Why You Should Hate the Treasury Bailout Proposal (1 Viewer)

[Saintsorz]

This is nothing new. It is a rehash of an FHA plan that lets people who can't really afford houses to get in them with a so-called "silent second". You would still have to get the bond holders to agree to put off their money for 10 years with no assurance that they will benefit. Also, why should the people who bought these homes and refinanced them over and over, collecting and spending hundreds of thousands of dollars in some cases and then spending it, be bailed out and able to live in a house that they cannot afford due to their own greed and negligence?

In addition, wouldn't the home prices on the particular mortgages still reflect inflated prices? Being able to make the payments doesn't necessarily mean that the home had any actual equity, thereby keeping the investment risky.

 

[bearze34]

In addition, wouldn't the home prices on the particular mortgages still reflect inflated prices? Being able to make the payments doesn't necessarily mean that the home had any actual equity, thereby keeping the investment risky.

Of course. The homes will continue to depreciate abd the govt. will be left holding a bunch of upside-down mortgages. The people that cannot afford them will still be tossed out of their homes. This bailout has nothing to do with homeowners saving their homes.

 

[Saintuary]

I've never had stock nor interested in stock. I don't like to take risk when it comes to my earned money. Now it seems I'll be paying for stock even though I never bought any. Amazing. I'm beginning to be concern about this FDIC stuff.

 

[Sabine]

Here's the link.

http://www.waterfrontmtgdirect.com/John_20_Mauldin_20_Financial_20_Armageddon_20_Sep_20_19.html

Very interesting. Thanks.

btw, in Mauldin's example, I believe he makes a mistake by saying $100 million, when he means $100 billion.
.

Yeah, he had to have meant 100 billion for the math to work.

 

[dapperdan]

This is nothing new. It is a rehash of an FHA plan that lets people who can't really afford houses to get in them with a so-called "silent second". You would still have to get the bond holders to agree to put off their money for 10 years with no assurance that they will benefit. Also, why should the people who bought these homes and refinanced them over and over, collecting and spending hundreds of thousands of dollars in some cases and then spending it, be bailed out and able to live in a house that they cannot afford due to their own greed and negligence?

I completely understand what you're saying. Yep, it's a rehash of the FHA plan. Everything you say is exactly correct. I'm not trying to be wishy-washy here, but we've got an inherent conflict that needs to be resolved. Imo, the inherent conflict is between what is right versus what is immediately prudent. And it's a fine line. But there's no question that something needs to be done very, very quickly. The key is the commercial paper market, and it's seizing up. We can't allow that to occur.

And you've zeroed in on the crux of the problem: should the holders of the bonds essentially be forced by the government to accept a "silent-second". Obviously that has a major impact on the very nature of contracts in our society.

I was throwing out an idea that I saw on Barry Ritholz' blog that I thought was worthy of discussion. I still think it's worthy of discussion, but I agree that it is an imperfect plan, and the more I think about it, I'm tending to lean towards your point of view.

 

[bearze34]

I completely understand what you're saying. Yep, it's a rehash of the FHA plan. Everything you say is exactly correct. I'm not trying to be wishy-washy here, but we've got an inherent conflict that needs to be resolved. Imo, the inherent conflict is between what is right versus what is immediately prudent. And it's a fine line. But there's no question that something needs to be done very, very quickly. The key is the commercial paper market, and it's seizing up. We can't allow that to occur.

And you've zeroed in on the crux of the problem: should the holders of the bonds essentially be forced by the government to accept a "silent-second". Obviously that has a major impact on the very nature of contracts in our society.

I was throwing out an idea that I saw on Barry Ritholz' blog that I thought was worthy of discussion. I still think it's worthy of discussion, but I agree that it is an imperfect plan, and the more I think about it, I'm tending to lean towards your point of view.

It is definately worthy of discussion, especially when the system has been so screwed up. What ****** me off the most is politicians that want to bail out people who got into this mess due to unbridled greed. I mean this to apply to homeowners as well as the Savings and Loans. Does anyone notice that banks such as Wells Fargo and Bank of America are still profitable? They are picking up the slack from the institutions that went for broke and lost, as it should be. If we have to go through a recession to fix this, so be it. The govt. cannot save everyone nor can it be a bank. Not everyone gets to own a house. It is not a god-given right. But, our retirements and other investments will be fine as the economy does not function on a day to day basis. Houses appreciate at about 5% a year for the last 60 years or so and the stock market gets you about 8%. So, over time, our investments will bear fruit....it just takes patience.

 

[st.tammany]

Sometimes I don't think I truly understand what's happening here. If someone couldn't afford their home and defaulted on the loan for it then the bank will take it away from that person and sell the house for whatever they can get. Isn't this at the crux of the whole problem?

If so, then why not let it play out?

 

[gboudx]

http://cgi.ebay.com/ws/eBayISAPI.dll?ViewItem&item=200256939563

 

[TPS]

>>I was throwing out an idea that I saw on Barry Ritholz' blog that I thought was worthy of discussion

I read your 30/20/10 idea and haven't had time to fool with it and still don't. But what it's doing, just like the Democrats' plan in allowing reworking of contracts in BK Court, is essentially throwing more power behind a Chapter 13 to redo contracts. You can already cram-down a loan in a 13, but I don't think most people view Bankruptcy as a good and desirable thing just to reduce their debt for fun (sure, some do, but many of them are fringe elements who are out to screw the man back). Even in an arrearage plan, which obviously most 13's "inside the plan" payments are, you set aside the arrearage (post or pre petition arrearage - or even both) and pay those inside your Chapter 13 Plan while continuing to pay your regular mortgage(s) (outside of your plan payments through a Court-appointed Trustee) directly to your creditor. I've already seen a couple of instances where mortgages had matured where Bankruptcy Court 'x' has deferred the maturity and allowed payments inside the plan to cure the default of the maturity - no idea if an appealate court may have agreed or disagreed with the ruling but who wants to figure that out? Anyway, those who actually have the paper will be left holding discounted investments they paid for. Not making a value judgment on this part, just throwing in a couple of cents.

Also questioning why the President's/Treasury Secretary's plan allows for continued salaries of the C.E.O.'s whose assets are partially seized or bailed out by the government. That doesn't make any sense. They're already using tax money to bail out these investments, why should these guys get a free ride for their shoddy work?
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>>What ****** me off the most is politicians that want to bail out people who got into this mess due to unbridled greed. I mean this to apply to homeowners as well as the Savings and Loans. Does anyone notice that banks such as Wells Fargo and Bank of America are still profitable? They are picking up the slack from the institutions that went for broke and lost, as it should be. If we have to go through a recession to fix this, so be it. The govt. cannot save everyone nor can it be a bank. Not everyone gets to own a house. It is not a god-given right. But, our retirements and other investments will be fine as the economy does not function on a day to day basis. Houses appreciate at about 5% a year for the last 60 years or so and the stock market gets you about 8%. So, over time, our investments will bear fruit....it just takes patience.

And you're fighting against "Greed"? DId you know that about half of Bankruptcies when we went to the GOP/Credit Card Company Written Bankruptcy Re-Write were due to medical reasons? Does this matter? Is it our desire with our capitalistic structure to eat our sick? What do "Savings and Loans" have to do with this anyway? They went belly-up in the 80's. This is a much different fiasco with different players happening not because of a bunch of greedy and criminal C.E.O.'s but because our "deregulated" economy is nothing but a house of cards. People love President Reagan and talk about how wonderful he was. One day the cows were going to come home to roost. And just like Hurricane Katrina wasn't 1/5th of New Orleans' "Worst Case Scenario", voodoo economics haven't even tipped the scales. Yet. But they will. And when these Supply Siders and Reaganites die and get to Heaven or Hell, God will tell them how wrong they were.

TPS

 

[jpcdolphan]

Sometimes I don't think I truly understand what's happening here. If someone couldn't afford their home and defaulted on the loan for it then the bank will take it away from that person and sell the house for whatever they can get. Isn't this at the crux of the whole problem?

If so, then why not let it play out?

The short answer is that people defaulting on their mortgages isn't the real problem. Even the subprimes only have a ten percent default rate.

The real problem is the selling and buying of exotic securities by banks backed by a mixture of mortages and the insane amounts of leverage they used to do so.

 

[dapperdan]

It is definately worthy of discussion, especially when the system has been so screwed up. What ****** me off the most is politicians that want to bail out people who got into this mess due to unbridled greed. I mean this to apply to homeowners as well as the Savings and Loans. Does anyone notice that banks such as Wells Fargo and Bank of America are still profitable? They are picking up the slack from the institutions that went for broke and lost, as it should be. If we have to go through a recession to fix this, so be it. The govt. cannot save everyone nor can it be a bank. Not everyone gets to own a house. It is not a god-given right. But, our retirements and other investments will be fine as the economy does not function on a day to day basis. Houses appreciate at about 5% a year for the last 60 years or so and the stock market gets you about 8%. So, over time, our investments will bear fruit....it just takes patience.

Well, here's the problem as I see it. This problem is no longer confined to the mortgage markets, it has spread to the commercal paper markets. Imo, we saw the panic from Paulson and Bernanke set in when the commercial paper market imploded last week. When you've got money flowing out of the short term commercial paper market and into short term treasuries, if I'm not mistaken at one point last week short term treasuries were trading at a negative interest rate. That's a huge problem. When companies cannot get financing for day to day operations, that's a huge problem. Given the scope of that problem, I simply cannot agree that we can afford to sit back and say, let the chips fall where they may. We're not talking about a garden variety recession here. We're legitimately talking about a much worse problem, with a very serious negative feedback loop. $700 B could actually look pretty cheap when compared to some of the other potential scenarios.

 

[RazorOye]

$700 B could actually look pretty cheap when compared to some of the other potential scenarios.

have any specific ones in mind?

As I was watching some of the coverage this morning, Paulson's rhetoric was almost threatening. Urging Congress to act now - and I was reminded of the times when politicians had used the power of threat to press people to act despite their best interests.

What I saw this morning was eerily similar to that from Paulson.

I remain a bystander in these threads, primarily because this is something I know absolutely nothing about.

But what you write there makes me wonder - is that threatening, foreboding sense of doom histrionics or is there something that potentially catastrophic on the horizon?

 

[RobG]

have any specific ones in mind?

As I was watching some of the coverage this morning, Paulson's rhetoric was almost threatening. Urging Congress to act now - and I was reminded of the times when politicians had used the power of threat to press people to act despite their best interests.

What I saw this morning was eerily similar to that from Paulson.

I remain a bystander in these threads, primarily because this is something I know absolutely nothing about.

But what you write there makes me wonder - is that threatening, foreboding sense of doom histrionics or is there something that potentially catastrophic on the horizon?

I'm thinking histrionics as Warren Buffet ivested $7.5 billion in Goldman Sachs and Buffet rarely mnakes a bad investment.

 

[Maxp]

I'm thinking histrionics as Warren Buffet ivested $7.5 billion in Goldman Sachs and Buffet rarely mnakes a bad investment.

Furthermore, scare tactics are the M.O. of this administration. I do not trust anything coming out of those guys mouths.

 

[RobG]

Furthermore, scare tactics are the M.O. of this administration. I do not trust anything coming out of those guys mouths.

Good point.