Do you support the Paulson bail out?

[brewer12345]

The government can use its power as the owner of mortgages and mortgage backed securities to facilitate loan modifications (such as, reduced principal or interest rate, lengthened time to pay back the mortgage) to help reduce the 2 million projected foreclosures in the next year

Ummm, considering that the gummint has been shrieking at the top of its lungs for over a year that this is exactly what private market lenders ought to be doing, it should come as no great surprise that they will do the same once they own the actual loans. Last I heard, this is known as a loan workout and has been done for both commercial and retail loans for decades or centuries.

 

[Gone4Good]

The horse has been stolen, ridden on an airport runway, molested by gypsies, diced up for soup and the hooves have been sold to the glue factory. But Congress is working to keep 'Murica strong!

 

[Texarkandy]

If you don't see the failure of Bear Stearns, Lehman, AIG, Fannie, Freddie, WaMu and the teetering of Morgan Stanley, Goldman Sachs, Wachovia, etc, etc, as a "bit of a crisis happening" I'm not sure what you think would qualify.
....

Actually, I don't think the "failure" of those institutions equate to "apocolypse" - (I can see how it does in the world-view of folks like Mr Paulson) - hordes of homeless children in soup lines is an apocolypse. I'll support a govt program to feed/house them. Is that predicted here?

I think it'd have to be worse than it's been the past week to qualify for government bail-outs of wall-street.

My house (3rd one) was purchased with way over 20% down - 15 yr fixed - excellent credit ratin (am I scared of falling real estate values? well, over the short term maybe but over the long term No - it'll always be worth at least close to what it would cost to build, no? - I didn't buy my house as a speculative investment as did some others); my investments are conservatively allocated; I have a 10 yr old truck, 15 yr old van, & 20 yr old boat; I've lived a quite conservative/responsible financial life - why should I buy into this "scare" & pay-up for these speculators (those on wall-street & main-street alike) - particularly when it goes against my economic & political philosophies

How certain are we the predicted ensuing credit-crunch wouldn't correct itself in 6 months, or perhaps a year or so, if left alone anyway (after a corporate shakeout & a little pain on main-street of course). Perhaps some on main-street need to feel a little pain? Perhaps a couple of years of tight credit would be good for the country!

How certain are we this bail-out is going to really prevent much pain on main street anyway? Seems to me the bail-out portion is simply designed to alleviate the immediate pain of wall-street - I expect wall-street (being the dispassionate animal it is) will inflict whatever pain on main street it feels it needs to, regardless.

 

[ChrisC]

that's a very dangerous precedent since you are modifying a legal contract after it has been signed. it was done in the depression and I bet the reason we have fannie mae is because it scared foreign investors from the US mortgage market.

You sound like a recalcitrant lender. The limited homestead exemption in most states is a legislative modification of the contract. We give bankruptucy judges and bank receivers (i.e., the FDIC) the power to affirm, deny or repudiate any executory contract, except they cannot affect the security or collateral behind a promise or contract. I think a bankruptcy judge should able to re-write the contract where one can prove some predatory lending practice, or where the debtor can't really pay the current mortgage but has enough income to pay something. A bankruptcy judge should be able to "recast" or modify the mortgage and "cram it down" the lender's recalcitrant throat, if this benefits all creditors, and keeps the debtor in his home.

Not sure this is any more dangerous than states, like California, having strict foreclosure laws, i.e. that one cannot get a deficiency judgment against the debtor when the lender/mortgagee forecloses on the property. In other words, the lender in California never gets the entire benefit of his bargain (or borrower's promise to pay his mortgage), unless the property value exceeds the debtor's IOU.

 

[Gone4Good]

hordes of homeless children in soup lines is an apocolypse. I'll support a govt program to feed/house them. Is that predicted here?

Yes.

 

[Texarkandy]

I wonder if perhaps there's something "extra" in this Kool-Aid they are dishing out to the masses. I can't say for sure as I haven't drank any of it yet.

 

[brewer12345]

I wonder if perhaps there's something "extra" in this Kool-Aid they are dishing out to the masses. I can't say for sure as I haven't drank any of it yet.

Its real good mixed with bourbon and the blood of dead Iraqi civilians.

 

[Texarkandy]

I think I'll just have the bourbon straight-up, thank you.

 

[haha]

Do I support the Paulson bailout?

I think we will all be supporting the Paulson bailout, and for a long time.

Ha

 

[Independent]

How does the government screen the million of applications to prevent fraud (e.g. FEMA debit cards)? How does the government audit millions of accounts to make sure they are set up and used properly? How does the banking system set up and administer millions of special accounts were nothing of its kind currently exists? How are millions of homeowners educated about the program? These are not small problems.

I agree a reverse auction has logistical challenges of its own. But the auction structure is somewhat "off the shelf" having been used for different purposes over a very long period of time.

1) The same way we screen millions of EITC applications - devise a form that has a series of questions. You fill it out and sign it.
2) Just like EITC - audit a sample, pursue those that look bad. Decide how many more to audit based on the percent of bad cases in the sample.
3) The accounts are ordinary checking accounts with banks. The only special rule is that you can only write checks to one payee. My bank already prints blank checks for its "money market savings accounts" while you wait. They could easily print the checks with the payee line already filled in. This looks simpler than a standard tax/insurance escrow account to me.
4) The banks want the checking accounts. Within a week after the bill is passed, I'd expect TV ads promoting the bank's services in helping people determine whether they qualify and helping to fill out the forms.

I assume there will be some fraud, there is some in any big program. I also assume there will be some "excesses" somewhere in the auction system - maybe related to fees that consultants or agents get as part of the program. Maybe someone who made millions by giving private investors bad advice will get millions in fees from the gov't for helping to clean up the mess.

Note that the simple auction you described only works if the gov't limits it to one tranche from one pool. I think Paulson is already concerned that he won't get enough bidders for a one-security auction. I'm thinking there will have to be many auctions to get up to $700 billion. If you try to combine different securities in one auction, you need advisers who can evaluate them, and that gets complex and expensive.

 

[Milton]

A good article in the weekend Financial Times: Christopher Caldwell - Reality dawns in real estate.

Few Americans are innocent of the cardinal sins of this crisis: extravagance, leverage and complexity. The high-rollers who ran the banks have made a terrible mess. But the common man, had he been given a bank of his own, would have responded in the same way. We know this because, in effect, Americans were given banks of their own: their houses. Thanks in large part to tax laws that allow homeowners to deduct the interest on their mortgages, homes became investment engines – rickety ones.

 

[haha]

If the market contiues like it has so far today, I won't have anything left to support the bailout with!

ha

 

[FIREd]

Last night, I was watching on Swiss TV an interview of the former chief analyst for the BNS (the Swiss central bank). He talked about the bailout package. He has no chip in the "bailout" game so I value his opinion.

I could have translated the whole interview (in French), but I am too lazy so I will paraphrase him:

He said the global banking system is going through a confidence crisis and that banks are having a difficult time recapitalizing themselves which creates fear of a collapse of the financial system. Bad debts on banks' balance sheets are only part of the problem. The confidence crisis is the most pressing issue right now.

He said that it is important that the political and financial systems be proactive to tackle the crisis and restore confidence in the system.

He was not very concerned about the immediate inflationary effect of the bailout because it is not financed by cranking up the money-printing machine but rather by the emission of bonds which are "very much in demand". So we are not creating new money, it is merely changing hands at the present time.

He doesn't seem overly concerned either about the effect of the bailout on the long term balance sheet of the US. He pointed out that, even if the bailout is approved, the debt to GDP ratio for the US, though on the high side, is still reasonable compared to many developed countries around the world, especially if you consider that Japan, a nation of savers, has a debt to GDP ratio twice as high as ours. He thinks that there is indeed more than enough room for a second large bailout package if needed.

 

[OAG]

Funny thing OUR poll - pretty close to the actual vote.

 

[JB]

If the market contiues like it has so far today, I won't have anything left to support the bailout with!
ha

Ouch! Uncle, uncle -- I give up. Changing my vote from undecided to yes.

 

[Milton]

Those hold-out politicians are playing with fire, and investors everywhere are going to get burned.

Worth reading: It happened once. Could it happen again?.

 

[ChrisC]

Hmmm, what did H.L. Mencken say: "Nobody ever went broke underestimating the intelligence of the American public." That might not be true these days. As I said before, the Administration did a poor job in educating the American public about what is at stake. I guess I get a little alarmed when the leading economist on the American Depression, Fed Chairman Bernanke, tells our public officials that this is a very grave situation and, given the information he knows about credit and the banking industry, that it's incumbent that there be an immediate injection of liquidity into the system or we face the peril of a major recession and a lock and perhaps a panic on credit.

You can discount Paulson, you can discount the politicians, but I think Bernanke is dead serious about things, and he is supposed to be our Central Banker.

 

[lazygood4nothinbum]

it would have been fun to have a timeline running alongside that poll.

before the vote: no.

after the vote: yes.

edit: oops, sorry, hadn't seen jb's post.