Ah, so now we are getting somewhere. Buying them is likely a gain, meaning that a lot of our current situation is fabricated by this panic. There is inherent value here and money to be made by someone.

The insurance plan would not be a total loss because they would have the properties (assets) that are not worthless. Maybe in the short term, but not in the long term.
 
#57
#57
vol_freak said:
Ah, so now we are getting somewhere. Buying them is likely a gain, meaning that a lot of our current situation is fabricated by this panic. There is inherent value here and money to be made by someone.
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But there won't be money made by anyone if we don't do something today. All of the assets will be forced to the liquidation market because of the capital situation of our lenders. Liquidation pricing across our real estate market will further suppress pricing. Another of the positives in the gov't holding the bad debt is the fact that this real estate isn't forced into auction style selling, so the RE market as a whole isn't devalued to that type of pricing. That happens and many retirees will be hauling their cookies back to work and minicipalities can kiss enormous swaths of ad valorem tax revenue goodbye.
 
#58
#58
droski said:
the majority of the loans in the bonds are not in default. i very much doubt that the govt will end up owning millions of homes or something. and you can always sell a home at some price. i do agree the housing market is still overvalued from a cost basis though. but a floor has to be reached even if it is artificial.
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I don't understand then. I thought default loans is what caused the banking/mortgage crisis, caused the banks to lose their liquidity, etc.

It's possible most of the home loans that have defaulted will find a buyer, but if anyone who wanted to buy a house could before, and strict new lending guidelines are put in place now, who is going to come forward to be a buyer?

Most people who are good candidates already own a home, and those who weren't have defaulted. Just seems like a classic case of oversupply of homes for potential buyer. The builder is the one who profited from this selling homes to people who couldn't afford them. Banks making loans they shouldn't make etc.
 
#59
#59
oklavol said:
I don't understand then. I thought default loans is what caused the banking/mortgage crisis, caused the banks to lose their liquidity, etc.
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but the bonds as a whole take a writedown, since they're sold in blocks. The writedowns essentially value the distressed assets at liquidation or below, so the bond value takes a hit. Additionally, additional expected losses in the bond take a huge beating at the hands of regulators forcing large writedowns.

The writedowns essentially force the holder of the bonds, if holding in a portfolio as security for something else, to provide the amount of capital written down as security for whatever the bond was providing in capital.

As the market for these bonds become less liquid, because many were dumping them due to the value hits, the values became even more depressed. The mark to market values of these assets essentially wento to 0 based upon lack of bid pricing out there. You have a large pool of assets considered illiquid or valueless, you have to produce collateral of another kind to fund the business. Enough of that problem and you no longer have any capital agains which to leverage and operate.

A simplistic explanation of what happened to these guys.
 
#60
#60
BigPapaVol said:
I've been reading that the market is just now priced at a point where per capita incomes can pay for real estate per the ratios that lenders need to generate decent CDOs.
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maybe in rural areas. definitely not in urban areas.
 
#61
#61
BigPapaVol said:
But there won't be money made by anyone if we don't do something today. All of the assets will be forced to the liquidation market because of the capital situation of our lenders. Liquidation pricing across our real estate market will further suppress pricing. Another of the positives in the gov't holding the bad debt is the fact that this real estate isn't forced into auction style selling, so the RE market as a whole isn't devalued to that type of pricing. That happens and many retirees will be hauling their cookies back to work and minicipalities can kiss enormous swaths of ad valorem tax revenue goodbye.
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That's just it, he keyword there is "something".

Again, the capital situation is only an issue because these MBS are being valued at $0, right? There has to be another way to value these funds as opposed to letting the government come in and buy them. I know I'm talking in circles and maybe I just don't understand, but why doesn't simply insuring them work? You would immediately give them value and that solves the issue of banks needing to liquidate to raise capital. Or am I missing something?
 
#62
#62
BigPapaVol said:
but the bonds as a whole take a writedown, since they're sold in blocks. The writedowns essentially value the distressed assets at liquidation or below, so the bond value takes a hit. Additionally, additional expected losses in the bond take a huge beating at the hands of regulators forcing large writedowns.

The writedowns essentially force the holder of the bonds, if holding in a portfolio as security for something else, to provide the amount of capital written down as security for whatever the bond was providing in capital.

As the market for these bonds become less liquid, because many were dumping them due to the value hits, the values became even more depressed. The mark to market values of these assets essentially wento to 0 based upon lack of bid pricing out there. You have a large pool of assets considered illiquid or valueless, you have to produce collateral of another kind to fund the business. Enough of that problem and you no longer have any capital agains which to leverage and operate.

A simplistic explanation of what happened to these guys.
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BPV, how much did the short selling factor into this loss of capital?
 
#63
#63
vol_freak said:
BPV, how much did the short selling factor into this loss of capital?
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short selling murdered the equity holders, who are separate from the book value of the company.

The shorts just took the market value of the shares down, but that does force lenders to the attacked entity to make margin calls, driving up the cost of capital and further reducing liquidity. It's why we're likely to see prohibition on shorting particular classes of assets going forward, like it or not.

It matters to financial institutions and I'm not sure how large the role was in this mess. It probably pales in comparison to the written down asset losses.
 
#64
#64
BigPapaVol said:
short selling murdered the equity holders, who are separate from the book value of the company.

The shorts just took the market value of the shares down, but that does force lenders to the attacked entity to make margin calls, driving up the cost of capital and further reducing liquidity. It's why we're likely to see prohibition on shorting particular classes of assets going forward, like it or not.

It matters to financial institutions and I'm not sure how large the role was in this mess. It probably pales in comparison to the written down asset losses.
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So you are saying the loss in capital from the drop in stock price didn't require banks to have to sell assets? If that's true does that mean that banks solvency is based strictly on deposits?
 
#65
#65
vol_freak said:
So you are saying the loss in capital from the drop in stock price didn't require banks to have to sell assets? If that's true does that mean that banks solvency is based strictly on deposits?
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To the extent that the institution was using its own stock to secure credit, it was forced to provide more margin capital to operate. Most use operations and assets to borrow. Directors and owners of the banks might use their shares in borrowing to put capital into the bank, but I can't imagine that's a big grouping.

I don't think asset disposition was really driven by stock price. I think the buyers started showing up because of the attractiveness of the asset values and they were on the market because the institution needed capital.

Each case was probably unique, but most were about the capital hits from portfolio writedowns and ensuing accruals.
 
#66
#66
vol_freak said:
some good points. If the government owned all of the MBS in the country, they would technically own all of the homes with a mortgage, right? Who would make them honor the terms of the original notes if they are above the court system (that's how I've understood it anyway).
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well this is a serious issue. if the govt starts changing contracts as the dems want htem to do to "help" people not get forclosed on that is extremely negative since people would undoubtably require insane amounts of capital to loan to the average person. and the govt is not going to buy anywhere near all the mbs in teh market. that is in the tens of trillions.
 
#67
#67
vol_freak said:
So you are saying the loss in capital from the drop in stock price didn't require banks to have to sell assets? If that's true does that mean that banks solvency is based strictly on deposits?
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well when the stocks dropped like this because of hte short sellers it created a "crisis of confidence" that made a lot of people pull their assets from the banks when in turn took them under.
 
#72
#72
BigPapaVol said:
but there was some serious intervention there on the part of some central banks.

Also, I believe that they fully believe that we're coming to a deal.
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I think you're right... but I'm not sure why. Congress is at a recess until Thursday, so it is doubtful that a new plan will get a shake before the end of the week.

Is it possible that people have decided that a government intervention isn't going to happen, so they need to work things out for themselves?
 
#73
#73
rwemyss said:
I think you're right... but I'm not sure why. Congress is at a recess until Thursday, so it is doubtful that a new plan will get a shake before the end of the week.

Is it possible that people have decided that a government intervention isn't going to happen, so they need to work things out for themselves?
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congressional staffs are working like madmen getting this thing done as we speak.

We might not get done this week, but I don't think it's from a lack of work.
 
#74
#74
BigPapaVol said:
congressional staffs are working like madmen getting this thing done as we speak.

We might not get done this week, but I don't think it's from a lack of work.
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But you have been one of many that have indicated the plan is worthless if action isn't taken NOW... or more specifically yesterday. At this point, it seems to make more sense to allow these failing businesses to file bankruptcy, and let their new owners hash the thing out.
 
#75
#75
The markets going down, will garner more public support for the bill, making it easier to pass.

In the long term, though wont this continue the slide of the dollar? The only thing preventing the dollar in freefall is oil being traded in dollars. Thats the only reason other countries use dollars now, to buy oil. For currency to invest, they buy Euro's.
 
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