OT. From the NYT..McCain Aide’s Firm Was Paid by Freddie Mac

One of the giant mortgage companies at the heart of the
credit crisis paid $15,000 a month to a firm owned by Senator
John McCain’s campaign manager from the end of 2005 through
last month, according to two people with direct knowledge of
the arrangement. The disclosure contradicts a statement
Sunday night by Mr. McCain that the campaign manager, Rick
Davis, had no involvement with the company for the last
several years.

Read More:
http://www.nytimes

another lie. what.a.shock.

This more this thing (bailout) is exposed to daylight and air, the more it stinks.

LS brought this to my attention on an earlier thread. HOLY CRAP!

ALERT!

Check out this story. WHO is blackmailing the US economy in order to be paid trillions on their Credit Default Swaps bet?

Is it David Rockefeller – through Goldman Sachs?

Wanna bet against it?

http://www.dailykos.com/storyo…..556/607628

Just don’t forget this is not just about housing. As I understand it the bill allows for purchase of “any” distressed asset.

I agree that this will fail the way it is written, but then again I don’t think that anyone has proven that this is necessary either.

This is a last ditch effort to raid the treasury and give the the people that run the government, the rich.

If I had to bet, I would say the Chinese…

Don’t they hold all of our debt…if we devalue we devalue their money they have invested in us.

If they pull the loans well we are sunk…

Ian,

Would it be too complicated to set up a board that sets prices regionally and is allowed to make adjustments as conditions evolve? [Assuming facts not in evidence, of course, that the government could actually involve honest, neutral people for this process.]

Dodd’s half way there on some of this stuff, like insuring money market funds, but doing it half right is almost as bad as doing it entirely wrong.

why do you think money market funds should be insured. i was hoping to have a chance to ask about this one. seems nuts to me.

Any way that you can get the ear of Dodd, Ian? Surely he knows who you are. And if not, he most certainly knows who Jane, Christy, et al. are and that your being part of the team should have some valence? Get on the horn, blast you!

Primer on CDS

http://news.goldseek.com/GoldSeek/1221672153.php

Disclaimer: Not sure what he is selling but the explanation is good.

Just do it by average price increases from when the bubble started (2002, probably) by zip code, pretty much. That data exists already.

I got EPU’ed two threads back. May I re-insert this question/comment?

I saw a bit of Bernanke’s (very cerebral) testimony this morning, and I don’t know what to make of it. Here’s what I thought I heard:

There are two prices for these assets in question, the “Fire Sale Price” and the “Mature Market Price”. The FSP is what they would fetch if they had to be sold this instant. The MMP is what they would fetch if they were held for an indefinite length of time and then sold at some optimal time.

The problem we are facing is caused by “the market” not knowing — here my eyes started to glaze over — either it was the FSP or the MMP. Alarm bells, terrible things happening, death and destruction, the end of the world as we know it.

So, the government wades in armed with huge quantities of cash and starts to buy the assets. “The market” watches. When it sees what the government is paying for the assets, it then knows what the FSP or MMP is. Problem solved. No death and destruction. We all go back about our business.

I shake my head. Did he just say that $700B is well spent in an attempt to provide “the market” with a single number? That’s IT??!! No pretense that some structural failing either exists or is going to be corrected? No admission that this may not be a terribly well designed experiment in the first place, featuring, as it does, an entirely atypical purchaser waving about entirely atypical amounts of money in an entirely atypical atmosphere?

Even presuming that “the market” can understand what it sees happening, how does anyone prevent the sellers from offloading the very worst of their assets to the government and/or the government being able to ascertain what it should rightfully pay under the best of circumstances?

Come to think of it, if the government knows how much it ought to pay for the assets, why can’t “the market” be that smart; why does “the market” need help figuring out the price? If, on the other hand, the government (practically by definition) cannot know beforehand what the assets being purchased are worth, is it being used as a rube?

Or was there something else that Bernanke said that I missed (although I watched his whole spiel)? Or is there something that Bernanke ought to have said that he didn’t?

This stuff has gotten to Dodd’s folks. Whether to Dodd, who knows?

Why? Well, first of all it’s paying too much for mortgages.

but how much of that $700 billion is going to go for mortgages?

Money markets are insured now because no one really knows where the toxic stuff is.

Some of it is in Money Markets…thus run on money markets already happened. The insurance is trying to eliminate more.

It’s just another Bush Regime conspiracy…

http://openleft.com/showDiary.do?diaryId=8451

He’s half full of shit, even when he’s telling the truth. No one has any idea what the Mature Market Price is because the assumptions all these securities were based on (housing prices rising like they were in a bubble forever) are complete and utter bullshit.

As for firesale, yes, that price would be even lower, though we can determine what it would be (the few that have occred have been 25 cents on the dollar to as low as 5 cents on the dollar). What the government needs to do is determine a reasonable price. (The ultimate proper way to do that would be to determine what people who live in domicile X can earn locally, and set prices based on a reasonable mortgage for people earning that. But that’s probably too complicated, so… reversion to norm instead.

has anyone heard from Roubini on “what should be done?”

all I have is This, his 9/19 piece calling for Home Owners Mortgage Enterprise

Ian,
the teenager is hungry (the noive!) so will hopefully catch up with your post in a little while.

bbl

Who can say. In general he’s paying too much for… everything. Start with mortgages. But yes, the scope should be reduced as well. No way the government should be picking up credit default swaps, say, that stuff is so toxic that even swamp monsters flee from it.

Any money market manager who has the worst sorts of toxic stuff on his books, screwed up bad. It’s secondary exposure which is problematic (for example, one went below a dollar because they had 7% in very conservative Lehman bonds.)

Whoever bet on the total collapse of the Real estate market through Credit Default Swaps (leveraged 25 to 1) was overseeing Greenspan’s FED policy throughout the period following 9/11. Greenspan was instructed to take rates to zero and leave them there long enough to blow up a massive bubble, with the full knowledge that the FED would subsequently raise rates, causing the bubble to burst – thereby paying off on their own bets.

These are the true masters of the universe. They always know tomorrow’s news, and profit from it, because they manufacture it.

GHW Bush is in the middle of it. Take that to the bank.

You insure them you can regulate them and you can demand premiums, just like with the FDIC. In effect, you bring them fully into the system and you expand the base of the economy by letting banks lend based on insured deposits. This is necessary because there is not enough money in the US, or the World, to pay off the shitpile. It is literally larger than the entire money supply of the world (M1, not M3). So… you have to find a way to make the money supply grow, in addition to chopping down some of the shitpile.

If the US just owed the shitpile to itself it could say “hey, no problem”, but if you do that to the Chinese, Europeans, Chinese, Koreans, Japanese and Arabs, there will be… consequences.

What makes me think that I must have missed something is this: Bernanke seemed to be saying that “the market” could take over once it knew what the proper price to pay was. If he said something about there not being enough money in the non-governmental world and that fact necessitating swift governmental intervention, I missed it. I heard him saying that “the market” needed a number and that the governmet’s action would, at an astronomical cost, provide that number.

And that’s a plan??

The Dems are in danger of falling into the Gooper trap. If they pass anything that bails out banks w/o gooper votes, kiss the elections goodbye.
What they must do is offer a much smaller package now, aimed only at homeowners. Revisit it after the elections. Say take it or leave it. Let the goopers stop that at their peril. End of story.

but if money markets are insured like bank deposits (cds and the like) what is the incentive to keep one’s money with the bank?

the bank that makes loans so that people can buy homes – mortgages?

money markets don’t do that.

or am i just confused?

That is what I mean by toxic stuff…there are landmines all over the place. No one knows who is solvent and who is not.

They broke the dollar and there was a run to redeem…they didn’t want that happening across the financial system…thus the “insurance”.

Schumer proposed giving in increments so that the new administration can take part in hoe to deal with this mess

Specifically, money market is where people park money to be “safe”, if that breaks, it’s all broken. Yes.

This was the REAL INSIDE JOB.

Greenspan met with Cheney repeatedly in the lead up to the Real Estate peak.

It’s strange that Alan Greenspan hasn’t been blamed for the housing bubble. After all, he set the “easy money” policies that put the whole thing in motion and he’s the one who should be held responsible when it goes up in smoke.

For example, when Greenspan lowered rates to 1% in 2002 he knew that money would surge into the economy and create the appearance that everything was hunky-dory. Predictably, the economy sputtered along from the economic activity generated by the housing boom and from the 30% increase in government spending.

But, what else did Greenspan’s lower rates achieve?

Well, they achieved the results for which they were designed; they kept the economy humming along while Bush dragged the country to war, they kept the American people asleep while $400 billion per year in Bush tax cuts were siphoned from the US Treasury, and they generated what the “The Economist” calls this “the biggest bubble in history”; the housing bubble.

All of these were purely political choices made at the Federal Reserve under the auspices of Fed-chairman Greenspan.

Greenspan, who prides himself on studying every abstruse fact and figure about the economy, was fully aware of the speculative bubble that was emerging before his eyes. He also knew about the “interest only loans”, “the no-down payments”, the shaky lending practices, and the exaggerated prices, but just like the 1990s, when he had every opportunity to raise marginal rates on stocks and stop the bleeding, he kept the game in motion.

Greenspan knows all about “irrational exuberance”; he’s its primary champion. The Fed seduces the public with cheap money, so that credit spending increases and, then, “presto”, millions of Americans slip inexorably into indentured servitude.

B.I.N.G.O.

Who can say. In general he’s paying too much for… everything. Start with mortgages. But yes, the scope should be reduced as well. No way the government should be picking up credit default swaps, say, that stuff is so toxic that even swamp monsters flee from it.

i read it last night, but it deserves a second more careful read from me. if i read correctly, there is no requirement to buy any mortgages. it could all be toxic waste. it could all be foreign toxic waste.

do i have that right?

because if i do, that is one reason to not like dodd’s proposal.

i took notes when i read, but they are on my other computer – will go get them to refresh my memory.

Is it barter time yet?

that’s the plan. yes. What I’m saying that is different from him is “this has to be a reasonable number, not one pulled out of Paulson’s butt. It has to be a real market clearing price, or as close as we can get. And -15% is not a market clearing number, imo (and I’ve checked it a hard quant, to be sure I’m thinking straight. he agrees.)

The “insurance” new to Money Markets which were thought to be like holding “cash” is like the deposit insurance for deposits in banks. Same protection but now for “money market” accounts that invest in all sorts of things that were supposed to be “safe” and “liquid” but turns out some of which are neither “safe” nor “liquid”.

They are trying to prevent bank runs with this move in my opinion.

And notice how Andrea Mitchell hasn’t been on the tv for days now. *wink*

Yeah, I think right now it can be used to buy anything.

Right now Dodd’s bill is a world better than Paulson’s, but it’s still a bad bill. If it doesn’t get improved I’d rather see no bill at all.

But my take is that we’re getting a bill, so I’m trying to convince folks to make it the best bill possible.

Is it working? Who knows.

The lesson of the housing bubble is simple: whenever monetary policy is put into the hands of privately owned institutions like the Federal Reserve, those policies will invariably reflect the narrow interests of the men who own them and the members of their class.

That’s why Thomas Jefferson warned, “Banking institutions are more dangerous than standing armies.”

http://www.counterpunch.org/whitney08172005.html

http://www.communitycurrency.org/joycelynn.html

Several years ago, Zgibniew Brzezinski talked about Operation Cyclone, which he initiated in 1979 at the end of Jimmy Carter’s presidential term. The CIA helped foster Islamic fundamentalism in Afghanistan to destabilize the region because of the Soviet Union — and oil.

The program continued throughout the 1980’s when G.W. H. Bush was vice president and CIA assets like bin Laden and Saddam Hussein directly or indirectly carried out U.S. covert activities and shadow government policies.

Another player on the foreign policy scene is the Council on Foreign Relations.

Half of those named to the Commission — Kissinger, Mitchell, Kean, Hamilton, Lehman, and Gorelick — are members of the CFR. Rice was on the nominating committee in 1991. Ellen Mariani has named Peter C. Peterson, chair of the Council since 1985, in her RICO suit (PD #14). As part of the shadow government, the Council has influenced national security policy so that its titular head has profited in arms and oil.

Since 1950, the Council on Foreign Relations has been David Rockefeller’s child. The Council bills itself as a research and educational institution. However, the CFR serves the interests of Rockefeller’s global empire of oil and financial interests (Exxon, Chase Manhattan Bank, JP Morgan Chase).

The two world trade center towers were sometimes called David’s and Nelson’s as the brothers were the driving forces behind the monuments to capitalism.

While the Council has 2,000 to 3,000 members — movers and shakers in politics, media, and corporate board rooms, the Historical Roosters of Directors and Officers show key CFR players are key players on the global scene: Allen W. Dulles, the first CIA director, was a primary CFR participant from 1927 to 1969; William (McGeorge) Bundy, National Security Advisor in the Kennedy and Johnson administrations and an architect of the Vietnam War, was editor of the Council’s publication, Foreign Affairs, from 1972 to 1984. Others notables include Averill Harriman; Brzezinski; George H.W. Bush; Kissinger; Federal Reserve Chairman Alan Greenspan, and Dick Cheney.

Photos from the CFR 1991 annual report near the end of the first Bush administration portray a snapshot of the Council near the end of the first Bush administration. David Rockefeller’s picture is prominent throughout the report. The cover is a picture of the Council’s headquarters on New York’s upper East side. Other photographs include Cheney in Paris, October 1990; the President of Mexico and David Rockefeller, and Cyrus Vance with the Security General of the U.N. and David Rockefeller. That 1991 meeting was prescient looking at the Gulf and the Future of the U.N.

Another photo is of Ahmed Chalabi, founder and former chair of Petra Bank, at a March 1991 round table discussion on the topic For Democracy in Iraq: the Case of Iraq’s Opposition. Today, Chalabi is leader of the Iraqi political organization and the interim Iraqi government with close ties to the Bush administration. He gave the current Bush administration misleading and fabricated information before the U.S. invaded Iraq last year.

GET IT?

I answered you (at least in part) in an EPU (I had to go walk the dogs, Giacomo is visiting today)

EvilParallelUniverse September 23rd, 2008 at 5:01 pm 82
In response to behindthefall @ 78 (show text)
The FSP price and the hold price could very well be the same thing, in fact, the hold price could be less. Bernenke doesn’t know and can’t know. And in fact, if he leads us into a depression, then the chances of the bonds being worth less in the future is probably pretty good.

He’s just trying to buy time, b/c if the bonds are bought at ridiculous low prices, then the bail out won’t work. Any of those banks (investment, commercial, whatever) COULD go sell their bonds at today’s FSP price and take a huge hit. If they did, they’d have to report it, and they’d all have to show the world they are insolvent (they are anyway, but this is a question of what they have to report).

What they want is for the gov’t to buy the bonds at some price that makes it possible for the banks to report they are not insolvent, which is not the FSP, but has no relationship to reality other than what the banks need for their reporting purposes.

So what Bernanke is saying is 1. The gov’t is going to overpay for this shit, but 2. that, magically cause there is no reality to it, over time the shit will turn to silver or gold so it’s ok to overpay. Of course, that’s alchemy and it never works.

I really did write prospectuses once upon a time for CMO deals (way before this shit happened though, I’m not to blame).

is it november yet?

Contact Chris Dodd here:

U.S. Senator Chris Dodd
448 Russell Building | Washington D.C., 20510
Tel: (202) 224-2823 | Fax: (202) 224-1083

HT to Tho0mas Mifflin for opening the Digg!

But if a diligent person can come up with the price, what’s the problem? Why is any intervention needed?

I’m at least as interested in January.

Whatever money they vote this week, it won’t be there January. guaranteed.

Will a wheelbarrow of cash buy me some beer? Or will the wheelbarrow buy me the beer?

You have to unpack the securities. The mortgages aren’t out there individually, they’re packaged in highly leveraged securities and thus the actual losses are much higher than the losses in underlying properties. So you have to absorb that loss, then unpack the damn things, then reset the mortgages at reasonable rates, etc…

If it was just a housing bubble, minus the financial BS, we’d be fine. It’d hurt, but it’d just be a bad recession.

Fineman on Countdown just said we won’t get equity.

See above. B/c the REAL price is too low, the banks would have to report they are insolvent, the game would be over. It may well be over anyway, but the banks realities are governed by their balance sheets. So long as they don’t sell, they don’t have to value their holding at the FSP. The government HAS to buy the bonds at higher than market, or the bail out won’t work (it probably won’t anyway, but a fire sale does nothing really).

I posted my wheelbarrow over at http://www.buymyshitpile.com/ hoping to get in on this racket

I remember well the day he gave the speech that lit the fuse. He effectively said:
“If you’re in a 30 year mortgage, you’re a fool…adjustable rate mortgages are the path to riches.”

The FED has been feeding us bogus numbers. All of the numbers released by the government relative to the economy are false – chosen to create appearances and outcomes, not chosen based in reality. The entire government has become politicized, and the truth is only revealed when it’s too late to do anything about it.

Greenspan lied about the actual rate of inflation, which it has recently been revealed by Richard Fisher, the President of the Dallas Federal Reserve, was actually a half point higher than the government was telling us at the time they were driving mortgage lending rates to zero.

At a time when the Fed SHOULD have been taking away the punchbowl – Greenspan made a personal appeal to be reckless with your home financing and flip into a three year or five year ARM – borrow against your equity – and spend it.

HOW MUCH DID GEORGE BUSH AND DICK CHENEY INFLUENCE FED POLICY FOR POLITICAL GAIN? WAS IT BUSH WHO DEMANDED 0% INTEREST RATES, AND GREENSPAN WHO COMPLIED?

Greenspan met with Cheney HOW MANY TIMES? They met for breakfast at Cheney’s house on January 14, 2001, a week before the inauguration, and nine days before Greenspan’s thumbs-up-on-tax-cuts testimony to Congress.

“We can have a democratic society or we can have the concentration of great wealth in the hands of the few. We cannot have both.”

– Louis Brandeis, Supreme Court Justice from 1916-1939″

“It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe that there would be a revolution before morning. And that revolution would be based around the Federal Reserve.”

–Henry Ford

ian, why couldn’t the bailout include mortgage payments at the lowest rate that mortage was sold instead of the adjusted rate?

as am I

Clear as bell Ian, thank you so much.

Are you saying that the mortgages were packaged together with other types of securities? Or are you saying that many mortgages were packaged together…some worth nothing…some worth more? I was trying to understand what they were saying today regarding “complex”. Does it include car loans and credit cards and insurance policies?

I’m complexidly confused.

Dugg!

Higher than market yes (market right now seems to be hovering at, highest, 25 cents on the dollar), but a reasonable price might not leave them all bankrupt. If it does, well…

Really, the senior executives should all be going to jail. They knew what they were doing was incredibly foolish at best and many of them knew what the probable consequence was.

What I meant to write was that your post was clear AS a bell.

And just b/c http://evilparalleluniverse.bl…..roico.html

(I do have permission to blogpimp from the powers that be, so don’t complain)

I would reset them all to a low rate fixed.

You got to give Mr. Andrea Mitchell credit. He admits the real cause for the Irak genocide is Dirty Fossil Fuel. But it does make him sad. He might be sadder when the peasants with torches and pitchforks start coming after him to stop his SHOCK DOCTRINE.

“I am saddened that it is politically inconvenient to acknowledge what everyone knows: the Iraq war is largely about oil,”

Good idea, I have a couple with the wheels blown out…but they move horsesh*t just as well. Shoot, I’ll just sell the horsesh*t to everybody that will have to grow their own food.

I feel good…I feel like….James Brown…oops…maybe not…ummm

Ian, any suggestions about who we should fax this post to? I’m thinking it should go to my reps in Congress and the Senate, along with Dodd and Obama.

thanx ian, also, how would a consumer ownership of the bailout investments look?

we obviously need at least the promise of a positive return on our our investment

Poor guy. You know, he’s really just an obsessed geek that got into power.

707!

I just added some shit to the pile. Felt good to get rid of “it”!

Barney frank on KO

Today I was trying to chart the stock prices of the five major investment banks against the Dow Jones over the time from when Paulson took office in the summer of 2006 until now. Wonder of wonders, Goldman Sachs outperformed the others and the DJIA (I was doing this at the Yahoo Finance site and couldn’t get Bear Stearns to plot, dang it). The divergence started around July of last year. What happened then?

Mortgages are sold in giant pools that are bid on by investment banks and others, to be turned into Mortgage Banked Securities (MBSs) or Collateralized Mortgage Obligations (if not other exotic beast). These are then packaged together into NEW securities that use the principal and interest from the pool of mortgage payments to pay off the people who bought into the MBS or CMO. Though in ways that is very old school, but MBS and CMO still exist in purity.

There are bonds out there, no doubt to be purchased by Bernenke, that do include mortgages, car loans, credit cards and other assorted shit. Those are known as Collateralized Debt Obligations (CDOs).

I have some old cracked mason jars that I should post over there. I swear they are worth about $800,000

Ian, the other thing that is so key about your post is that it destroys the GOP talking point that it was lending to poor people that got us into this.

This Loans came easily, then fell apart: Cluster of foreclosures in four Milwaukee neighborhoods serves as microcosm of nation’s mortgage meltdown is excellent, highly detailed reporting on the underwriting problems. It does not however address the leverage of the securities.

here’s something I can’t quite work out in my head;

I still don’t follow how the money “evaporated” in the great depression and I don’t understand how it “evaporates” now

I do understand that the INTEREST might have evaporated, but not the promise of money, that promise was made to someone even if the market collapses, that promise

for instance, if I sold my house at the inflated rate, I HAVE that money even though the market has later failed, even if the lender defaults, the bank is left with the bill but I have my money, it didn’t evaparate

so I don’t quite understand where all this money went, someone has to have it as far as I can see even if it wasn’t quite printed yet

Why isn’t Barney Frank saying that the oversight committee needs to approve buyouts ahead of time? WTF good is oversight AFTER the fact?

In July of 2007, I was in Kennebunkport, Maine along with a few thousand people protesting Bush & Putin. ;-)

I don’t get how banks NOT in jeopardy (healthy banks that don’t like the whole equity thing) and foreign banks were able to horn in on this bailout.

Thanks. I’ve been wondering exactly how that worked. OMG..I see..they lump worthless with valuable in a heap and average the principal and interest…and people buy the good with the bad…and nobody knows what’s bad and what’s not.

Should create a lot of jobs to try to sift through that crappola…

I gave a fairly complete description of the securitization and leverage in this post a few months ago. Note that this is a conservative estimate. Say you were one of the big 5 and you were 50:1 leveraged on your money – multiple that example by 10, you’d have effective leverage of 200:1.

And that’s the problem. The primary actors are almost all very highly leveraged. To start most of them have taken a small amount of base capital and then they have borrowed at a multiple against it. To paraphrase an example Morris gives, imagine that you raise 20 million from investors. Now borrow 80 million. You’re up to 100 million. You’re 5:1 leveraged. If you were to straight up invest that money, and lost 20% of the value of your investment, you’d be wiped out.

20% is a pretty big move, mind you. If that’s all that had been done, it would be unfortunate, but not too bad. But imagine now that you have invested in something that itself is leveraged – say $100 million in first-loss bonds underpinning a 2 billion CDO. If 100 million is underpinning the losses of 2 billion, that’s a 20 to 1 ratio. A loss of 1% of the CDO’s value wipes out 20 million in value.

Now imagine that CDO drops 3%. The purchasers initial capital was 20 million. They’ve just taken a 60 million loss—all their capital, plus 40 million.

Of course, if it’s just happened to one CDO, no big deal. They make it up from elsewhere. But what if it’s happening across the board? What if the entire class of mortgage backed securities, say, is experiencing much higher losses than anticipated. What if they are all collapsing in price? And if the industry, not just this company, but almost all banks, brokerage houses and hedge funds, have invested in a lot of these sorts of leveraged deals?

David Shuster on Countdown just referred to “the growing powder keg between the McCain campaign and the media.”

Hehehehehe.

That would be why your bank account is in order and the one they arr suppose to be watching is not

Well, for $27.43….I put George Bush Sr., Dick Cheney, and King Abdullah on the shit pile. So far no takers. ;-) I’ll buy the cracked mason jars for $800,000, though!

Boo – (Since at least for a little bit I’m hanging here) No one believes those repug talking points – that it was the CRA or anything else. No matter how often or by whom that is said on television, it will never resonate with the vast majority of people. How can I know (other than the obvious answer of omniscience?), b/c so many people are underwater on their mortgages that everyone (or enough) knows someone (or are them) – and they’re not “poor” or “minorities.” They’re good, wholesome, white, middle-class, real Americans /s.

The repug ability to create myth is long dead.

Y

How money can just disappear.

Obama, Dodd, Leahy, Reid, Frank (in the house), whoever your Senator and your house rep are.

cool. you want the lids too? That is an extra $200,000 ;-)

following are some bits i thought interesting (to me at least) in dodd’s proposal:

The Secretary may not purchase, or make any commitment to purchase, any troubled asset unless the Secretary receives contingent shares in the financial institution from which such assets are to be purchased equal in value to the purchase price of the assets to be purchased.

i think this means there is supposed to be some equity stake, and not just toxic shit pile paper?

My Goddess. Thanks.

Actually, once upon a time (say, back in the early 90’s), they didn’t lump shit together, and MBS/CMO’s were as good as treasuries and paid higher interest. They would over-collateralize them. Even more importantly, they actually went and did due diligence on the pools they bought. Of course, if you wanted, you could try to shoot the moon with some of the pieces of the bond offering, but that was only for the professionals. Like most things, Wall Street overplayed their hand through greed.

I heard bloomberg actually say we shouldn’t chase away the ceo’s by attaching their golden parachute because “we need the best and the brightest to help us get out of this thing”

excuse me mayor bloomberg, they are HARDLY the “best and the brightest” if their company needs a bailout, we need to bail on those that caused the issue, NOT use them for a source of advise

Buy at a discount that reflects the real likelihood of repayment, reset interest to something reasonable, reset face to something more than you paid but less than the buyer paid, get rid of idiotic fees. Government gets its money back, virtually guaranteed. Just need a good actuary and a good debt underwriter (or well, a few hundred at least.)

Barney Franks plan is a bunch of shit. They will set up a group that will review what Treasury does after the fact. WTF does that do – give congress the asbility to say bad , bad, bad then go home and have a martini. BS they have to be able to say no before it is done. SOmeone besides Paulson needs to be able to shut down a transaction before it is approved.

Thanks.

Yes, you get an equity stake equal to whatever the face cost was of the item. If it doesn’t have shares, you get a first lien bond. I would make the shares convertible to first lien bonds in the event of bankruptcy, merger, etc…

I’ll buy them all for 1 million, as long as one of the lids has Saddam Hussein’s autograph on it.

Link? I haven’t seen it yet.

They know where the bodies are.

Hehe. It’s not that complicated, but it does need more than a paragraph. Basically, if housing prices go down, the real money supply has to drop by about 10 times that amount.

Thank you very much.

That is very key.

I think the only thing more important than the taxpayer’s equity stake/lien is the asset valuation.

Sure, and then I’ll throw them onto of the Bush/Cheney/Abdullah crap. ;-)

Two thoughts…
If the GOP doesn’t buy on to whatever is done with $700B, I think we should do nothing. The GOP caused this and they need to get behind the solution.

The second is that I and no one I know knows if a 15% discount is too high or too low. And, I thought that was the point here. No one knows so let’s get a huge pot of $$ together and peg the value and therefore give the market a bottom. Am I wrong on this or are we going to play, “I think this is too much!/I think this is too little!”?

Barney Franks on KO

Were they regulated then?

Help us…

I demand equity!

Would we get it, with the Dodd bill?

(b) NECESSARYACTIONS.—The Secretary is authorized to take such actions as the Secretary deems necessary to carry out a program established under subsection (a),
including, without limitation—

(1) appointing such employees as may be required for such purpose and defining their duties;

(2) entering into contracts, including contracts for services authorized by section 3109 of title 5, United States Code;

(3) designating appropriate entities as financial agents of the Federal Government, authorized to perform in such capacity all such reasonable duties related to this Act as may be required;

(4) establishing vehicles that are authorized to purchase troubled assets and issue obligations, subject to approval and supervision by the Secretary;

and (5) issuing such regulations and other guidance as may be necessary or appropriate to define terms or carry out this Act.

my bold.

this i really don’t like.

jayt also noted:

You might wanna look at the language in 2(b)(2) which follows what you cited.

That would be after “enter into contracts…. ->without regard to any other provision of law regarding public contracts.

towards the end there is also this:

(7) TROUBLED ASSETS.—The term ‘‘troubled
assets’’ means—

(A) residential or commercial mortgages, and any securities, obligations, or other instruments that are based on or related to such mortgages, that in each case were originated or issued on or before March 14, 2008; and

(B) upon the determination of the Secretary, in consultation with the Chairman of the Board of Governors of the Federal Reserve System, any other financial instrument, as the Secretary determines necessary to promote financial market stability.

this seems dangerously nonspecific to me. paulson get’s to decide? how is that not batshit crazy?

From what I have heard from Roubini, he thinks that housing prices will/should fall 40%. I think that’s about right. Since a lot of these mortgages are mixed up in large tranches, a simple way of dealing with the value problem is to use a figure like this and adjust somewhat up or down depending on other factors. The most important of these is the age of the tranch because the most recent had the highest percentage of crap in them. If you take in Ian’s suggestion, the beginning price would be the face value minus 40% minus 1-5% for profit plus or minus 0-5% say for variation in tranch quality.

You can determine tranch quality by sampling tranches to measure their toxicity. You don’t have to do this for all of them but just a sampling.

Paulson is like a teenager with pot in his room…Mom, don’t come in my room okay…if you just give me my allowance and some time I’ll clean my room..okay? Okay Mom? Okay?

MOM!!!

damn, um sure *looking for Sharpie*

Yes. They are also regulated now.

lol!

wow. I just had a flashback *g*

I am curious about this part…

“(3) designating appropriate entities as financial agents of the Federal Government, authorized to perform in such capacity all such reasonable duties related to this Act as may be required;”

Does this mean the Bush administration could “privatize” the bailout, by giving lucrative no-bid contracts (yes, including golden parachutes) to financial firms to do Paulson’s job for him–for a high fee?

I had been wondering since this started whether the Republicans would find a way to play the Shock Doctrine “privatization card”…

I think he has capitulated and is now trying to justify.

Economics not being my field, I would ask this (which may have been brought up already).

Shouldn’t the taxpayers buy up the non-troubled assets that have value? Let the greedy entrepreneurs keep the troubled assets. Then it is Party Party Party for the rest of us with the good stuff!

It was just on Countdown (with Schuster)

It’s really not too hard to look at a chart and see the point where housing prices took off from historical norms, nor is it hard to see where they’d be if there hadn’t been a bubble. We’ve got a pretty decent idea. As with Roubini I’ve been saying 30 to 40% in prior articles pretty regularly. But, as I say here, just use the locale.

An arbitrary price won’t be a market clearing price, which means it will continue to need support. and that means it will continue to need taxpayer money.

And that means you become Japan.

there are a bunch of other smaller things, for example wtf is this doing it dodd’s proposal?

(b) EXTENSION UPON CERTIFICATION.—The Secretary, upon submission of a written certification to Congress, may extend the authority provided under this Act to expire not later than 2 years from the date of enactment of this Act. Such certification shall include a justification of why the extension is necessary to assist American families and stabilize financial markets, as well as the expected costs to the taxpayer for such an extension.

but what strikes me most is what i don’t see. i don’t see a mechanism for accountability (faux “oversight” is not the same thing). there is no re-regulation. and there is no real transparency so we can understand the nature and size of the problems.

without these three things, i don’t see how this is not just another attempt to prop up a failed system without addressing why it failed and what to do about it.

i think this is unacceptable.

if a bill is needed, i think we’re going to have to make our own proposal. because i just don’t see an acceptable one yet.

Just vote present?

Barney Franks’s statement scared me. He truly believes that we are on the verge of a financial meltdown. If he goes along with this plan, Main St. will over-whelmingly vote for Repubs this election.

Does this mean the Bush administration could “privatize” the bailout, by giving lucrative no-bid contracts (yes, including golden parachutes) to financial firms to do Paulson’s job for him–for a high fee?

I had been wondering since this started whether the Republicans would find a way to play the Shock Doctrine “privatization card”…

excellent point. looks that way to me – but i’m no lawyer or economist.

The haircut for the tranches is highly correlated by its vintage (year) and the location of the mortgages. Part of the problem is going to be California and Las Vegas are in for a a greater drop than other areas. I take it these are mixed together so one loan will have a much greater value than others.

The more I think about this “plan” the more I think it will not work, plus we are already on the hook for the bank’s depositors when the banks eventually fail. So we bail out the banks and then the depositors too…it gets so expensive we will surely lose our AAA credit rating for the good ole US of A.

I say let them fail and the chips fall where they may.

You can determine tranch quality by sampling tranches to measure their toxicity. You don’t have to do this for all of them but just a sampling.

i like.

could it also be a jobs program for all the out of work people from the mortgage companies?

IAAL. Yes. And they will. The banks then get to make advisory/management fees selling their own shit to the government. It’s actually so brazen as to almost be art.

read the piece and it’s not adding up yet to me Ian, let me know if I have it;

The money supply is still created, mind you, but instead of being used for production in the US, a large amount of it used to buy foreign goods, or floods out of the country as US assets (including mortgages) are bought up by foreign governments and investors.

they bought these assets, even if they overpaid, someone gets those dollars eventually

When a bubble bursts you get a self-reinforcing downward spiral …

If you have a house you bought for 1 million, and no one will buy it for more than $500,000 and you borrowed $1,1000,000 against it, a combination of you and the bank are eating a loss of $600,000.
even though the bank is eating the loss of 600,000 dollars, the person who was paid has that money, it is sum zero minus the interest, the homeowner was the source of the 600,000 dollars that would have gone to the bank, unless the homeowner loses their source of income, that money does not evaporate

I see how this happened now in the “great” depression since the homeowners lost their gainful employment, that money would never be produced, however we have not lost enough jobs to have this money evaporate

the way I see it, even using your explanation, all that’s evaporated is the interest that would have been created

now on the other hand, if debt is traded back and forth on ever increasing values and the value then collapses, the money that traded on top of trades would disappear, that I have a handle on

That’s money that effectively just disappears. Poof, it’s gone. And it can’t be loaned again, because the house (which you probably don’t own, since it’s been foreclosed) is now worth only half a million, the money supply can’t be increased as much as if it was worth a million.

Wait a moment here. Why should these banks and failed financial institutions be making profits? Why not impose some wage control on their staff including execs and attach any profits to repay what they are given to remain in biz by the taxpayers? You know how they garnish wages to repay the IRS or whomever gets a lien.

We need to lien these bastards until we get the money back PLUS interest. AND still control what they are allowed to do. NO deritivatives. No risk swaping schemes. Risk is part of business. Be smart and you won’t lose.

man oh man, I have to say, reading here at the lake is like having private tutors and not paying for them

thanx for this education ian

(Disclaimer: I haven’t the foggiest idea what it means to “leverage” something.) Individual assets, securities, mortgages, whatever they are, then, have been collected by Party A into Package A, then flogged to Party B, who put them into Package B, and sold them, along with a bridge in Brooklyn, to Party C. Each Party had said to itself, “This is OK, because all the little people who took out a mortgage will be paying me steadily.”

Now times are tough, and the little people aren’t paying whichever party is holding the Package containing their mortgage, so the Holding Party, which has in the meantime gone out and spent or otherwise disposed of money it didn’t yet have, is embarrassed.

And saving these Parties embarrassment is apparently an important thing?
Would lots of people by crushed by the falling pieces of Embarrassed Parties? Specifically, would little people be kicked out of their houses if the Party holding their mortgage went kaput, even if they kept paying on their mortgages? (I don’t see how that would work. If you pay, you stay, right? *he said hopefully*) Or would the damage be primarily to High Partypeople falling great distances, in which case, ummm, do I really have to care?

But, OK, say that it is A Good Thing to save the Parties embarrassment. Why do it by transferring the rotten Packages to another owner? That doesn’t fix anything, does it? Doesn’t that leave the government holding Packages nobody else wants?

WHY NOT put the money in at the other end? Why not support the mortgage-payers, the little people? Isn’t that much more effective? Doesn’t that fix (or put a temporary patch on) the problem at the root? Doesn’t it avoid whatever these leveraging costs are? Doesn’t that un-embarrass the Parties with the lowest expenditure?

Would it be fair? Was the draft lottery fair? Figure out what fraction of these packaged mortgages would have to be made good in order to have the Parties save face and give that fraction of people their houses, lucky stiffs. Bad risks go away. Pressure taken off lotsa little people, who then have more to spend or whatever, put less burden on welfare, blah, blah.

Anyway, that’s MY plan.

WRITE YOUR CONGRESSMEN: http://www.congress.org/congressorg/home/
or CALL, that’s better

I oppose the proposed bailout plan because its another Bush gun-to-our-head rip-off pressure job. He is an incompetent. Bush is the biggest disaster this country has ever endured.

Bush and his guys are simply not to be believed. First it was WMD in Iraq, then Social Security had to be privatized. Now they want taxpayers to underwrite the biggest financial bailout ever with zero oversight, zero input, and zero equity for taxpayers. Let’s see, how much further can I bend over?

Let the markets solve this problem. sOLICIT INVESTORS LIKE bERSHIRE hATHAWAY TO BUY EQUITY POSITIONS. Make government loans available. Bad loans can be paid by with a corporate surcharge tax by surviving companies that do business in the USA. Let the capital rich investors infuse these businesses with the liquidity they need, not the US taxpayer. We’re already on the hook for Bush’s War, his undisciplined spending, his failure to increase SS tax, and address the health care needs of America. The president financed a war on the national credit card. Is he out of his mind?

It’s true Bush administration been planning this for months and never told Congress. What’s up with the that? Bush plays politics with our future.

The mortgages are only a small part of the problem. Lots of derivatives (bets) are being lost and those become big nasty debts. I can bet you a million dollars that it will rain tomorrow. If I will you pay me the million. If I lose I pay you. But I don’t HAVE a million dollars. The amount of the derivatives out there is 68 trillion. If some institution made a bunch of bad debts they lose the store. And most of them made some very bad bets.

Why are they allowed to bet?

How are people who are behind on their mortgages and facing foreclosure going to qualify for loans to refinance if that gets put into the bill? If they lost their jobs (due to outsourcing) and can’t pay, they are out of luck…if their credit is destroyed because their house has lost value but the mortgage has gone up and they couldn’t pay…will they still get a new loan?

For your enjoyment!!!!!! Barnie Sanders takes down Kudlow… http://www.youtube.com/watch?v=Lkqb1pQrCcg

I missed my tags on some of the quotes and I think my resposnse is going to be impossible to understand so I better retype;

if a person borrows money on a percieved value they still have the money, it does not disapear, even if the person defaults on that loan, what has disapeared is the interest the bank would have made

the source of repayment still exists if the person who defaulted on the loan still has gainful income, the money is still being produced, it’s just not being produced for the banks benefit, it’s going somwhere else instead

now if the person who defaulted loses their source of income and their source of income is not taken up by someone else, then the money does disapear, however not until the source of repayment is eliminated one way or another

now, if the loan was going to be payed on a percieved future value, then that money does disapear, the loaner does not ever recover from the money they gave to the lendee

also, if loans are traded at ever increasing values and that value collapses, that money just disapears also

so now I think I get it, tell me if I have anything wrong there

How is the government to get good title to these mortgages. They’ve been pooled and the income streams have been parsed all over the place. A trustee or servicer has legal title, but the people entitled to the income have to join in the conveyance. It’s unlikely they can be identified.

Ian, I’d suggest that this is an excellent time for the Federal government to exercise Eminent Domain, the inherent power of the state to seize and expropriate property, or rights in property with due monetary compensation, without an owner’s consent.

The Supreme Court, after all, has just approved the power of the government to seize property for governmental use or by delegation to third parties who will devote it to public or civic use or, now, economic development. Clearly, seizure of these properties, and COMPELLING the financial holders of them is in the public welfare. If these financial houses cannot find buyers in a distressed market of their own creation there is no reason to have the public bail them out.

Or the government could perhaps issue an order of “condemnation”. The term is actually used to describe the formal act of the exercise of the power of eminent domain to transfer title to the property from its private owner to the government. Although commonly confused with its sense of a declaration that property has become so dilapidated as to be unfit for human habitation, this type of condemnation of buildings (on grounds of health and safety hazards or gross zoning violation) usually does not deprive the owners of the title to the property condemned but requires them to rectify the offending situation or have the government do it for the owner at the latter’s expense.

“Condemnation” via eminent domain indicates the state takes control of a property, or some aspect of it, such as an easement. The critical element that needs to be decided when a condemnation occurs is the amount of just compensation.

If you cancel all the bundled products then the banking industry biz model is out the door.

A bank lends 10x what it has on deposit for starters. That’s the law. But they don’t want to wait 30 years for the repayment to trickle in. So if they have a 500k mortgage out it will pay $1MM in 30 years for example. They bundle a bunch of them and sell them for $600L… to make a quick 100K. The buyer now is seeing a lower return but heck…. he sells it for $700K and pockets the $100K and so on. Each level makes less and less and each time the return rate dwindles. And then if some don’t perform. They find that they are worse LESS than they paid. OOOPS.

So what can they do? They begin to write them off. But this is a rather large problem considering how many homes were bought at INFLATED prices – millions of them. And they are worth less than the mortgages and this drives the demands down, and freezes up cash… but there is no cash to lend cos the banks work on there idiotic biz model. Nothing in the vault.

Another problem in this hairbrained “system” is that banks are allowed to sell their loans. This should be ILLEGAL. If you are in the biz of providing mortgages – that’s your biz model. Make it work on the cash flow.

Ding.

Again I maintain that what is important is for the government to get a hold of the mortgages because without clear title it can’t convert them into safer long term fixed rate ones.

Thanks Ian for bring this to others attention(the packaging); for those who want to understand such better, go here:
http://www.frontlinethoughts.com/gateway.asp and read “Inside a RMBS “; you do have to register but doing so doesn’t get you on a lot of ‘lists’. It will also help one understand how the ‘holding to maturity’ calculation is being made.

Yes, Dodd’s bill doesn’t go near far enough and Robert Reich had a great column today on TalkingPointsMemo pointing out the ‘distressed mortgages’ have to do with ‘distressed people’. And the circle that will continue even if such a bill is passed.

It should also help in understanding why the Admin is so opposed to any changes in the bankruptcy laws which gets back to “As I understand it the bill allows for purchase of “any” distressed asset.” Bottomline, this crap would create a ‘permanent underclass’ and therefore cheap cost of labor.

People ought to REALLY be outraged at this which emptywheel posted earlier today: “Whitehouse Deputy Press Secretary Tony Fratto insisted that the plan was not slapped together and had been drawn up as a contingency over previous months and weeks by administration officials. He acknowledged lawmakers were getting only days to peruse it, but he said this should be enough. “

“Nearly 105,000 homeowners – almost a quarter of all households with a mortgage – spent AT LEAST HALF of their pre-tax pay on housing last year, a far greater proportion than the 15 percent who were doing so four years earlier.” ; this is just for San Diego County ,CA; Nationally it is about 20%.

My hope is that Buffet’s actions in buying some of Goldman Sachs tells the Congress critters that all is not bad at all for Wall Street(and that he ends up taking such over as he actually seems to have a social conscience associated with his great wealth).

Senator Bernie Sanders has a petition here:
http://sanders.senate.gov/peti…..l_Crisis_1

I would ask all to sign and if you want to take part in his survey, you can do so here:
http://sanders.senate.gov/ (upper right corner)

And for more insight:
Observations on a Crisis
http://www.investorsinsight.co…..risis.aspx

quote from above:
“Despite some masterful attempts to convince us of the opposite, the global investment banks have failed miserably to persuade me that the commodity bull market is (mostly) based on fundamentals. To me, it still represents the last leg of the liquidity super cycle which has been in full vigour ever since Greenspan decided he couldn’t distinguish a bubble from a mere bull market”]

Eli is upstairs.

Yeah, so, if the loans on specific properties are sold and unidentifiable to title insurance companies…clear title cannot be insured, and banks will not issue a new mortgage to a new buyer without clear title.

The question is, of course, did title insurance companies issue clear title to properties that were not really traceable or legally insurable?….was AIG involved in any title insurance stuff?

And there’s this:

“It’s over, really over, and what will happen is option 2: home prices will fall by 80% or more, because there will be no buyers left, partly because there are no loans available, and partly because too many people are going to lose their jobs to afford a home. Moreover, tens of millions of families will live in previously purchased homes they cannnot afford, from which most will be evicted.”

Why? Well, first of all it’s paying too much for mortgages. 15% off current prices is less than most properties are going to drop. I know folks don’t want to hear that, but a return to trend is more than that. 30% would be a reasonable number, but the proper way to do it is to figure out what housing prices in an area would have been without a bubble and pay slightly less than that, though that’s slightly punitive.

Just a guess but around here I’d say many houses are over-valued by about 40%

The problem occurs when the value of the underlying asset declines. In such a case but borrower and lender can lose. The borrower’s debt goes up and if the borrower walks away, they can hit in their credit and the lender is left with an asset that is worth less than what he/she paid for it.

For others consideration: “The national debt ceiling will have to be raised for the second time in as many months to accommodate the request… this time to $11.3 trillion… boosting the national debt to over 70% of GDP.”

And guess what happens when the U.S. dollar is no longer the world’s reserve currency?

Mussolini would be proud of these politicians.

Ben is out of his league. He’s a good (not great) economist. He’s not in the league of the Paulsen’s and the other heavy hitters who take down tens of millions a year and the 50s to 100s in severence pay. I’m speaking as a guy in Ben’s business. I would never want to go nose to nose with the guys he’s dealing with. They’re too good. He’s a cipher in all this. So are we all.

Bwaaaaaaaaahhhh! Apparently McCain has been caught in another whopper!

This time about his Campaign Chief’s ties to Fannie Mae.

Rick Davis paid by Fannie Mae until last month

So the McCain campaign LIED about Davis being detached from Fannie Mae several years ago. He was still getting $15,000 a month almost up to the day that McCain started running those ads about Obama being enmeshed with a former Fannie Mae CEO Raines (as if a one-time 5 minute public meeting would constitute some sort of collusion WITH Fannie Mae). But Davis was getting regular payments as a lobbyist for years…even while he was running the McCain campaign.

And now there are reports that Davis really didn’t do much “noticeable” lobbying with anyone. He didn’t visit with Congressmen or Senators or write letters or make phone calls. Oh wait…there was ONE SENATOR that he had heavy contact with, so perhaps Fannie thought it was a good investment in their future to have their lobbyist whispering in the ear of a possible future President!

It’s that a reasonable price will leave all of us bankrupt, not simply the finco’s they’re trying to rescue.

And yeah, they may very well be criminals, or simply greedy, and why our tax dollars should go to bail those people out doesn’t really make much sense. Isn’t going to help the average American.

Exactly why I think it is the Chinese with a gun to our head.

They probably figured Bush admin was their last chance to get bailout.

yep, never thought it’d be Chuck who’d make so much sense when $$$ and Wall Street are involved. speaking of which.. does this sound about right?

hey chuck, loan me $700
why hank ?
well, mr. chin called and he said if i can’t keep up the vig, he’s gonna put the hurt on me. and you know chuck that means you too?
whatcha plan to do with the money hank ?
well, i’m gonna buy up some things that nobody wants anymore and turn around and sell ‘em.
what are they worth hank ?
dunno yet, won’t know ’til i start sellin’ ‘em
how much ya gonna buy hank ?
oh, ’bout $50 worth each month.
do you know how yer gonna sell ‘em yet hank ?
nope, not really. i figure to learn as i go.
well hank, why don’t i loan ya $150 and you can start. then when you learn more ’bout what yer doin’ and that it’s workin’, you can come back and get some more?
oh shootfire chuck, mr. chin’s gotta know i mean business.
well hank, i don’t wanna loan out my kids and my grandkids college money unless’n i have a better reason.

thus you have the hill-country version of the questioning and testimony today from Senator Charles Schumer of New York and Treasury Secretary Henry Paulson.

Ian, where did you learn about this method of calculating the purchase prices for the toxic waste?

To my mind, the bankruptcy process is an ideal way of setting prices people can pay for their principle residence. It doesn’t help the speculator and the flipper, but they can just file Chapter 7 or 11. Unfortunately we don’t know how much of the toxic waste is residential and how much is speculative.

Even with oversight and other bells and whistles does not make the tranfer of the 700 billion a good idea. The transfer will devalue the dollar and increase oil prices. It may artificially inflate housing prices (which is bad for the consumer of housing). And for what? The mere hope that lending institutions may make loans to business’ and consumers? If banks no longer want to lend, then I would much rather have the government come in as a market participant and lend the 700 billion directly to business and consumers, than this bank and wall street wealth transfer.

Ian,

I see your point, but it sounds a lot like “let the free market work itself out.”

I like that alternative, myself, except when I’m scared shitless.

I’m looking at time series plots of Harvard’s affordability index for individual MSAs and a national average. These series have about the same shape as plots of the underlying prices would, so it’s easy, as Ian said, to see the blastoff point somewhere between 2000–01.

It’s also clear how different the boom experiences were in different metro areas, so much so that holding to a single common haircut for all might really violate any notion of equitable treatment of borrowers (who presumably get the benefit of the cramdown somehow). And as you said, vintage matters here.

But it’s also clear that if this had to be done overnight to save the nation or something, a linear approximation of the departure of each MSA’s affordability line from the horizontal, starting at the year 2000, would give a pretty good approximation of a discount that would leave borrowers with less chance of winding up back underwater in a couple of years; the affordability trend in most places was quite stable until recently, and even where it wasn’t, like in CA, it tends to spend a lot of time around a level band.

For many places, this rule would result in something like Dodd’s 15 percent discount on a recent loan, while in others like the aforementioned CA especially, it would be about 40 to 50 percent for the most recent loans. (I eyeball the increase in affordability slope for much of the Bay area at close to 2, i.e. by 2006 which was the last data available, a median-priced house was selling for 10 times median income, where in 2000 a median house —not necessarily the exact kind of house, but remember, the nation is in peril— went for only about 5 times med. income.)

The result would allow for longer-term differences in the housing markets of places, which do seem to exist, while reflecting the liklihood that most of the “equity” built up in housing over the last few years is destined to vanish.

The affordability data are from Harvard center, “Additional table: Metropolitan Area House Price-Income Ratio, 1980-2006.” And I have graphs …

“… reasonable floor for house prices. If it doesn’t 700 billion won’t be enough, there are trillions of dollars of securities based on mortgages out there …”

Then why $700B in the first place? Just because it’s enough to screw incoming Dems or because they want it to fight a war or what?

It seems the idea of putting a dollar on this plan is as worthless as trying to put a value on upside down mortgages.

“… there are trillions of dollars of securities based on mortgages out there …” — Ian Welsh

What do you mean “based on”?

the bank that makes loans so that people can buy homes – mortgages?

money markets don’t do that.

or am i just confused?

Oops, replied incorrectly above.

AFAIK money markets are like a checking account where you just hold quick cash, but it’s invested in very short-term bills, so it can make money and remain very liquid. Not secured by FDIC or anything (until now).

You have to unpack the securities.

Why should the government bear that cost and effort? Let the holders or some private firm they pay to do it.

I heard bloomberg actually say we shouldn’t chase away the ceo’s by attaching their golden parachute because “we need the best and the brightest to help us get out of this thing”

Pay ‘em to succeed with the company’s success, not to succeed regardless of their work. Bloomberg is just reciting the NYC financial markets mantra that more money must flow through the market no matter what. It’s insane.

Now times are tough, and the little people aren’t paying whichever party is holding the Package containing their mortgage, so the Holding Party, which has in the meantime gone out and spent or otherwise disposed of money it didn’t yet have, is embarrassed.

Consider this:

two black boxes, one has a good mortgage with a fixed rate and steady payments and the other has an ARM mortgage nearly in default

Which would you buy? How much would you pay? What if you offered low and the owner wouldn’t sell? What is each box worth?

Then, if you were a bank and saw all this, would you loan money to the owner of either black box based on it’s contents as collateral?

If banks don’t loan every business owning these black boxes which depends on a line of credit might as well lock up and go home.

Then the entire economy begins to slow to a halt.

Now, how do you fix it? How do you evaluate what’s in each box?
Does it make sense for the government to assume there’s some part that’s good and just average them out?

Why don’t the commercial businesses which deal in these things do that?

It’s a problem.

I suggest fixing mortgages and the discussion in this thread is how that might be attempted, considering those are nearly sealed boxes.

The amount of the derivatives out there is 68 trillion. If some institution made a bunch of bad debts they lose the store. And most of them made some very bad bets.

Why are they allowed to bet?

$68T is a lot to bet, especially if you borrowed it (leveraged yourself heavily). BTW, how do they know they bet bad if the mortgages aren’t valuated properly?

Why are they allowed? Cause they’re the Masters of the Universe. It’s their right as free Americans to do whatever stupid thing they want — despite Justice Scalia’s opinion they have no rights unless enumerated.

Why should bad bets be bailed out? Why indeed? All I’d like to see is saving the home owners & mortgages and little else.

I mean, those weren’t FDIC insured institutions were they?

Again I maintain that what is important is for the government to get a hold of the mortgages because without clear title it can’t convert them into safer long term fixed rate ones.

Would you consider this a national security issue? How safe is America if our economy grinds to a halt?

On that basis, as FDR did with Agriculture, you could assert the power to fix the problem — without purchasing, taking ownership and possession, reworking them, reselling them, etc.

In an emergency the government should be allowed to do such drastic things. I’m sure it’s in the Constitution somewhere.