Tentative Bail-Out Plan Reached

[Texarkandy]

Andrew Jackson in 1832 to a delegation of bankers discussing the Bank Renewal bill:

"Gentlemen, I have had men watching you for a long time and I am convinced that you have used the funds of the bank to speculate in the breadstuffs of the country. When you won, you divided the profits amongst you, and when you lost, you charged it to the bank. You tell me that if I take the deposits from the bank and annul its charter, I shall ruin ten thousand families. That may be true, gentlemen, but that is your sin! Should I let you go on, you will ruin fifty thousand families, and that would be my sin! You are a den of vipers and thieves."

 

[ChrisC]

Andrew Jackson in 1832 to a delegation of bankers discussing the Bank Renewal bill:

"Gentlemen, I have had men watching you for a long time and I am convinced that you have used the funds of the bank to speculate in the breadstuffs of the country. When you won, you divided the profits amongst you, and when you lost, you charged it to the bank. You tell me that if I take the deposits from the bank and annul its charter, I shall ruin ten thousand families. That may be true, gentlemen, but that is your sin! Should I let you go on, you will ruin fifty thousand families, and that would be my sin! You are a den of vipers and thieves."

I don't blame Jackson for his populist sentiments back then. The Second Bank of the US was an unregulated institution that engaged in corrupt activities. Of course, Jackson knew little about regulation of banks. We would have all been better if he carried on Hamilton's legacy -- it would have avoided creating the Federal Reserve System in 1913 and might have avoided relying on JP Morgan to resolve the financial crisis of 1907.

 

[cute fuzzy bunny]

in the short term

Most people dont care about the long term. What happens for the next year or two is most crucial. They're trained by the media to tell them what bad things will happen in the next few years and how to avoid that.

fried chicken

If I stop making my mortgage payments, can I have some fried chicken?

 

[Ronstar]

Does anyone really expect the government to pull this plan off successfully? Look at their track record. When was the last time that they accomplished anything that benefited the taxpayers? The economic stimulus package comes to mind. Just how much did it stimulate our economy?

 

[Gardnr]

Hmmmm, let's examine these assertions. Every major "rescue" plan seems to have the Government taking an equity piece in the entities rescued. Way back in the Depression the Government took equity pieces in businesses it rescued with the old Reconstruction Finance Corporation. (Indeed, didn't the grand poobah of American governmental finance, the esteem Alexander Hamilton, launch the First Bank of the United States, the first central bank of the U.S. with an equity piece. Didn't we also have equity pieces in the Federal Reserve System, the Federal Reserve Banks and the Federal Home Loan Banks?) Maybe that's a bit too old. We took an equity piece with the first too big, too fail, bank, Continental Illinois National Bank in 1984 and later had warrants with Chrysler when we guaranteed loans for its reconstruction and recapitalization.

Socialism didn't start until two gentlemen wrote about an economic system and labor theory in the nineteenth century. Yale Economist Schiller in today's Washington Post writes that the word "capitalism" was coined in that century as well, as the antithesis to socialism and that American Government, beginning with George Washington, never embraced an "unfettered free market." The "American system" always called for major Government involvement. Schiller writes that "bailouts" for extraordinary financial events (i.e. a crisis) have been the American norm. Everybody Calm Down. A Government Hand In the Economy Is as Old as the Republic. - washingtonpost.com

I wrote in another thread that if you lay me 1.5 odds, I'd take the bet that the Government will make money. It made money in the Depression when similar equity pieces took place; made money with Chrysler; and the only blot is the RTC experience, when the Government liquidated assets as expeditiously as it got them and never held them for gain.

Wanna bet?

Interesting. It's always good to get some historical perspective on things. It can be very instructive. Thanks Chris

 

[Retire Soon]

Bully for them. No doubt Jeebus will welcome them into the Summerlands with open arms and fried chicken when they expire. But they apparently also have the ability to make the payments. Not everyone does, unfortunately, and in a worsening recession many more people lose the ability to keep up with the mortgage.

There are a lot of people in their condo project who have the ability to pay, but are just "walking away."

 

[OAG]

My daughter and son-in-law bought a two-bedroom condo in San Diego three years ago at about the height of the boom using subprime financing. They refinanced about a year ago into a fixed rate 30 year mortgage.

The condos in this particular project are now worth approximately $80,000 less than what they were selling for in 2005. Many of their neighbors have been foreclosed upon or are near foreclosure as many of the mortgages are upside down.

My daughter and her husband have chosen to take the high road. They plan to meet their moral obligation to the lender and repay the loan. Both of them have said that they feel a sense of responsibility to pay back what they have borrowed even though it may be years before they have any equity in their home.

I am sure they are not the only honest people left in California. There must be others who are not looking for a free handout.

Unfortunately, I suspect there are more of them than are healthy. Hope. your DD and SIL do not get taken advantage of especially on the Condo Fees to cover all of the vacant and defalulted units.

 

[al_bundy]

My daughter and son-in-law bought a two-bedroom condo in San Diego three years ago at about the height of the boom using subprime financing. They refinanced about a year ago into a fixed rate 30 year mortgage.

The condos in this particular project are now worth approximately $80,000 less than what they were selling for in 2005. Many of their neighbors have been foreclosed upon or are near foreclosure as many of the mortgages are upside down.

My daughter and her husband have chosen to take the high road. They plan to meet their moral obligation to the lender and repay the loan. Both of them have said that they feel a sense of responsibility to pay back what they have borrowed even though it may be years before they have any equity in their home.

I am sure they are not the only honest people left in California. There must be others who are not looking for a free handout.

if it was a house i'd probably stay. a condo i'd give back to the bank like i had bought it from wal mart

 

[al_bundy]

Interesting. It's always good to get some historical perspective on things. It can be very instructive. Thanks Chris

those crazy founding fathers got the idea from England where the government came in to stop the panic of 1720 and the South China Sea Company

 

[al_bundy]

If my reading of the document is correct, almost all of the details are left up to Paulson, with oversight from a small committee made up of a few heads of current agencies.

He gets do decide who gets to sell assets. He gets to negotiate the prices, whether warrants are required, whether to buy assets directly or issue insurance, etc.

He has to create a report detailing the criteria he is going to use fairly quickly, but he seems to have free rein to determine those criteria.

Am I reading this correctly?

I think Paulson has just become the most powerful man in the world.

The outcome of this bill is going to depend almost entirely on the decisions Paulson makes in the future.

most laws are written this way. Department head gets the power and Congress calls them to testify a few times a year. pretty dumb to have the law specify exactly what is to be bought and sold and when and how

 

[socca]

Wanna bet?

The "taxpayers will make money on the bailout" prediction relies upon many assumptions. Do you know what they are? What happens if your assumptions turn out to be false? The "taxpayers will lose money on the bailout" relies on fewer assumptions, because it's a lot easier to lose money on an investment than make it.

I say let the market work.

You might enjoy this anti-bailout article, which I mostly agree with:

David Sirota: Top 5 Reasons to Vote Against Paulson's $700 Billion Bailout

Echoing what other have said, I'm amazed just how much power and flexibility the legislation gives the Treasury Dept. We are relying on the judgment of Treasury officials, contractors, and subcontractors to intervene constructively. I didn't see any sign that pre-approval or discussion is required before any particular intervention; instead, the oversight committees just review what has been done. Remarkable.

 

[Retire Soon]

if it was a house i'd probably stay. a condo i'd give back to the bank like i had bought it from wal mart

When DD and SIL first started discussing their dream of buying a home, we actually tried to talk them out of it. They were caught up in the euphoria of the moment and thought they could make 20k or 30k within a year and then buy a house.

We could see the train wreck coming and tried to talk them out of it. But, of course they knew much more about it then old mom and dad. Now they're stuck in an upside down investment.

 

[al_bundy]

C-SPAN Live Stream - C-SPAN

if anyone wants to watch it live

 

[ziggy29]

Glad to see they managed to rush this deal to avoid a market selloff today...

 

[socca]

Uh oh...

My Sunday paper ran an advertisement for the sleep-aid medication Ambien. In the fine print was the following warning:

After taking Ambien, you may get up out of bed while not being fully awake and do an activity that you do not know you are doing. Later, you may not remember that you did anything.

Activities include:
+ driving a car
+ making and eating food
+ talking on the phone
+ having sex
+ walking
+ voting on bailout legislation

The Washington Post reported today that the financial services industry has supplied the entire Congress with free samples of Ambien. This does not bode well for this nation.

 

[Dawg52]

Glad to see they managed to rush this deal to avoid a market selloff today...

Looks like the beginning of a sell off is in progress. The talking heads are saying were in for a global recession even if this thing passes. Lord knows what will happen if it doesn't pass.

Time to go build a bomb shelter in the backyard.

 

[ziggy29]

Looks like the beginning of a sell off is in progress. The talking heads are saying were in for a global recession even if this thing passes. Lord knows what will happen if it doesn't pass.

Classic example of "buy on the rumor, sell on the news" IMO.

I think global recession is already very much priced in the market. But as long as there is uncertainty and borderline panic, markets are certainly known to overshoot in both directions -- sometimes drastically. These create the bubbles and the once-in-a-generation buying opportunities for those with the stomach for it.

 

[al_bundy]

last i heard SP500 earnings were supposed to be $63 for 2008. reality will probably close to $50. not sure what 2009 is supposed to be, but if they are $55 then the market is probably too expensive at this level

 

[ChrisC]

The "taxpayers will make money on the bailout" prediction relies upon many assumptions. Do you know what they are? What happens if your assumptions turn out to be false? The "taxpayers will lose money on the bailout" relies on fewer assumptions, because it's a lot easier to lose money on an investment than make it.

The only major assumption I'm making is that housing is not in a free-fall and that the housing bottom will be around the corner. My minor assumption is that the reverse auction and other pricing mechanisms will price the securities below current fair value and the purchase price is significantly less than value of these securities when held to maturity.

Aren't your assumptions for failure just the reverse of this? Or do you have some other insights?

Wanna bet.

 

[cute fuzzy bunny]

Glad to see they managed to rush this deal to avoid a market selloff today...

At least theres some good news. Oil is still dropping like a rock!

 

[ziggy29]

last i heard SP500 earnings were supposed to be $63 for 2008. reality will probably close to $50. not sure what 2009 is supposed to be, but if they are $55 then the market is probably too expensive at this level

P/E is a terrible indicator of valuation in an economic downturn.

 

[al_bundy]

At least theres some good news. Oil is still dropping like a rock!

too bad gold is not and t-bills aren't. end of the world trade is still in full swing