Bailout is a done deal

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21

This is my understanding: the $700 billion bailout is to purchase potentially worthless mortgage CDOs from the banks and then somehow sell these worthless mortgages for a profit some time in the future? Meanwhile the banks, relieved of the tonnage of bad loans strung around their necks, are now free to start loaning again?

Right back to business as usual? There has been no talk about how Americans are living beyond their means in the first place, both as families and individuals, and as a country. No talk about having to save money rather than borrow in order to purchase a couch or a car or whatever.

What am I missing?

And how is the new RTC going to recoup the $700B by selling worthless mortgages in the future? Aren’t they worthless, or worth much less, due to the housing market being an utterly unsustainable bubble? I’ve heard the pundits say they expect a profit to be made within 2 to 3 years. What don’t they - or me - understand about "bubble bursting"? Seems to me that it could take 30 or 40 years before the housing prices returned to their 2006 peaks, if ever. A lot of us will be dead by then.

Nope, I’m not getting this bailout thing at all…

22

Hi salisbury,

I think you are being too hard on yourself, you seem to get it completely.

I can only imagine you are struggling with the bailout concept because you think it might or at least should have been for normal Americans, rather than corporate America.

23

gsti,

Thanks for your reply. I’m still baffled. I don’t see how we could do this unless the banks are promising not to make bad loans anymore. But then that would be like us giving a coked-up drug addict in terminal withdrawal an endless flow of methamphetamines so long as he promises not to shoot up anymore…

And also, doesn’t this just completely undermine the value of the dollar, which has already been in decline for years given our growing addiction to credit?

Still baffled…

 

24

[quote]Right back to business as usual? There has been no talk about how
Americans are living beyond their means in the first place, both as
families and individuals, and as a country. No talk about having to
save money rather than borrow in order to purchase a couch or a car or
whatever.[/quote]

Heretic, heretic! Burn him at the stake! =)

No, the reason we don’t talk about saving is because that word sends deep chills down the spines of Washington. 70% of our economy is consumer spending, so if consumers stop spending…

[quote]
And how is the new RTC going to recoup the $700B by selling worthless mortgages in the future?[/quote]

The mortgages aren’t worthless. They are just worth less. As for how we will recoup anything? That depends on the minor details of this bailout. The original treasury bailout would probably have resulted in 50% to 90% losses, and probably on the worse end of that estimate (for every 100 billion out, 10-50 billion comes back). This bill will probably be a bit more favorable, however we won’t be able to even make a real guess of how good or how bad until the bill is fully revealed and scanned through in depth.

And for that matter, we don’t know if it is going to actually be ‘$700 billion’ bailout, or, as in the original, an infinite dollar bailout with a pipe big enough to jam through $700 billion at a time.

I’d point out that profits are indeed possible, but highly unlikely. Again, it depends on the exact wording of the bill. It will, however do nothing to solve the solvency issue that is plauging banks if, indeed, it is profitable.

–

Steve

25

Steve, you are very right to point out that a profit could very well be made on these mortgages, especially if people do not default.

I would like to point out though that salisbury could well be right too, rather than worth less they, could be worthless if they become permanent defaults and their is not enough liquidity in the market for anyone to purchase these properties at any price, then they are worthless, or … America can start a big step towards socialism with social housing :wink: (might not be so far fetched - all the evicted people have to live somewhere).

I think the solvency issue facing alot of banks will be fine if the goverment buys all their bad loans. Of course that is a difficult call to make, especially without seeing the bill. If the government buys all auto, house, card loans that have a default on them… well , that would free up alot of potential lending from the banks, who will lobbying for no meaningful rule changes at all.

As for 700 bill at a time, what if that is used for example on auto loans, and the next day , they are written off, cleared for the next 700 bill, I am not saying the government would be this obvious about it, but is it possible ?

 

26

OK, so the "bailout" is a done deal.

Now what?

Do we gird our loins for inflation or even hyperinflation?

Will foreign sovereign banks be unimpressed so the dollar will fall drastically?

Is this "bailout" a mere pause in the collapse to give the Republicans a chance to pass the buck, as it were, to the next president?

How do we prepare now? Do your previous admonitions still stand?

Bill

 

27

Congress expected to pass financial rescue package

http://ap.google.com/article/ALeqM5ioHc80xKMiATnqCpK0cDKJzk_nPQD93FR38O0

snippet…

The government would receive stock warrants in return for the bailout relief, giving taxpayers a chance to share in financial companies’ future profits.

To help struggling homeowners, the plan requires the government to try renegotiating the bad mortgages it acquires with the aim of lowering borrowers’ monthly payments so they can keep their homes.

"Nobody got everything they wanted," said Democratic Rep. Barney Frank of Massachusetts, chairman of the House Financial Services Committee. He predicted it would pass, though not by a large majority…

 

I cant wait to see how they plan to pull this off. Warrants for the sheeple as they are the lenders of last resort. What next? Social security investing in these warrants? Mandatory 401K warrant forced purchase plan?

Even if you cant afford to make payments on THEIR over appraised, over valued, home, now melting down in value they will renegotiate the debt trap and ensure the imploding asset is kept off their books.

Thanks but no thanks

Home prices are still way to high yet they continue to suggest otherwise. They will never get it

In a matter of a few weeks financial infrastructure has been trashed, reorganized under the new American socialism act and put back into intensive care in much much worse shape.Treason doesn’t go half way to describe what is now game set match

A sad sad day in America.

28

Hi Bill,

Here’s how I might guess at the action over the next few days to months.

  1. This next week is a near-certain lock to be a grand explosion upwards in the stock markets led by the financial shares. Remember, GE and GM are essentially financial shares so this will be fairly broad based. This will happen in no small measure because the President's Working Group on the markets, in coordination with all the other worried central banks around the world, will assure that that the markets head off in the "right direction" beginning in the futures market later this evening. Our free and open markets demand such an outcome so it will happen.
  2. Coincident with this I would expect a dollar rally. Not because one makes fundamental sense - it does not - but because a dollar rally will be required to help sell the idea that this bailout is being soundly and roundly embraced by "investors". Mainly, these investors will be the Bank of Japan and the ECB, but that's not important. Sending the right message is what counts here. I think this will send gold down in the near-term representing one of the last great moments to "get on board". If the dollar starts to sell off here it would be the *right* thing to do, but that would surprise me to no small extent.
  3. After the initial euphoria wears off, say in about 3 weeks, I am expecting reality to set in. It will become obvious that even with "improved credit flow" house prices are still falling and consumers are still retrenching and jobs are still disappearing. I wish I could get true insider information during this period to see how many foreign dollars were arriving vs. departing our shores during the relief rally.
  4. Once it becomes obvious that the credit bubble is still dying a rapid death because of lack of borrowing demand (not supply) and that the US government's borrowing needs are conflicting with state, municipal and corporate needs we will get to stage II of this whole mess. That will be the credibility shaking event where more people begin to figure out that you cannot solve a problem rooted in excessive borrowing by merely transferring the ill-effects of the prior binge to another party.
  5. By late October I expect the second leg of this to be underway.
29

The Guardian has an article today entitled: $700bn won’t save America from a slump:

http://www.guardian.co.uk/business/2008/sep/28/globalrecession.useconomicgrowth

The article details how the dollar will now decline further, even precipitously, as a consequence of the bailout.

Here is an excerpt from near the end of the piece:

"It is almost as if Paulson and Bernanke have created a plan that will see them through the next few months without concern for the long-term effects of their actions. ‘I regard this as nothing more than a stopgap measure to get us through the election,’ says S&P’s chief economist David Wyss."

So why do this bailout?

Why, if David Wyss is right, are we "buying time" solely to get past the election? What purpose does that serve?

As you can see, I am still not getting this bailout thing…(please bear with me as I try to think this stuff through…)

 

30

So this is a "supply-side" attempt to …

Interesting. Kind of like the Colin Powell doctrine to go to war only with overwhelming force?

So the supply-side solution to this gusher of a housing glut is to flush us with even more capital and cheap loans, overwhelm us with an explosion of credit hoping that we’ll all go on a spending and housing spree that got us here in the first place after the government has swallowed the first batch of bad loans?

My head is hurting now…getting dizzy…

Okay, so they’re buying time. But for what? The result will be the same, whether before the election or after. Are they worried about civil unrest during the election, some kind of electoral / political meltdown?

 

31

Agreed on all counts Chris. The """""""""""""""market"""""""""""""""""" must approve and approve it will

They are already softening up the masses on CNN. Just heard… THIS IS NOT A BAILOUT! WALL STREET ALWAYS COMES BACK! Credit lines will allow us to get back to business as usual …Deals will now get done probably starting tonight. etc etc etc

Its a full court press as they insert the last nail in the coffin

Opposition to passage has totally disappeared

Its so over.

 

32

Chris, do you see mortgages becoming easier to obtain and lower rates being offered again in the short term?

33

"After the initial euphoria wears off, say in about 3 weeks, I am expecting reality to set in." – Dr. M

Three weeks; three days; three hours. Ever heard of the legendary "9:45 a.m. flameout"? Point being, don’t take your elegantly manicured index finger off the ‘sell’ button.

Here’s a paradox to consider. For at least 20 years, it has been proposed to invest some of the Social Security Trust Fund in stocks, to obtain a higher return. Some agree and some don’t, and we don’t need to resolve that here. BUT, Congress has consistently rebuffed the proposal. Among the grounds for rejecting it were: excessive risk; subsidy to Wall Street; and political favoritism in selecting issues to invest in.

Well, ALL of those arguments apply against the Paulson bailout plan. And moreover, instead of investing in a carefully-vetted list of sound blue-chip securities, Paulson’s proposal asks the taxpayers to cannonball-trade into distressed securities, many of which are so opaque that they can’t be analyzed and valued, in line with the most basic fiduciary obligation to exercise due diligence. This is not only a bad idea; it’s probably felony racketeering, larceny, bid-rigging and insider trading to boot.

How is it possible that Congress spent 20 years consistently rebuffing a plan to invest in sound securities, but now sweeps aside all of its former objections to embrace, in a single week, a reckless plan to invest in UNSOUND securities?

I’ll sum it up in one sentence: HEADS WE WIN, TAILS YOU LOSE.

And yes, for the record: I am a sore, pissed-off, bad-sport loser, just looking for a chance to pick a bankster’s pocket or steal his Porsche. As they have so convincingly demonstrated, crime pays – especially officially-sanctioned crime. Maybe I need to become an auxiliary police officer or sheriff’s deputy before I begin my spree. Then I can use a larger magazine in my hold-up weapon. Laughing

34

I finally did it and it was REALLY satisfying and now I’m encouraging all of you to do it too…join the campaign…

Let’s Fill Every Congressional Voice Mail Box In The Country

Give your opinion to the people who need to hear it. Take a few minutes and CALL CONGRESS! It feels really good to hear yourself speaking up to the people WHO ARE ACCOUNTABLE for making this decision.

Reading/writing the comments on this site is great, but CALLING CONGRESS is even better!

The calls to congressmen are running 300-1 or 300-2 against the bailout. We wouldn’t have those numbers to take heart in if those 300 people hadn’t called!

Take five minutes out of reading the comments of everyone who agrees with you and add your voice. Make it 400 to 1 or 500 to 1 or 1000 to 1. Help make it clear that WE ARE WATCHING and there will be repurcussions to those who vote for this bill.

Many reps have staff in the office today. Call and tell them, succinctly but forcefully that the people do not want this by a wide margin and anyone who votes for it is voting against their constituents and WILL BE VOTED OUT!

It’s so easy. Ten buttons on the phone and bang, you’ll immediately feel better for PARTICIPATING in this process.

If your rep’s mailbox is full, call another rep. They all need to hear the same message!

Here’s the phone list - how easy is that!

http://clerk.house.gov/member_info/mcapdir.html

Action feels MUCH MUCH better than inaction.

 

35

Chris,

Assuming the bailout gives us a bit of breathing room to continue with our plans, I

would appreciate any guidelines or outline of steps you have taken.

I have read the two planning guides you have posted and have started working on those details.

I am more interested in your lifestyle changes and thoughts on storage. What are the next steps,

we are running out of time…

Thanks!

 

36

chameleon,

You mentioned the movie "The Money Masters" - its quite funny because I found this movie the other day and I think it was made about 15 years ago. It’s amazing how they knew all this would happen.

Chris - you probably get this 1 million times a day but I am also "obsessed" with all of this and I come daily and sometimes multiple times to your site to get every news bit.

But somehow, all this news has effected me in a negative way - its just that I am not happy when I read these things but I must read to be informed. It’s like having to breath but every time I breath my chest hurts. (just an anology) You get me?

I realize that the news won’t stop and there will be continous bad news and warnings here so have I had enough? I already know that my country is insolvant, the dollar is crap and we’re probably going into the "next great depression" - so what else is really there to know besides prepare and buy massive amounts of gold? (which I have)

Perhaps I should meditate daily and learn to become centered as my training has taught me in the past. Perhaps I need to realign and not let it get to my emotions. Its hard.

 

Will

37

chameleon thank you. had not seen the video just got done watching it will forward. a lot of it i already knew but like this site it puts it all into a neat little package. i am writing the idiots and calling. i disagree that we should not be angry it is a useful emotion and if used correctly can accomplish great things as in casting out the money changers. i thinks half our idiots are just that and the other half in the outer circle of the club

it always comes down to kaikaroo "what to do" . i suggest we start a "dead fed" movement get a page going and mobilize and get candidates to run on the idea of killing the creature. i am with chris on this single issue idea. vote out anyone who votes for this and vote for those who will vote to change the system …ron paul anyone?

until i watched the money masters i did not rtealize how many people died after trying to get rid of the money changers.

i winder if ron paul realized he was actually putting his life on the line.

i love you all let’s keep going together and take back our country

38

Last week there was a thread about how this debacle would play out in the UK, Where’s it gone? There was also other bloggers from the UK participating on the thread. Get back in touch. Thanks

39

My advise is to take the long view. Over the course of human history, we advance and retreat in civil society. But over the long run, we do advance. I have lived in many societies all over the world. Oddly, there is a point where people are happier with less. Believe me, I love my internet, I love my pedicures, browsing the bookestore with my latte in hand et al, but I have lived in much much happier worlds. The times that are coming will be hard, but if we can reach back and take a page from our grandparents who lived through this before, and try to help each other, we may find a new way out. I remember my grandmother who told me about the tramps that came to their back door during the depression. Her mother always, always gave them something. Even though they had so little themselves. Now, it’s all about - "you’re stupid, "you didn’t listen when I told you what was happening" "your greed put you in a mortgage you couldn’t afford." But nobody mentions what we were hearing before this - like "the smart people invest in property." "Renting is for people who have no financial sense." "Historically, home prices always go up -so how you you lose!!!" It was like you’d be an idiot if you didn’t buy large. Even now, no one’s mentioning that when people bought homes just a few years ago, gas and food were also a lot cheaper - so a big mortgage was more affordable. We have an economy that depends on people buying ever more - yet we are condemned for having done just that. The little guy is slapped no matter what choices we make.

Anyway, I have been buying food. Food for myself and food to share if it comes to that. No doubt food will rise even more and when it comes down to it, food can be eaten, shared or traded.

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in all its 110 page glory…

http://graphics8.nytimes.com/packages/pdf/business/20080928bailout_text.pdf