Do you support the Paulson bail out?

[ziggy29]

The part about giving close to a trillion with no Congressional oversight is, and should be, DOA.

Any institution that wants/needs bailout money should agree to a structured deal such that the taxpayers are reimbursed from future profits, to the extent feasible while allowing the businesses to operate. Whether that takes the form of a loan, profit sharing or equity in the business is secondary.

IMO, these are the two main points.

[donheff]

This was not a good poll. I voted no because I don't like Paulson's proposal but I do support a bail out. I want to see some safeguards added along the lines of the compromise that seems to have been derailed. I have no idea if the bail out will work but when voices as diverse as Buffet, Soros, Bernanke, Paulson, Bush, Dodd, and Frank are united that the crisis is terrifying I am willing to toss in the towel and try something.

[ziggy29]

Quote:

Originally Posted by donheff I have no idea if the bail out will work but when voices as diverse as Buffet, Soros, Bernanke, Paulson, Bush, Dodd, and Frank are united that the crisis is terrifying I am willing to toss in the towel and try something.

I agree. When just about everyone from all relatively mainstream ideologies agrees in substance that it has to be done, then it needs to get done. We should put in as many safeguards for the taxpayer as reasonably possible, but what we can NOT do is let pursuit of the perfect be the enemy of the 'good enough'. Rome is burning while Congress fiddles.

[audreyh1]

I don't think the problem is the pursuit of the perfect. I think it is that all the legislators hate having to pass this bill and want cover. Congressman are getting their ears boxed by their constituents and they are up for reelection in a few weeks. Their constituents are mad as hell and would rather see Rome burn rather than "bail out the fat cats". Thus the "rebellion" of the GOP congressmen who don't believe in govt. intervention anyway. No one has communicated to Joe Blow how he might get burned too. This is a particularly bad time for leaders NOT to be able to articulate the problem and sell the solution to the average man on the street. I think they need to find such a spokesperson ASAP.

On the other hand, there is such a gut level of revulsion to any kind of government rescue after the excesses of the decade that Main Street is willing to live with whatever fallout occurs. Whether or not that willingness persists if the fallout is bad - who knows. I suppose if the pain is great enough, more people will be willing to work together to improve the situation.

Audrey

[ziggy29]

Quote:

Originally Posted by audreyh1 I don't think the problem is the pursuit of the perfect. I think it is that all the legislators hate having to pass this bill and want cover. Congressman are getting their ears boxed by their constituents and they are up for reelection in a few weeks. Their constituents are mad as hell and would rather see Rome burn rather than "bail out the fat cats". Thus the "rebellion" of the GOP congressmen who don't believe in govt. intervention anyway. No one has communicated to Joe Blow how he might get burned too. This is a particularly bad time for leaders NOT to be able to articulate the problem and sell the solution to the average man on the street. I think they need to find such a spokesperson ASAP.

I believe in the "trickle down" theory where this is concerned. It's hard for some Joe Sixpacks to see, maybe, but as much as it feels good to make Wall Street fatcats suffer and squirm, perhaps these people just don't realize that it's likely to be an economic Pyrrhic victory.

They don't realize just how much it will put their jobs at risk. Or their retirement savings. Or the solvency of their pension funds.

In any event, this is showing the magnitude of the "leadership deficit" we have in Washington, and that goes for both parties.

[cardude]

I own a business that relies on functioning credit markets, so yes I'm for the plan. It pisses me off that our elected politicians are mucking this thing up because it needs to happen quickly from what I understand from Buffett's comments and others who KNOW WHAT THEY ARE TALKING ABOUT. The crazy thing is it's republicans now who are throwing a wrench into the works (Shelby from Alabama) because the original plan does not help "main street". Excuse me, but when did conservative republicans really start to worry about the common man? Insane, and I've always voted R because of the business I'm in.

I want to know how the "common man" is going to function without efficeint credit markets, and what will happen to their job if credit freezes up any worse? Do they realize that the company they work for probably uses the credit markets to fund ongoing operations to some extent? Inventories? Lines of credit? How many businesses are there that use no leverage at all? Not many. What about retail businesses like mine who rely on credit so the regular Joe can afford big ticket items? Lots of people work for retail based busiensses if I'm not mistaken.

[harley]

Quote:

Originally Posted by cardude I own a business that relies on functioning credit markets, so yes I'm for the plan. It pisses me off that our elected politicians are mucking this thing up because it needs to happen quickly from what I understand from Buffett's comments and others who KNOW WHAT THEY ARE TALKING ABOUT. The crazy thing is it's republicans now who are throwing a wrench into the works (Shelby from Alabama) because the original plan does not help "main street". Excuse me, but when did conservative republicans really start to worry about the common man? Insane, and I've always voted R because of the business I'm in.

I seem to be repeating myself, but I can't understand why people are finding it hard to believe Rs are against this plan. This is exactly the kind of plan Rs are supposed to be against - big gov't, market controls, socialism, etc. My only real surprise is that they actually still feel this way. I had been thinking that the Ds were socialists, the Rs were Ds, and the Libertarians were the only real Rs left.

I'm not saying we don't need some kind of bill, but I can't understand why there can't be any controls allowed, why there can't be judicial review in case of hanky-panky (or hanky-paulsony ), why it has to be sold the same way timeshares are (act now! you'll never get this chance again). I want the bill to go through, but with the kinds of checks and balances that any one of us would insist on in a contract we were entering in on.

[MichaelB]

The circle is now complete.

Quote:

Sept. 26 (Bloomberg) -- Former Federal Reserve Chairman Alan Greenspan urged lawmakers to back ``extensive'' measures to tackle the worst financial crisis since the 1930s and head off a recession. ``We urgently advocate immediate, extensive action that would maintain the functions of credit markets and prevent a serious economic contraction,'' according to an e-mailed statement, which was sent to lawmakers in Washington last night. It was also signed by former Treasury Secretary George Shultz and Stanford University economist Robert Hall.

Bloomberg report Bloomberg.com: Worldwide

Greenspan letter Real Time Economics : Greenspan Calls for Action on Financial Crisis

[chinaco]

I support some sort of action. I am sure Paulson's plan can be improved.

I am concerned about what may happen if intervention does not occur.

[Texarkandy]

I'm no expert on this - but just some random thoughts:

If we bail out the securities companies, their investors, CDS folks, how does that change the risk of default in any of the underlying mortgages embedded in these securities? Seems to me it just saves a bunch of investors (who took a speculative risk by the way).

How does this stop or even slow the decline in housing prices? (which is the major underlying cause of these securities becoming worthless in the first place as I understand)

If we have to bail out anybody I'm in favor of trickle-up rather than trickle down in this case - perhaps we (the fed govt) could offer to refinance individual mortgagees - let them come into some local govt office, show us their situation and if they are truly at default risk we will refinance them into 40 - 50 year loans if necessary - (I bet the feds could offer a very low interest rate considering how cheap we are loaning money to the finance industry.)

At least that might slow the slide in real estate prices & thus prop-up some other mortgages not currently at risk of default.

both parties are guilty & took a risk - both parties should accept the consequences of their risk - however if we have to pick one guilty party or the other to bail out - I'll pick my neighbor (despite his foolish housebuying decision).

Note: I qualified the above with "if we a have to bail out anybody" - in that I am kind of philosophically oppose to bailing out anybody at all.

[ChrisC]

Quote:

Originally Posted by bpp3 This nonsense about the government/taxpayer maybe making a profit in the end is just that. The bailout only works if the bad loans, or securities built on top of them, are purchased at or close to book value, not true value. I find it delicious irony that Bernie Sanders, self-described democratic socialist, is one of the ones saying "talk to the invisible hand," while many of the erstwhile rugged-free-marketeers are begging for government handouts.

If you lay me 2:1 odds, I'm willing to wage that bet with you. I might even take 1:5 to 1 odds, as well. I think the purchase will be at fair value or mark-to-market value, with a steep haircut, which could translate into a very good price for the Government, especially if it does this "reverse auction" thing they have floated. It's all net, interest margin profit, right?(I don't understand what you're saying about a profit if purchased at book value.) You know, the last time the Government did this, it turned a profit, after the depression. You can throw out the RTC example because the RTC was quickly liquidating and not holding assets, which many claimed it should have done.

The only thing that would upset a major profit would be if the bottom of the housing market is not around the corner and we're in a housing market free-fall. And the securities are badly priced and valued. However, the plan would be successful if it only accomplishes its primary design: to "reliquify" the credit markets by injecting cash for trash (assuming the trash doesn't turn out to be gold).

That's a very ironic point you make; the whole situation is filled with political irony; a Democratic-controlled Congress coming to the rescue of a free-market, lame duck Republican Administration.

[wildcat]

FPA's (Rodriquez's firm) released this article in response to the bail out. I read his commentary from time to time.

He is a pretty gloomy guy but he has been warning of this for years so I give him some credit. His and most of the FPA funds have been 35-45% cash and actually placed his firm on a buying strike for about 6-8 months.

FPA News Article

[Gone4Good]

Quote:

Originally Posted by harley I'm not saying we don't need some kind of bill, but I can't understand why there can't be any controls allowed, why there can't be judicial review in case of hanky-panky (or hanky-paulsony )

Congressional oversight of the plan was one of the first changes that everyone agreed to. Whatever happens, rest assured that an oversight board will be part of the final bill.

[Gone4Good]

Quote:

Originally Posted by Texarkandy How does this stop or even slow the decline in housing prices?

Because if you can't get a mortgage you can't buy a house. Meanwhile, there are always people who NEED to sell. If you have forced sellers but no buyers, prices absolutely collapse.

Quote:

Originally Posted by Texarkandy If we have to bail out anybody I'm in favor of trickle-up rather than trickle down in this case - perhaps we (the fed govt) could offer to refinance individual mortgagees

This may be a preferred solution, but is probably logistically impossible to execute over a reasonable time frame. The Federal government currently has no agency that can handle millions of refinancings. And probably couldn't set up the capacity to do so for several years.

Quote:

Originally Posted by Texarkandy Note: I qualified the above with "if we a have to bail out anybody" - in that I am kind of philosophically oppose to bailing out anybody at all.c

Unfortunately, things will likely be worse if we don't.

[audreyh1]

Personally I think they out to look at the risks to the economy and work backwards from there. Not from the root causes out (underwater homeowners, overleveraged financial companies), but in the other direction.

IMO the major risk right now is containing the financial fallout so that it doesn't impede normal operation of non-financial companies. Right now, there is a horrible credit freeze up and it's starting to cause real problems with businesses being able to run their day-to-day operations. Financial companies are showing an unwillingness to lend.

The people who bought overpriced houses are already in trouble and some steps have already been taken to provide some relief and renegotiating room. The financial community has had a huge amount of assistance provided, lots of "relief valves" opened although they seem to be getting more and more stuck. Money market funds have been provided a 1 year Federal guarantee to "not break the buck" which hopefully will prevent runs on MM funds - although it is yet to be seen where the runs have really subsided. I hear rumors to the contrary. So, the financial fallout is not yet contained.

Now all the focus needs to be freeing up credit for American business. Personally, I'm not convinced that buying bad assets from financial companies will quickly result in those companies turning around and lending as usual. They don't seem willing to lend to each other or their customers any more. I guess the balance sheets are too badly damaged. There needs to be a more direct way to get the needed credit to non-financial businesses before inventory cutbacks, payroll cuts and other cutbacks start to occur on a routine basis.

Audrey

[haha]

Quote:

Originally Posted by wildcat FPA's (Rodriquez's firm) released this article in response to the bail out. I read his commentary from time to time. He is a pretty gloomy guy but he has been warning of this for years so I give him some credit. His and most of the FPA funds have been 35-45% cash and actually placed his firm on a buying strike for about 6-8 months. FPA News Article

Very interesting article, this time by Steve Romick rather than Rodriguez.

They have been excellent at keeping their powder dry. However, recently they have also made what investments they did make in some solidly underperforming stocks.

One thing I take away from this piece is that no matter how this is resolved, we likely should not expect the markets to head off to the races, other than perhaps a short term relief rally.

Many of these businesses that do survive will perhaps never again trade at their peak multiples, nor achieve their peak ROEs.

This has been the real bubble. Dot.com was just a rehearsal.

Ha

[FIREd]

Quote:

Originally Posted by audreyh1 There needs to be a more direct way to get the needed credit to non-financial businesses before inventory cutbacks, payroll cuts and other cutbacks start to occur on a routine basis.

I agree. If unemployment starts ticking up, then even people who could easily afford their mortgage (exotic or 30 year fixed, it doesn't matter) while they had a job, could be forced into foreclosure and make the real estate market even worse. Think about it, in the past 2 years the housing market has been on its knees while the economy was still relatively healthy. Add a deep recession to the mix and that could be a disaster. People might not be able to borrow money from their house (because of declining house values and credit tightening), their 401Ks might have dwindled with the stock market, and unless they have substantial cash savings, even the people who have not so far been impacted by the credit crunch and/or bad housing market might find themselves in hot water. Even people who did everything right (bought a house they could afford with a fixed interest mortgage, saved some money for retirement, had 3 months in an EF, etc...) might start being impacted by the financial crisis if unemployment starts moving upwards rapidly.

[Texarkandy]

Quote:

Originally Posted by Texarkandy How does this stop or even slow the decline in housing prices?

Quote:

Originally Posted by . . . Yrs to Go Because if you can't get a mortgage you can't buy a house. Meanwhile, there are always people who NEED to sell. If you have forced sellers but no buyers, prices absolutely collapse.

No offense - not saying I'm right, you're wrong - just thinking out loud here, but:

So if the bailout plan accomplishes the feat of a free & easy mortgage environment again, then people can start buying houses (they can't afford) again and all will be well?

As far as prices collapsing - I wonder if prices can really collapse for very long too far below the cost of building new - people gotta live somewhere - what's the US average cost to build a residential home now? $100 sq ft?

Seems to me any mortgage credit crunch would be short term - people with money they would like to earn interest on will eventually find responsible credit worthy borrowers.

[Independent]

Quote:

Originally Posted by Texarkandy 0 If we have to bail out anybody I'm in favor of trickle-up rather than trickle down in this case - perhaps we (the fed govt) could offer to refinance individual mortgagees - let them come into some local govt office, show us their situation and if they are truly at default risk we will refinance them into 40 - 50 year loans if necessary - (I bet the feds could offer a very low interest rate considering how cheap we are loaning money to the finance industry.) both parties are guilty & took a risk - both parties should accept the consequences of their risk - however if we have to pick one guilty party or the other to bail out - I'll pick my neighbor (despite his foolish housebuying decision). Note: I qualified the above with "if we a have to bail out anybody" - in that I am kind of philosophically oppose to bailing out anybody at all.

I'm with you, I'd rather try "trickle up".

My idea is simple - send a $XX,000 voucher to anyone who bought a house in 2005 or 2006. Make it big enough to offset about half the market loss we're expecting on the average house. The voucher can be used for a lump sum payment on a mortgage, or it goes into an escrow account which will cover the monthly mortgage payments for a while.

This will immediately save some houses from defaults - directly helping the value of the MBS's. It will improve confidence that other people will be able to stay current. It will pay result in some payouts on some MBS slices. And, it will generally put money in the hands of people who will spend it.

Paulson and Berneke will say that this isn't as efficient as trickle-down - we get more bang for the buck with their plan. I'd agree, but say that this is politically doable (I'm not sure that their plan is) and avoids aggravating the class split that's growing in our country.

I agree that both the buyers and the lenders missed the fact that we were in a bubble. I'd rather bail out the ordinary Joe buyers the the multi-millionaire lenders who told everyone that their big compensation packages were "earned" because they were running their companies so brilliantly.

(I didn't lay out the details - smaller payments for some other years, payments vary by the size of the bubble in your area, etc.)

[Gone4Good]

Quote:

Originally Posted by Texarkandy So if the bailout plan accomplishes the feat of a free & easy mortgage environment again, then people can start buying houses (they can't afford) again and all will be well?

"Afford" is an interesting concept. There are few people in the US who can currently "afford" a house without borrowing. So at what price would the housing market clear if people had to pay cash . . . $20,000? . . . $50,000?

Quote:

Originally Posted by Texarkandy As far as prices collapsing - I wonder if prices can really collapse for very long too far below the cost of building new - people gotta live somewhere - what's the US average cost to build a residential home now? $100 sq ft?

We talked a little bit about this in a thread Ha started concerning the Q-ratio. I'd agree that over the "long-run" housing prices have to support new build construction costs . . . but how long is the long run? According to Ha's graph, it looked to be about 10yrs.

I'd also argue that replacement costs were inflated alongside the credit fueled building boom.