|
Users viewing this topic:
none
|
|
Login  | |
|
Can bailout fix US economy? - 9/22/2008 1:50:39 PM
|
|
|
ravishingshloka
Posts: 6
Joined: 9/22/2008
Status: offline
|
The best test of whether the government's $700 billion check will be enough to save the U.S. economy is how much of that money flows back to consumers and companies . Even if the government gets Congressional approval this week to buy bad debts off banks' books, satisfying some of their cash needs, the financial sector will still need to raise money -- and investors haven't exactly been lining up to help. Unless banks can find funding somewhere, they won't be eager to resume lending, and that will leave the economy sputtering. What is your take on this?
http://utvi.myrecourl.com
|
|
|
|
|
RE: Can bailout fix US economy? - 9/22/2008 2:10:54 PM
|
|
|
Zhi
Posts: 1428
Joined: 7/31/2007
Status: online
|
From what I understand, the problem banks have right now is that they don't have the capital to provide more funding, primarily because most of their funding is tied up in this "bad debt".
Keeping in mind that much of the "bad debt" is tied directly to real property, and the fact that much of the "bad debt" is debt that is being paid on by the people who took it out, it's technically an investment, unlike the S&L bailouts of a few decades back that had no actual physical backing and everything the government paid in was basically lost.
So, basically in order to preserve the value of the homes on which these mortgages are taken out, the mortgages cannot be called in in full to increase money supply, BUT more money has to become available to lenders so that they can lend to people who want to buy homes (because the value of homes is standard supply and demand. If nobody can buy your house at its current price, the value drops. If everybody wants to buy your house at its current price, the value goes up. Hardly anyone can buy a house with cash in hand, so the ability of someone to buy your house is going to be dependent on the ability of someone to acquire financing to do so.)
So, when the government buys out the bank, then either a) the government starts receiving the monthly checks, or b) the government takes over the real property that is lost if the "owners" are not paying, and sells it. In most cases the lender is also able to go after the previous borrower for any shortfalls when the property is sold in foreclosure, though a few states have a law against this. While it is certainly possible that the government will take a loss, especially in areas hit hard by the housing downturn, one would hope that most homeowners are heavily invested in both protecting their credit, and protecting their house, and will therefore be very interested in paying the government back, with interest. So, in the long run, it's not going to cost nearly as much as the government is spending now to do the bailout, and if it works and the housing market starts to recover, the government could, in the long run, actually *make* money.
_____________________________
The optimist says the glass is half full. The pessimist says the glass is half empty. The engineer says the glass is twice as large as it needs to be.
|
|
|
|
|
RE: Can bailout fix US economy? - 9/22/2008 2:26:57 PM
|
|
|
GroupW
Posts: 2911
Joined: 11/16/2007
From: Up in the hills of Colorado (very BIG hills...)
Status: offline
|
Zhi-
As a mortgage finance professional, I think you summarized it pretty well. It's not only likely that the government will get the majority of it's investment back, it's also very probable that the government will make a decent profit on the transaction. There was a lot of private equity being assembled over the past year to do exactly this. Most of that equity was waiting on the sidelines for mortgage and securities prices to get a bit lower, but it was there waiting to go. It seems the government was unwilling to allow prices to continue to go lower, and thus stepped in front of the vulture equity firms to keep the damage to the major banks in check. It's difficult to know from our vantage point if this is a good or bad thing - only the government had the information to really know, and even what they had is still pretty sketchy.
The only real answer to whether or not this will help is "wait and see." It might be what's required to get the vulture equity off the sidelines and into the game which is one thing that needs to happen to put the boat back upright.
_____________________________
“For every problem, there is a solution that is simple, elegant and wrong.” -H.L. Mencken
"Most people would rather die than think; in fact, they do so." -Bertrand Russell
|
|
|
|
|
RE: Can bailout fix US economy? - 9/22/2008 7:54:07 PM
|
|
|
GroupW
Posts: 2911
Joined: 11/16/2007
From: Up in the hills of Colorado (very BIG hills...)
Status: offline
|
Chin up DD - it's not quite that bad.
US corporations didn't go on the borrowing binge that the US Govt has or that the US consumers did. There's a bit of a bright spot there. There are other little bright spots if you look.
We're starting from a very good position - good productivity growth, low unemployment, reasonable inflationary expectations, etc. At least we decided to have our crisis while things were going well! If you remember the early 80's, it was fundamentally different. We had a huge number of challenges in front of us and we weren't really well positioned to deal with it. This time we're starting from a much better position. There's no reason to think the sky is falling. Times will be rough for many, but this too shall pass.
The key thing to remember is that the $700 billion in increased debt isn't necessarily the same as just printing money. In this case, there will be an offsetting reduction in private debt of approximately the same amount (most of these holdings are leveraged so the $700 billion will mostly get used to reduce other debt). It's not really an increase in overall debt - more like a wealth transfer from the government to the holders of the debt backing these investments.
_____________________________
“For every problem, there is a solution that is simple, elegant and wrong.” -H.L. Mencken
"Most people would rather die than think; in fact, they do so." -Bertrand Russell
|
|
|
|
|
RE: Can bailout fix US economy? - 9/23/2008 1:31:34 AM
|
|
|
tracydolls
Posts: 1839
Joined: 3/30/2008
Status: offline
|
No, the 700 billion will not stop this.
It is a sinkhole. A never ending one.
Who's next?
Sachmans jumped in today. Dow down over 300 points.
What trips me out is the conservatives fliopflopping yet again.
We like smaller gov't when it comes to helping people with basics
BUT not when it comes to helping some fatcats on WAll STreet.
A few companies that were GREEDY and did this to selves are getting 700 Billion.
That's 700,000,000,000
That's BIG governement to me. on top of 150 billion in rebate checks. 30 Billion to Bear Sterns.
10 Billion a month in Iraq.
A study were done years ago--60 Billion would've almost wiped out poverty in Africa. 55 Countries.
Billions of people-simple things like wells, electricity, things we could've seen today instead of 700,000,000,000 for a few already fabously wealthy group of men on Wall Street.
How many people are losing their houses? How many families are really affected. Looks like we all are gonna HAVE to pay more taxes.
Who's paying for all this?
We love capitolism & free markets.
Let it be free to fall!
It's
f
a
l
l
i
n
g.
Wonder what will happen tommorrow.
I heard a conservative on one of the TV shows tonight say that we should not try to bailout homeowners. 
How many homeowners could get help with 700 billion dollars?
I bet Katrina victims could STILL use that money, those in all along the gulf coast. Those from Calif. Fires. Those from the floods in the Midwest.
Lets' see 2 million(I dont know the actual figures)homeowners get how much?
Would 10 Billion cure it? Probaly
So 10 billion for homeowners in America.
60 Billion for all of The MOTHERLAND.
That leaves 630 Billion still to spend.
Do they really NEED 700 Billion?
1Sa 2:8 He raiseth up the poor out of the dust, and lifteth up the beggar from the dunghill, to set them among princes, and to make them inherit the throne of glory: for the pillars of the earth are the LORD'S, and he hath set the world upon them.
|
|
|
|
|
RE: Can bailout fix US economy? - 9/23/2008 2:45:44 AM
|
|
|
Jhud
Posts: 7829
Joined: 4/11/2005
From: Lake Wobegon
Status: online
|
To answer the direct question - no, the bailout cannot fix the US economy. In fact, the bailout isn't intended to fix the economy - it is intended to slow the fall - but that will probably turn out to be a very bad idea. The fact is, we won't know the real value of a home until the market settles - and the market isn't going to settle as long as the government keeps floating money to the big banks. So instead of a swift sharp pain, we are going to feel a long drawn out burn, and the economy won't get better until the government let's go and let's what is going to inevitably happen anyway just happen.
_____________________________
Jack
It has been said that politics is the second oldest profession. I have learned that it bears a striking resemblance to the first..
- Ronald Reagan
|
|
|
|
|
RE: Can bailout fix US economy? - 9/23/2008 6:00:21 AM
|
|
|
rlj
Posts: 2142
Joined: 4/14/2005
Status: offline
|
quote:
So instead of a swift sharp pain, we are going to feel a long drawn out burn, and the economy won't get better until the government let's go and let's what is going to inevitably happen anyway just happen.
Everyone on each side of the aisle had to stall this until after the election. Should make '10 and '12 even more interesting than this election or the last one. I also agree with everything you said.
_____________________________
-Roger
This is who I'm voting for. He is from the same party I voted for last time. This is consistent with my belief in the failure of the two party system and my disgust with it.
http://www.baldwin08.com/#
|
|
|
|
|
RE: Can bailout fix US economy? - 9/23/2008 7:52:49 AM
|
|
|
bzirk
Posts: 2945
Joined: 4/11/2005
From: Where the deer and antelope play
Status: offline
|
quote:
ORIGINAL: Jhud
To answer the direct question - no, the bailout cannot fix the US economy. In fact, the bailout isn't intended to fix the economy - it is intended to slow the fall - but that will probably turn out to be a very bad idea. The fact is, we won't know the real value of a home until the market settles - and the market isn't going to settle as long as the government keeps floating money to the big banks. So instead of a swift sharp pain, we are going to feel a long drawn out burn, and the economy won't get better until the government let's go and let's what is going to inevitably happen anyway just happen.
I agree. We are so afraid of a depression that we're letting Wall Street hold us up.
_____________________________
may the God of hope fill you with all joy and peace in believing, so you will abound in hope by the power of the Holy Spirit. Romans 15:13
Great quote: I just ain't God and don't know it all. -- SonInMe1
|
|
|
|
|
RE: Can bailout fix US economy? - 9/23/2008 10:15:51 AM
|
|
|
Zhi
Posts: 1428
Joined: 7/31/2007
Status: online
|
quote:
No, the 700 billion will not stop this.
It is a sinkhole. A never ending one.
Who's next?
Sachmans jumped in today. Dow down over 300 points.
What trips me out is the conservatives fliopflopping yet again.
We like smaller gov't when it comes to helping people with basics
BUT not when it comes to helping some fatcats on WAll STreet.
A few companies that were GREEDY and did this to selves are getting 700 Billion.
That's 700,000,000,000
That's BIG governement to me. on top of 150 billion in rebate checks. 30 Billion to Bear Sterns.
10 Billion a month in Iraq.
A study were done years ago--60 Billion would've almost wiped out poverty in Africa. 55 Countries.
Billions of people-simple things like wells, electricity, things we could've seen today instead of 700,000,000,000 for a few already fabously wealthy group of men on Wall Street.
How many people are losing their houses? How many families are really affected. Looks like we all are gonna HAVE to pay more taxes.
Who's paying for all this?
We love capitolism & free markets.
Let it be free to fall!
It's
f
a
l
l
i
n
g.
Wonder what will happen tommorrow.
I heard a conservative on one of the TV shows tonight say that we should not try to bailout homeowners.
How many homeowners could get help with 700 billion dollars?
I bet Katrina victims could STILL use that money, those in all along the gulf coast. Those from Calif. Fires. Those from the floods in the Midwest.
Lets' see 2 million(I dont know the actual figures)homeowners get how much?
Would 10 Billion cure it? Probaly
So 10 billion for homeowners in America.
60 Billion for all of The MOTHERLAND.
That leaves 630 Billion still to spend.
Do they really NEED 700 Billion?
Wow. This is a real misunderstanding of what's happening, I think.
They aren't GIVING those companies $700 billion. They're buying $700B in debt from them. The debt is, for the most part, in the form of real mortgages, to real people, on real houses. The mortgages, people, and houses are not going to mysteriously vanish (at least we would hope not. Not without a nuclear attack or aliens or something I suppose). Interestingly, many of these mortgages are helping the very people that you're always talking about being concerned about, the poor, the low income, who "deserve" a little piece of the American dream of owning their own house, and banks, on penalty of fines and branch opening blocking by the CRA, and sometimes just because they were caught up in the mortgage mania, were made to give out these mortgages whether there was any indication that they could repay them or not.
It's no different from your mortgage company selling your mortgage to anyone else. I've had mortgages for my houses sold several times. I keep paying what I've always paid, just to a new address. The address of the bank that bought my mortgage for money from the other bank. This is what's happening, only now the new address to pay the mortgage to is a front for the feds.
Now, the REASON they are doing this is to try to help homeowners. Homeowners are suffering because their houses are losing value, and some are not worth what they owe on their mortgages. Why? Because nobody can buy their house at what it was worth when they bought it. Why? Because nobody can get a loan right now, and it's standard supply and demand. Why? Because the banks who do the mortgage lending have no capital to lend. This is what the government is trying to fix by buying these mortgages... the government starts getting the mortgage checks. The banks have capital to lend out to more home buyers.
It's certainly not just randomly giving people money. It's making an investment, one that could actually have a decent return, if it works and helps stabilize the mortgage market.
Will it work? I dunno. We'll see.
_____________________________
The optimist says the glass is half full. The pessimist says the glass is half empty. The engineer says the glass is twice as large as it needs to be.
|
|
|
|
|
RE: Can bailout fix US economy? - 9/23/2008 11:13:06 AM
|
|
|
GroupW
Posts: 2911
Joined: 11/16/2007
From: Up in the hills of Colorado (very BIG hills...)
Status: offline
|
quote:
ORIGINAL: Jhud
To answer the direct question - no, the bailout cannot fix the US economy. In fact, the bailout isn't intended to fix the economy - it is intended to slow the fall - but that will probably turn out to be a very bad idea. The fact is, we won't know the real value of a home until the market settles - and the market isn't going to settle as long as the government keeps floating money to the big banks. So instead of a swift sharp pain, we are going to feel a long drawn out burn, and the economy won't get better until the government let's go and let's what is going to inevitably happen anyway just happen.
I'm actually of the opinion that we were approaching the bottom about when the government stepped in. The pace of declines in the Case Shiller home price series have slowed, but if you look at the Ofheo purchase index, it was actually stable over the summer. The OFHEO index is a bit broader than the CS, since the CS series is overweight in some of the higher priced metros that had further to fall. The unsold inventory has stabilized at roughly 11-12 months inventory, which is consistent with a housing recession (not necessarily a GDP recession though.)
Looking at monetary policy, we typically start seeing impacts at 6-18 months from inception. We're at about 12 months right now. We should rightly be at the long end of the normal range, so even if the policy lag is 18-24 months this time, we're about 6-12 months away from seeing the first signs of recovery.
Finally, the vulture funds were circling over the summer. As of April, there had already been over $56 billion (per some of the mortgage and equity fund news rags) of private equity assembled. More was being assembled over the summer. There was already a fair amount of money that was being targeted to address this, and a lot more in the process of being raised.
That said, the Fed obviously saw something on AIG's books that scared the bejeebers out of them. Most likely it was the $441 billion of credit guarantees they had issued that they did not have the capital to cover. That would have impacted money funds and banks and had the potential to cause a lot of sudden bank failures. The Fed's really had to do something to prevent complete gridlock in the financial system. A locked up financial system had the potential to cause irreparable economic harm.
While I'm not sure that the $700 billion plan is a good idea (I really do think the private market was on it's way to addressing this), there is some logic to it. Jack's statement that what will happen will happen with or without the $700 billion isn't necessarily true.
Banks have lost a little over $500 billion in the current crisis. A fair portion of that has been actual credit losses, but the majority of it is in mark-to-market losses on securities. A very large portion of those credit losses have nothing to do with fundamental value, but everything to do with fear. Right now, fear has so gripped the industry that some mortgage backed securities that have been designed to withstand nearly more than 70% default rates (i.e. 3 out of every 4 loans in the pool goes belly up.) and still come out smelling like a rose. We've never seen default rates even close to this magnitude and yet these bonds are trading worse than junk bonds. There's no reason for this other than rampant and irrational fear.
To the extent that the government can step in and reduce the "fear factor", prices on the good assets should rise and help recover some of that $500 billion loss.
Markets are tend toward the irrational at peaks and troughs, and are prone to bubbles and busts. It's not an inappropriate role for government to try to swim against the current and moderate both. I'm not sure this is the best way to do that, but there is some logic to it and it does not necessarily involve delaying the inevitable.
_____________________________
“For every problem, there is a solution that is simple, elegant and wrong.” -H.L. Mencken
"Most people would rather die than think; in fact, they do so." -Bertrand Russell
|
|
|
|
|
RE: Can bailout fix US economy? - 9/23/2008 11:21:44 AM
|
|
|
bzirk
Posts: 2945
Joined: 4/11/2005
From: Where the deer and antelope play
Status: offline
|
I agree that we are not "giving" these banks money but rather planning to buy the bad debts. At least that's what I think is happening, but that's not nearly enough detail. Below is an excerpt from what is being proposed. I've added emphasis to the things that give me pause. Frankly, I could have highlighted more. Suffice to say the whole thing is way too open ended. Pretty darn sweeping legislation in my opinion. Believe me these guys could give more detail if they wanted to. These are old hands at putting together documents that can delineate control appropriately.We'll see what happens.
quote:
LEGISLATIVE PROPOSAL FOR TREASURY AUTHORITY TO PURCHASE MORTGAGE-RELATED ASSETS
Section 1. Short Title.
This Act may be cited as ____________________.
Sec. 2. Purchases of Mortgage-Related Assets.
(a) Authority to Purchase.--The Secretary is authorized to purchase, and to make and fund commitments to purchase, on such terms and conditions as determined by the Secretary, mortgage-related assets from any financial institution having its headquarters in the United States.
(b) Necessary Actions.--The Secretary is authorized to take such actions as the Secretary deems necessary to carry out the authorities in this Act, including, without limitation:
(1) appointing such employees as may be required to carry out the authorities in this Act and defining their duties;
(2) entering into contracts, including contracts for services authorized by section 3109 of title 5, United States Code, without regard to any other provision of law regarding public contracts;
(3) designating financial institutions as financial agents of the Government, and they shall perform all such reasonable duties related to this Act as financial agents of the Government as may be required of them;
(4) establishing vehicles that are authorized, subject to supervision by the Secretary, to purchase mortgage-related assets and issue obligations; and
(5) issuing such regulations and other guidance as may be necessary or appropriate to define terms or carry out the authorities of this Act.
Sec. 3. Considerations.
In exercising the authorities granted in this Act, the Secretary shall take into consideration means for--
(1) providing stability or preventing disruption to the financial markets or banking system; and
(2) protecting the taxpayer.
Sec. 4. Reports to Congress.
Within three months of the first exercise of the authority granted in section 2(a), and semiannually thereafter, the Secretary shall report to the Committees on the Budget, Financial Services, and Ways and Means of the House of Representatives and the Committees on the Budget, Finance, and Banking, Housing, and Urban Affairs of the Senate with respect to the authorities exercised under this Act and the considerations required by section 3.
Sec. 5. Rights; Management; Sale of Mortgage-Related Assets.
(a) Exercise of Rights.--The Secretary may, at any time, exercise any rights received in connection with mortgage-related assets purchased under this Act.
(b) Management of Mortgage-Related Assets.--The Secretary shall have authority to manage mortgage-related assets purchased under this Act, including revenues and portfolio risks therefrom.
(c) Sale of Mortgage-Related Assets.--The Secretary may, at any time, upon terms and conditions and at prices determined by the Secretary, sell, or enter into securities loans, repurchase transactions or other financial transactions in regard to, any mortgage-related asset purchased under this Act.
(d) Application of Sunset to Mortgage-Related Assets.--The authority of the Secretary to hold any mortgage-related asset purchased under this Act before the termination date in section 9, or to purchase or fund the purchase of a mortgage-related asset under a commitment entered into before the termination date in section 9, is not subject to the provisions of section 9.
Sec. 6. Maximum Amount of Authorized Purchases.
The Secretary's authority to purchase mortgage-related assets under this Act shall be limited to $700,000,000,000 outstanding at any one time
Sec. 7. Funding.
For the purpose of the authorities granted in this Act, and for the costs of administering those authorities, the Secretary may use the proceeds of the sale of any securities issued under chapter 31 of title 31, United States Code, and the purposes for which securities may be issued under chapter 31 of title 31, United States Code, are extended to include actions authorized by this Act, including the payment of administrative expenses. Any funds expended for actions authorized by this Act, including the payment of administrative expenses, shall be deemed appropriated at the time of such expenditure.
Sec. 8. Review.
Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.
Sec. 9. Termination of Authority.
The authorities under this Act, with the exception of authorities granted in sections 2(b)(5), 5 and 7, shall terminate two years from the date of enactment of this Act.
Sec. 10. Increase in Statutory Limit on the Public Debt.
Subsection (b) of section 3101 of title 31, United States Code, is amended by striking out the dollar limitation contained in such subsection and inserting in lieu thereof $11,315,000,000,000.
Read the rest here.
_____________________________
may the God of hope fill you with all joy and peace in believing, so you will abound in hope by the power of the Holy Spirit. Romans 15:13
Great quote: I just ain't God and don't know it all. -- SonInMe1
|
|
|
|
|
RE: Can bailout fix US economy? - 9/23/2008 11:36:56 AM
|
|
|
bzirk
Posts: 2945
Joined: 4/11/2005
From: Where the deer and antelope play
Status: offline
|
BTW, I'm glad some sane heads are questioning this proposal and wanting more detail before we're urged to fork over 700,000,000,000 to Wall Street.
_____________________________
may the God of hope fill you with all joy and peace in believing, so you will abound in hope by the power of the Holy Spirit. Romans 15:13
Great quote: I just ain't God and don't know it all. -- SonInMe1
|
|
|
|
|
RE: Can bailout fix US economy? - 9/23/2008 12:30:33 PM
|
|
|
GroupW
Posts: 2911
Joined: 11/16/2007
From: Up in the hills of Colorado (very BIG hills...)
Status: offline
|
A lot of people are choking over the oversight provisions. I'm not sure we've got any precedent for that kind of authority.
_____________________________
“For every problem, there is a solution that is simple, elegant and wrong.” -H.L. Mencken
"Most people would rather die than think; in fact, they do so." -Bertrand Russell
|
|
|
|
|
RE: Can bailout fix US economy? - 9/23/2008 1:08:42 PM
|
|
|
AdrianaS
Posts: 1229
Joined: 3/21/2007
Status: offline
|
quote:
ORIGINAL: bzirk
BTW, I'm glad some sane heads are questioning this proposal and wanting more detail before we're urged to fork over 700,000,000,000 to Wall Street.
I am glad about that also!
quote:
ORIGINAL: GroupW
A lot of people are choking over the oversight provisions. I'm not sure we've got any precedent for that kind of authority.
Yep, was my 1st problem with the package plan when read it a bit at Reuters.
Wow I do not understand much at all about markets at all but the commomsense and nonsense and "hold it" alarm inside my brains are still working! 
GroupW..I have a question:
"While I'm not sure that the $700 billion plan is a good idea (I really do think the private market was on it's way to addressing this), there is some logic to it."
About that in bold, the private market would adress like the Bank of America did with Merril Lynch, by buying those Institutions, at least the most important and healthier and etc?
In my simple head and understanding I thought: let banks deal with banks, drop the "hot potatoes" in their laps not ours, "they" are rich and have lots of money...of course.
Please, would you explain how they were addressing in reality? (if you did already I did not get it..)
Thanks.
|
|
|
|
|
RE: Can bailout fix US economy? - 9/23/2008 1:19:41 PM
|
|
|
GroupW
Posts: 2911
Joined: 11/16/2007
From: Up in the hills of Colorado (very BIG hills...)
Status: offline
|
No problem. Beginning about December, there was a tremendous push by some hedge fund managers and private equity firms to start raising capital in advance to commit to the distressed debt market. By April, a minimum of $56 billion was committed with more being raised every day. I'm aware of at least one sovereign fund willing to commit funds equal to a significant portion of the amount the US Treasury is talking about.
This effectively accomplishes the same goal - providing liquidity for distressed assets and freeing up room on US banks' balance sheets to pursue continued lending. With a combined pool of a couple of hundred billion dollars, private firms would have been in a place to do exactly what the US Treasury is proposing - buy mortgages and mortgage related securities. By doing so, they would have injected substantial liquidity into this market.
BT
_____________________________
“For every problem, there is a solution that is simple, elegant and wrong.” -H.L. Mencken
"Most people would rather die than think; in fact, they do so." -Bertrand Russell
|
|
|
|
|
RE: Can bailout fix US economy? - 9/23/2008 1:30:25 PM
|
|
|
rhippie
Posts: 665
Joined: 4/13/2005
From: Rich The Hippie
Status: offline
|
quote:
ORIGINAL: bzirk
I agree that we are not "giving" these banks money but rather planning to buy the bad debts. At least that's what I think is happening, but that's not nearly enough detail. Below is an excerpt from what is being proposed. I've added emphasis to the things that give me pause. Frankly, I could have highlighted more. Suffice to say the whole thing is way too open ended. Pretty darn sweeping legislation in my opinion. Believe me these guys could give more detail if they wanted to. These are old hands at putting together documents that can delineate control appropriately.We'll see what happens.
quote:
LEGISLATIVE PROPOSAL FOR TREASURY AUTHORITY TO PURCHASE MORTGAGE-RELATED ASSETS
Sec. 8. Review.
Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.
This is probably the biggest power grab by a "non-politician" that I've ever heard of! Can you imagine if POTUS said we are going to enact a law that is NOT reviewable by the Supremes?!?!?
This has to be unconstitutional in some fashion
_____________________________
Stand up for what's right....even if you're standing alone
|
|
|
|
|
RE: Can bailout fix US economy? - 9/23/2008 1:39:33 PM
|
|
|
GroupW
Posts: 2911
Joined: 11/16/2007
From: Up in the hills of Colorado (very BIG hills...)
Status: offline
|
There's something that is just offensive in that, don't you think?
Edit: The cynic in me wants to think that provision was put in there intentionally to kill the bill or at least keep it in limbo for a while until there's some more clarity on the risk picture. The mere specter of the government hanging around out there with a $700 billion sledgehammer is enough to keep market prices supported. If things turn around this summer as I expect, then maybe the $700 never gets spent, or maybe it becomes $900 billion. In the meantime, prices don't fall as far as they might otherwise, banks are able to hang in there, and we muddle along for a year.
_____________________________
“For every problem, there is a solution that is simple, elegant and wrong.” -H.L. Mencken
"Most people would rather die than think; in fact, they do so." -Bertrand Russell
|
|
|
|
|
RE: Can bailout fix US economy? - 9/23/2008 1:56:17 PM
|
|
|
AdrianaS
Posts: 1229
Joined: 3/21/2007
Status: offline
|
quote:
ORIGINAL: GroupW
No problem. Beginning about December, there was a tremendous push by some hedge fund managers and private equity firms to start raising capital in advance to commit to the distressed debt market. By April, a minimum of $56 billion was committed with more being raised every day. I'm aware of at least one sovereign fund willing to commit funds equal to a significant portion of the amount the US Treasury is talking about.
This effectively accomplishes the same goal - providing liquidity for distressed assets and freeing up room on US banks' balance sheets to pursue continued lending. With a combined pool of a couple of hundred billion dollars, private firms would have been in a place to do exactly what the US Treasury is proposing - buy mortgages and mortgage related securities. By doing so, they would have injected substantial liquidity into this market.
BT
Ok..I need time to process that info and not react dramatically, sorry.
Who derailed the process, what happened that Gov had to step in, other Central Banks injected $$$ also, instead the private market take the course you explain?
|
|
|
|
|
RE: Can bailout fix US economy? - 9/23/2008 2:07:57 PM
|
|
|
GroupW
Posts: 2911
Joined: 11/16/2007
From: Up in the hills of Colorado (very BIG hills...)
Status: offline
|
I really think up until this past weekend, the government was willing to take a case-by-case approach to things.
We knew 10 years ago that Fannie Mae and Freddie Mac were undercapitalized. I used to work for one of the GSE's and wrote some white papers on it. It was general knowledge at the time, so really no surprise that the government needed to step in and take control there. They were the only institution large enough to do that.
However, when they got inside AIG, I think they discovered some things that really scared them. I think they knew that a Lehman bankruptcy could be absorbed, but a Lehman/AIG joint bankruptcy could not easily be managed and would create a waterfall effect with a number of other institutions. A number of money funds would have been severely damaged, along with a significant number of banks.
AIG was extremely active internationally as a lot of the credit guarantees they had made were to foreign institutions, so I don't discount the idea that some foreign central bankers were making some phone calls to exert some pressure as well.
Simply cutting interest rates wasn't going to alleviate the problem. If noone is there to lend you money, it just doesn't matter how low interest rates go. The feds knew they needed to do something different. This appears to be the best they could come up with, for better or worse.
_____________________________
“For every problem, there is a solution that is simple, elegant and wrong.” -H.L. Mencken
"Most people would rather die than think; in fact, they do so." -Bertrand Russell
|
|
|
|
|
RE: Can bailout fix US economy? - 9/23/2008 2:58:42 PM
|
|
|
GroupW
Posts: 2911
Joined: 11/16/2007
From: Up in the hills of Colorado (very BIG hills...)
Status: offline
|
AIG did a lot of what is called "credit derivatives". For example, many asset backed securities (ABS) carried insurance contracts from AIG. AIG insured that the bondholders would get their principal and interest. Turns out, they didn't correctly assess the risk of those contracts and now have to shell out a lot of money on those guarantees. Much of the ABS market in Europe relied on those types of contracts to be able to market the bond internationally.
They were also active in other forms of credit derivates, such as default protection on large corporate borrowers like Ford or GM. Many of those are traded under collateralized ISDA agreements that require AIG to post cash or other collateral as the value of the contracts fall. This has been a drain on their resources as well.
Compounding the problem, AIG has huge holdings of a variety of securitized loan products - credit cards, auto loans, mortgages, subprime mortgages, commercial bank loans, etc. All of these products have been swept up in the current crisis. About the time AIG needed to come up with collateral to support their existing commitments, the value of the collateral that they did have began to decline precipitously.
In the end, the problem was one of risk management (making sure the company tracked and was able to back their commitments) as well as one of risk measurement (adequately estimating the maximum cost of the bets they were making). AIG apparently blew it on both counts by not only underestimating how bad the markets could get (we ALL made that boo boo) and by not adequately tracking the bets they actually were making.
BT
_____________________________
“For every problem, there is a solution that is simple, elegant and wrong.” -H.L. Mencken
"Most people would rather die than think; in fact, they do so." -Bertrand Russell
|
|
|
|
|
RE: Can bailout fix US economy? - 9/23/2008 3:45:53 PM
|
|
|
Jhud
Posts: 7829
Joined: 4/11/2005
From: Lake Wobegon
Status: online
|
quote:
However, when they got inside AIG, I think they discovered some things that really scared them. I think they knew that a Lehman bankruptcy could be absorbed, but a Lehman/AIG joint bankruptcy could not easily be managed and would create a waterfall effect with a number of other institutions. A number of money funds would have been severely damaged, along with a significant number of banks.
I think this maybe the sccariest part of this entire bailout. Because we don't know what is actually happening with AIG, and there seems to be no intention to tell the taxpaying public, the government is essentially saying, "Hand over 700 million dollars to Hank Paulson to do with as he sees fit, and don't ask any questions or expect any recourse if he messes up".
And that is a pretty scary thing for a government which was founded in large part in reaction to tyrannical financial practices by a monarch.
_____________________________
Jack
It has been said that politics is the second oldest profession. I have learned that it bears a striking resemblance to the first..
- Ronald Reagan
|
|
| | |
Forum Tools
Printable Version
