Good morning
The bailout is nothing but a the last stop on the gravy train for the Bushbuddies. Consumers are better off if failed institutions are handled on an individual case by case basis.

“Treasury to help people avoid foreclosures if it owns their mortgages: Not sure what this means and the details are vague. Might be very good, might not. This will depend very much both on the specific language, and on the Treasury Secretary in charge.”

Might be along these lines
http://www.consumeraffairs.com…..mac04.html
The failed California bank stopped all pending foreclosures at the direction of Federal Deposit Insurance Corp. (FDIC) chair Sheila Bair, who has been prodding lenders to find more ways to keep financially-troubled homeowners in their homes.

Bair said that IndyMac Federal will “very aggressively pursue loan-modification strategies” for homeowners who are stuck with mortgages they can’t afford. She said the goal would be to make those mortgages “affordable on a long-term sustainable basis.”

I still want to see a transaction tax. Why is the financial system absolved from supporting the government it turns to when it fucks up.

Not sure how this foreclosure help will be forthcoming. Many times the servicing is separate from the mortgage. Private entities collect and process the payments for a small percentage. If something goes awry it is then turned over to a different entity for foreclosure.

The government has to buy enough bad debt to drive the prices up? Tell me what will keep the prices up nobody will buy this stuff?

I bet McCain votes against it.

Hey Ian,
Thanks for the cogent analysis.
Any idea if the buyout of these securitized mortgages will trigger an event whereby the credit default swaps would have to paid by the counterparty to the buyer of the swap?

T-

Typical FISA like Congressional response. Rethugs start with an outrageous demand, Congressional Democrats do their negotiating in secret, and the public takes it in the shorts again and again and again. Asshats.

I think it stinks to High Heaven

It’s not putting money into the economy, but into wall street banks which are broke.

If the gov wanted to stim the economy they could do a WPA deal. If the credit markets are frozen because inter bank lending is blocked because of lack of trust… the banks need to kiss and make up and trust each other.

But… that system sucks to begin with. So why are we trying to safe this failed capitalist model?

The entire credit industry is a house of cards and needs to be reigned in big time. Selling credit and trading risk is at the root of the problem here. This has nothing to do with jobs, productivity, and increasing the quality of life for workers.

Mortgages are nothing more than indentured servitude for decades to banks at rip off rates.

If they don’t cancel all derivatives and creative financial instruments, it’s only a matter of time before they will ask Uncle Sam for 100 trillion.

I think that all the people participating in the ponzi schemes as well as the enabling financial institutions need to be prosecuted under RICO statutes

and all their assets seized
and that includes BushCo, and Cheney & Company.

As Balzac said, behind every great fortune there is a crime.

Whose great fortune will be built on this crime?

Here is Naomi Klein and Amy Goodman chatting about Shock Doctrine. This may have been noted, but neo-con man Paulson has a case of industrial strength conflict of interest. He ran up tens of billions of dollars of debt at GS. He now wants to settle the GS debts, and the debts of Wall Street neo-cons, with trillions of dollars of taxpayer debt. This makes Henry one of the world’s biggest financial deadbeats.

But Henry may also have the record for highest pay to a government official. He got the tens of millions of dollars tax free from GS stock because he has sacrificed to become Secretary of Wall Street. He receives the “deferred compensation” from GS and who knows what other payoffs he is skimming.

I found this article in BusinessWeek…The headline of the article is “Mr. Risk Goes to Washington.” It says, “Think of Paulson as Mr. Risk”…Then it goes on to say that when Paulson took over Goldman Sachs in 1999, they had $20 billion in debts. When he—in these high-risk gambles. When he left, they had $100 billion, which means he took their risk level from $20 billion to $100 billion. So it is absolutely no exaggeration to say that Henry Paulson, far from speaking for Main Street, is actually bailing out his colleagues for some of the very debts that he himself accumulated. This is an extraordinary conflict of interest.

Ian please answer this question…these securities are debt that the owners can call right. What happens to the USA government when the Chinese want the money that the face of the note says it is worth? We pay $700 billion and then are liable for the debt too? What happens to our collateral if the bank getting the bailout money fails or is taken over?

Must be the record for being EPU’d ( at #13) ;-)

The headline page of english Pravda has some interesting headlines, Seems Russia is $30 billions better off after arms deal. Also don’t miss (scroll down) the report of US debt burdens from this administration (there is one error, if $700 billions raises the debt ceiling to $11,315 Billions, the current debt is running $10,615 Billions not the $8,300 Billions reported (all figures translated from trillions to billions for your computing ease), it is so hard believing anything out of the DC these days). Many other good related stories headlined for your edification.

http://english.pravda.ru/topic/Venezuela-183/

Careful about what China wants, China gets

http://www.reuters.com/article…..3720080925

BEIJING, Sept 25 (Reuters) – Chinese regulators have told domestic banks to stop interbank lending to U.S. financial institutions to prevent possible losses during the financial crisis, the South China Morning Post reported on Thursday.

banks won’t sell to each other with this bill, that’s the problem and as I posted in another thread of yours ian, one of the problems with liquidity was the fact that there was a deal on the table, money disapeared waiting to see what this bill was

I cannot believe the democrats are allowing one of the men that caused the problem a hand in something he is clearly nt capable, a role in correcting the problem

paulson should be fired, period, he should NOT be given any kind of control over our money, he WILL abuse it.

I wouldn’t even be happy if we gave him 150 billion, we are talking about an election just over a month away

EVEN IF MCCAIN WINS we do NOT want THIS presiden’t aids getting more of our money

if mccain would do the same thing, THEN HE OWNS IT, I do not want him able to blame bush

this is just CRAZY, we are ONE MONTH from an election.

congress should be kicking this ball down the hall

Great analysis, Ian. You conclude:

So we’ll be revisiting this issue in 6 to 9 months or so when it becomes clear that the problem hasn’t been solved, and that not solving it is costing a hell of a lot of money which could have been used to actually fix things.

This is now the Republican philosophy of governance:
Kick the can down the road.
Whether it be Iraq, capturing OBL, North Korean nukes,
health care reform or Big Sh*tpile.

helre’s the first thing we MUST look into when we get the full version;

does this bill create any law that the next adminstration will not be able to change IMMEDIATELY

does this bill contain provisions where the president gets to get in their as soon as he has control and change what is going on

if it does not, if we are locked into this deal, then we are madmen for allowing it

Since the big banks are pretending to be selling something of value;

maybe we can pretend to pay them for it.

Like the folks in the old USSR pretended to work when the government pretended to pay them for it (IIRC the joke)

Dems fall into another Republican trap..or should we say jump.

350 Billion until January well the economy had better not tank there had better not be any more banks, financial companies etc seeking help then otherwise Paulson has failed.
If Paulson is discredited then president Obama will be free to try something else.
Odds are a hedge fund or something big will meltdown between now and January. America blog is talking about European banks going under I bet those banks had bad American home loan debt.
I do not think the American banks old business model of selling home loan debt will ever get 1/2 as big as it was no matter how much debt the Treasury buys.

let me tell you what this bill does that is most frightening because it has already worked on obama

I believe it was norquist who proposed;

“the way to get “entitlement programs” dissolved is to create as much debt as possible”

bing, here we are, obama even said this bill will hurt other programs

HEY, OBAMA…investing in our infrastructure is a POSITIVE return NOT a negative return

but owning this kind of debt makes that kind of nonsense part of the discussion

here’s what will end this rediculous plan;

“this bill is payed by getting back the middle class assets given to the wealthy, we are returning to the 90 percent tax rate until this is payed”

bing, watch that money APPEAR OUT OF NOWHERE

that’s how we can make certain bush owns all these problems, by returning to the pre reagan tax codes until our infrastructure is rebuilt, our laborers are payed for their productivity, our health care payed, our education system restored

that’s how we get the bush adminsitration to own the new taxes, AND those new tax codes will not even be a tax increase, they will be lowering the taxes on the majority of people and as a whole

Do not forget Helicopter Ben The economy is strong crap came from the Fed and the Treasury.

ot sorta ’cause most are about McPalin & OBama
but here are Geiger’s Saturday Cartoons

ps, that would be 90 percent of the wealthy income not middle and lower income

something like a million dollars would reach that tax bracket

also, as we heard a senator say before, if a company is too big to fail and the government will be forced to bail them out, then it is too big to exist

think bank of america right now, they are TOO FRIGGING HUGE, if they fail we are in tons of trouble

they have to be broken up, period…things like that

and we have to get back to protectionisn, we cannot allow products sold in this country that come from economies that allow slave and child labor, those products must face tariff

companies that go overseas must face tariff as well

this is the only method of bringing back our economy, we have to start producing product again instead of relying on investments for our profit

Budget conspiracies aside, when has taking money from the poor and middle class and giving it to the rich very high upper class ever saved an economy even if that upper class were honest?..which we know they are not. In fact this upper class are criminals.

The GOP will say any attempt to pay for/tax this plan will cause business to leave so lets enact tariffs business that used to be American but have relocated elsewhere to avoid taxes will get taxed the most.
McCain said Ireland in the debate has lower taxes than America, Ireland has national healthcare they do not have a big army or fight lots of wars.
Is that what McCain wants because I am all for shrinking the army, not fighting wars, GETTING NATIONAL HEALTHCARE and paying less taxes.

Is there a provision forbidding any signing statements by the white house clown?

that’s a good plan however I prefer businesses that allow slave labor taxed the most and then american business that left taxed second most…usually they started doing business overseas becuase they can use slave labor and bring prices down

if their labor force does not have collective bargaining, tariff, if they allow school aged children to work, tariff, if they do not provide retirement, tariff, if they do not privide health care tariff, if they pour crap in the air, tariff

that’s the way to make our market competitive, it’s not to sink to their level, it’s to raise their level to ours

NO

this has been the latest installment…

Any news on the Wachovia mess? And how much sleep are you getting Ian?

Don’t know whether anyone can comment on Sheldon Whitehouse’s ‘morning business’ discussion of the next crisis to come down the pike . . . credit card debt. In assessing the current situation, he explained that he should have been on the radar; instead, we are forced to REACT rather than pre-empt with remedial intervention. He predicts that the credit card debt/debacle is ‘waiting in the wings’ and recommends pro-active steps NOW. Isn’t Bank of America the largest credit card company? Will this issue erupt before we change administrations?

Budget conspiracies aside, when has taking money from the poor and middle class and giving it to the rich very high upper class ever saved an economy

that’s a slogan right there, I say we go with it

Tariffs make goods more expensive the GOP says and so does regulation.
But that is only short term long term China has been in the news how many times this year for poisonous food additives because Bush is antiregulation and the Chinese know that they can get away with it.
Just how many people have to die before Bush thinks that food deregulation is a bad idea?
I wonder how much America could save in medical costs if food was better regulated? Lots of people eat bad fast food and miss a day of work and it never gets reported to the government.

the beginning to my next email sent to our congress criters;

when has taking money from the poor and middle class and giving it to the rich very high upper class ever saved an economy

thanx for the great lead i4u2bi

This is a huge move in the direction of corporate fascism. Borporations now have intervenious transfusion directly from tax payer cofers. It is a big step toward fascism government welfare to Wall street

Hey I’m all for taxing slave labor, child labor, or just banning all products from countries that allow that completely.

of course tariffs make goods more expensive, that’s because they force companies into paying their own bills

and that’s the way the republcans have to be answered;

“the only time our tariff will make the good more expensive is those products that want to sell to our consumers but they don’t want to pay their own bills, tariffs force them into paying the bills

why do you want our consumers paying the bills of these companies?

if they pay their bills there will be no tariff, simple stuff mister republican, get on board”

their heads will explode

FDA warns on melamine-tainted instant coffee

http://www.americablog.com/200…..stant.html

In other words, run like hell to throw that stuff out. If the Bush-FDA is actually issuing a warning, it’s really bad because they never lift a finger even when the evidence is overwhelming. (They still insist the Bisphenol A (BPA) bottled originally produced by Nalgene and loved by backpackers – myself included – are OK to use despite health safety departments and studies around the world suggesting the opposite.)

Umm…is there any oversight or does Hanky Panky get this giant slush fund to play “King of Wall Street” with no strings attached? This is an abomination. He has way too many conflicts of interest to be the one administering any pile of our money.

McVain just told Stephie he’d vote for it – for whatever that’s worth.

the term slave labor is melodramatic, I mean they pay so little the family can’t put food on the table, retire, take vacation

the company is not paying the bills, that’s what I mean, no company should be allowed to produce product when they don’t pay enough wage that provides these obvious necesities

healthy food on the table

health care so we can fix our kids teeth, broken arm, cancer

retirement so we don’t work long past we’re productive

vacation so we remain productive

those are bills that have to be payed, if the company does not they are not paying their bills and they cannot sell their product here without a tariff

hopefully the tarifff will cost them more then paying their labor force and they pay their labor force rather then pay the tariff

this is the way protectionism is supposed to work

Anybody think this will happen (or, if it does, it will matter):

“It would be my hope that this could be resolved today, that we’d have a day for the American people and members of Congress to review the legislation on the Internet.”
House Speaker Nancy Pelosi, Sept 27, 2008.

I think the banks are hoping to juice the market up temporarily then they plan to sell as much as they can build up cash reserves wait for the market to go down and then buy everything on pennies on the Dollar.
The problem is nobody wants their home loan debt and I don’t think the new home loan debt is selling either.
Credit cards which is also very profitable people are not paying them either after they lose their home.
Big corporate takeovers of companies by hedgefunds a great source of income well all that was financed by homeloan debt.
Just what parts of the banks business model is still working? I don’t see how they can get even 1/2 the profits they used to?
Just what is/was the banks business model?

as far as tariffs, don’t forget, most prices are determined by what people will pay not what the product costs

the supply and demand model doesn’t really exist, it’s really a demand only model

demand does go down but not only when there is an abundance of supply

for instance, nike shoes costs about a dollar to make, they get about 100 dollars even though there is an abundance of those shoes

supply doesn’t always lower prices, all that lowers prices is demand

our labor force cannot be competing with countries that allow companies to not pay their bills

Hank Paulson message to Wall Street
http://www.youtube.com/watch?v=yErhglOXIxM

I say the dems should be kicking this ball down the hall, givning paulson anything but a one month fix is giving him too much

let the next adminsitration, mccain or obama, own the solution, NOT this president

News like this keeps forcing me to buy Organic no matter how much food prices go up. Maybe we need a made in China label for food because this is getting ridiculous.
Did Bush tell China buy out Junk debt and you can sell us Real Junk Food?

Not yet on hereabouts. Did Snuffy first ask the all important 20 minutes of questions about why John McCain didn’t wear his flag pin at teh debate? And why he was 6″ taller? And why he didn’t look Barack in the eye?

Oh, and did he get enough rest at the condo overlooking the Capitol this weekend?

Sometimes I am wrong:)

Would wage slave be better?

This bill does nothing to solve the underlying problems of the “market”. Unless you change the culture and the rules (none at the moment) nothing will change. They will continue their crazy betting and risk dealing and flogging credit. It will be a waste of money which will end up in whose hands? The same theifs who stole it the first time.

He’s being economical with the truth. Ireland has very low or non-existent Corporation Taxes for some (not all) foreign investors. That tax regime is being brought into harmony with the rest of the EU. Investment in the Irish economy by foreigners contrary to what extreme right wing economists tried to claim there has not been a flight of foreign capital from Ireland as a result of tax increases. This is because Ireland due to the nature of its labour force is a better deal than most places. It remains to be seen whether we’ll face serious competition from the new Eastern European members of the EU – myself I doubt it.

As to personal taxation it is a lot higher than in the US – but Irish workers are:

1) Better educated.

2) A lot more productive.

So they can afford it.

In fact they are outproduced only by the Swedish labour force and that only in sectors where Ireland has never been strong such as heavy manufacturing.

Per the NYT link in the post:

The White House also agreed to strict oversight of the program by a Congressional panel and conflict-of-interest rules for firms hired by the Treasury to help run the program.

No details I could find.

wage slave is a great term tcu!

Stephie did bring up that McSame didn’t look Obama in the eye. Don’t recall McSame’s answer, grinning and mumbling, mostly.

U.S. regulators warned the public on Friday not to consume seven Mr. Brown instant coffee and milk tea products that were made in China because of concerns they may be contaminated with melamine.

hmmm

from china…china is directing it’s banks not to trade here

coincidence?

probably not

Neocons will own us. We are as a nation further in debt than ever. Private and public debt is at it’s highest. The service/cost on our debts is staggering.
This “Loan/bailout” is more than the cost of the Iraq/Afghan wars. This is the money that would fund healthcare, repair infrastructure and build alternative enegy facilities. There will not be a financial future if we stay on Big Oil. There will not be a habitable climate on carbon based energy. This bailout takes us further down the road to many disasters.

Ian,

Thanks for all your posts. They have been cogent and clear. A hard task when writing about financial issues on bailouts and our economy…

Can you discuss with Jane, Christy, EW the possibility of coming up with some kind of “resource post” we can use to fax our reps and Obama’s office in order to push for some grassroots/netroots change on this?

I have pulled from your previous posts for letters. I have also used hugh’s list as a “quick facts” to fax list.

Even if it (tools for building a netroots voice on the bailout plan) is something that focuses on the two worst parts of the plan, it will allow us to give counter solutions/suggestions…

We need some citizenry constructive action on this other than protests and calling just to say “No!” to the bailout. We need an organized voice. There have been bits here and there on other blogs. I just have not seen coordinated efforts from the netroots like we did on FISA.

What all of this can do to our economy and the future of our nation is of great import on so many fronts. Especially of import is national security. This bailout will in the end, have the potential for further Constitutional violations of our rights should national security issues grow…It’s all tied together and if we do not formulate a clear stand, the bill you have analyzed above, will be it.

I don’t mean the coffee isn’t tainted, it seems quite a few people in china have become sick, I mean we would have never seen that warning if china didn’t kick bush in the balls

Brad Sherman (D-CA) on MSNBC saying that the only way Paulson doesn’t get the second half of the $700B is for Congress to override a presidential veto….

and Barney Frank is up on CSpan.

I’ll say up front there’s a lot I don’t understand about this financial mess and what I do know is strictly as a layman but this sure looks like a bad deal for the American taxpayer. An awful lot of borrowed money is being given to the people who are responsible for this mess and with minimal over sight. I’m sure supporters of this deal will say the opposite but my sense is this will be the train going farther of the track.

both Frank and Sherman going out of their way to describe this as “Bush’s Bill”.

On tee vee, Kritter Brad Sherman says Congress is giving Goldman Sachs the whole $700 billion “in unmarked bills”. Paulson will not be on the installment plan after all.

Interesting I think that there is a link between better education and productivity also the number of hours worked and the productivity of the hours worked. Graphs linking all three factors rise and fall would be interesting.

That tax regime is being brought into harmony with the rest of the EU. Investment in the Irish economy by foreigners contrary to what extreme right wing economists tried to claim there has not been a flight of foreign capital from Ireland as a result of tax increases.

My bold McCain is lying. I wonder if McCain’s comments hints that the Right i America is going to transform Ireland into their ideal land of no government irrespective of what ever the facts maybe?
The Left here points to Sweden and France allot as models so maybe the GOP wants a country of their own? I thought that flat tax former Soviet Republics were their dream?

According to Newt, the plan will be posted on the internet today at noon and be available for review and comment for 24 hours (implied this would be before the vote). So apparently Pelosi got that. Color me surprised. But will they pay any attention?

But it won’t fix the problem permanently

I’d phrase this differently. Either it fixes the problem, or it doesn’t. There is no such thing as a short-term “fix”. This plan very likely doesn’t fix the underlying fundamentals of the problem. And therefore it is a bad, very bad, course of action.

Furthermore (as if the plan itself wasn’t bad enough), this plan will now be branded a Democratic bailout (rightly so), and will create massive new conservative habitat in congress. And not just in the conservative ‘renegades’–but importantly, among the Blue Dogs, their related tribesmen. This bailout bill is massively unpopular with the public. They are totally angry about this. The conservatives will use that anger, and will use the huge expenditure to shoot down all domestic spending they can in the Obama administration.

So the plan won’t work economically imo, and it is also a horrible political move.

He grins and mumbles allot and really enjoys playing a bully a mean happy idiot.

in that case the extra money cannot be in the bill, it has to renegotiated when paulson runs out

I have noticed that obama has aged already, just running for president…this is a job where just applying makes you an old man

You HAVE that spot on…

Ian,
Great job, something about a one armed paper hanger.
I’m seeing this term increased moral hazard of not letting failure act as a corrective. It is a danger for future outcomes which are worse for not correctly letting the risk punish poor choices or actions.

Are we suffering the results of not understanding the risks that were posed when the republican ideology trumped country in the 2000 elections? Remember how it would tear the country apart if we suffered a prolonged fight in congress over the winner of that election? Are we better off now because we didn’t understand the risks of letting the loser claim the presidential mantle?

I would think the Iraq war, guns over butter , 911 and this economic meltdown wouldn’t have happened if we had understood the moral risks involved in letting GWB claim to have won the election.

it occurs to me;

the paulson plan was 3 pages long and said;

“give me a gazillion dollars, you can’t charge me with a crime if I steal it, you can’t watch me spend it, you can’t ask me or tell me how to spend it”

it was clearly intended to get a “no” from congress

it was raising the bar so the absurd is acceptable

this bill we have accepted is absurd and would not have been accepted if not for the first bill

According to Newt, the plan will be posted on the internet today at noon and be available for review and comment for 24 hours (implied this would be before the vote). So apparently Pelosi got that. Color me surprised. But will they pay any attention?

Ian, this is code for get the grassroot troops organized. My comment @ 60 is gaining import. Ask why Pelosi pushed for that.

sorry MayDaze, the quote icon did not kick in. That first statement at 76 is yours with my bold.

Irak was their dream and look how that turned out. And no I’m not even a little sympathetic about their plight as to Irak.

As to education – you’re right. I make no claims to being an economist. I did have to take economics (mostly macroeconomics) up to masters level but it wasn’t my first love by any stretch of the imagination.

However back to education one of my keenest memories was a seminar on industrial enticement. – Getting industrialists to invest in you. Listening to executives from the other European countries admitting that vis a vis tax incentives and so on the field was pretty well level and that Ireland’s success was a direct result of free universal education and free universal healthcare pretty well made up my mind for me. Nothing that’s happened since has changed it.

Ian, this is code for get the grassroot troops organized.

agrees…ian and all the economists have their hands full getting a look at this bill

WHY ONLY 24 HOURS?

that does not make any sense, even congress can’t figure this out by themselves in 24 hours, it’s gonna take “the power of the internet”

(yes, i just quoted cheney, sorry about that)

and why isn’t paulson being fired?

why isn’t anyone asking him why he thinks he should not be fired?

prolly just stopped coloring his hair

The original bill was designed to get the response we see today – a revision of unacceptable law into very poor law. Dems should have started from scratch, but seem unable to resist “refining” a bad bill.

off to see some friends, see all later, let’s get that plan viral so we can all have a say

24 hours is not enough time to first understand it and then stop our critters from voting on it

no, I see the hard lines in his face…he is aging already…tough job this president stuff

Yes Mc Shame mumbles under his breath and this is what he says
http://www.youtube.com/watch?v=L1rZBmk0DYU

true that.

Would that the voting public grasped that concept and voted accordingly, instead of voting command voice or adorable.

Yes if we let it or we could say that we cannot afford not to have every car in America get 40 MPG anymore.
I think a good road can save you 3 MPG out of every 100 miles driven so lets rebuild the roads. Solar and Wind are FREE and clean plus with if the Chevy Volt is a plug in car cheaper electricity means less need for oil as we phase out the gas engine.. Nuclear power well one mistake and we lose how many states?
National Healthcare is a great idea my Grand Aunt was a maid in Chicago she caught TB I bet lots of Gold Coast homes today have maids some might have TB but today their is a cure.
Do the rich really want to keep denying the poor healthcare because when they do that they give germs a place to breed become antibiotic resistant and infect the servants who clean their homes, take care of their kids etc.
Can the rich keep on cutting their own nose to spite their face?

it was clearly intended to get a “no” from congress

yep – it’s not unusual (for me anyway) to build a certain amount of garbage into a contract or settlement offer as flat-out red-herrings, which I’d then “give up” later in negotiation, being, ya know, a ‘nice guy’ about it all.

This bill was *all* red herrings, and apparently there has been no one in the room smart enough to figure it out. They busted Paulson on the most egregious one (no accountability) and pretty much agreed to everything else.

So many lawyers in Congress – wish they’d show up in courts where *I’m* working…..

Or at a poker table where I’m playing…..

That tax regime is being brought into harmony with the rest of the EU. Investment in the Irish economy by foreigners contrary to what extreme right wing economists tried to claim there has not been a flight of foreign capital from Ireland as a result of tax increases.

My comment at 67 the above should have been in quotes

heh – Barney Frank saying that McLame did nothing but cause delay.

Compares swoop-in Johnny to Andy Kaufman’s stand-up routine, where he’d sing the Mighty Mouse “Here I Come to Save the Day”.

lol.

I think B of A is in trouble on credit card debt. I have a credit card with B of A and two times now they have reduced the credit line to just above the balance…and that is on an account that has been open for twenty or more years with not one late payment. Of course their action destroys a credit score and they know it. They refuse to respond to written requests. I suspect they have taken these actions with millions of customers knowing the credit card business is either blowing up or about to.

NTW I think everyone understood the implicit quotoation marks :-)

All:

REasonably good article from Reuters here – Buffett’s “time bomb” goes off on Wall Street and I am going to link again to this Potentially more toxic than sub-prime: the £6.6bn of ‘Alt-A’ that spooked HBOS investors as I am of the opinion that there’s more and worse down the road.

Ireland’s success was a direct result of free universal education and free universal healthcare pretty well made up my mind for me. Nothing that’s happened since has changed it.

That seems like a very interesting lecture. Chicago School Economics which I grew up with and did not pay much attention to however I’m sure you already know from Iraq.
Most of my ideas on economics are a rebellion against the GOP ideas I grew up with in Reagan’s America.

The largest burglary by an American president/vp and Wall Street is about to happen. Assholes.

Yeah Ian the Lake and the other blogs should be calling for a call in to Congress on every post! I don’t see a Lefty Blog out there that thinks this plan is good.

“the way to get “entitlement programs” dissolved is to create as much debt as possible”

I hesitate commenting since I’m so far out of my league on this bail-out, but the above quote is what’s bothering me. We’ve been scammed so many times that I don’t know what to believe anymore. Guilliani and countless others are lining up to get on this gravy train. And we pay for it.
Looks like another Bush success to me.

McCain on Snuffy’s show [still no flag pin–oh, the outrage]…every-tax cuts-other-taxcuts-word-taxcuts….

Contact Nancy Pelosi:

http://www.speaker.gov/contact/

Contact John Boner:

http://clerk.house.gov/member_…..atdis=OH08

Real good observation Bank of America is buying all these banks but if they are having problems well this could sink us.

Welcome to the corporate state. Mussolini would be so proud.

The all-seeing McCain saw that the deal couldn’t be done unless he came back…”wasn’t going to phone it in.” I’m a TRoosevelt Republican….”

“This was supposedly a way to hedge risk,” says Ellen Brown, the author of the book “Web of Debt.”

“I’m sure their predictive models were right as far as the risk of the things they were insuring against. But what they didn’t factor in was the risk that the sellers of this protection wouldn’t pay … That’s what we’re seeing now.”

Brown is hardly alone in her criticism of the derivatives. Five years ago, billionaire investor Warren Buffett called them a “time bomb” and “financial weapons of mass destruction” and directed the insurance arm of his Berkshire Hathaway Inc (BRKa.N: Quote, Profile, Research, Stock Buzz) to exit the business.

http://www.reuters.com/article…..18?sp=true

Bank of America, Derivatives, Hedgefunds just who will fail first and tank the market?

Ian, verrrrry interrrrestink *my best laugh in voice*

Putting these dollars to work where they would be doing the most good is not bailing out those at the top of the financial chain, but put it where it will do the most economic good, that is in the local communities. There are already markers in place to indicate these communities, the local banks. A good measure of competence of the local banks is the carrying of CD’s by individuals and small businesses in the area. If, for example, for each $300,000 in CD’s a single independent bank carries, the government “deposits” $100,000 for that bank to create new or expanding businesses, home loans, refinance existing problem mortgages, etc. For a larger chain of banks but still local, maybe for each $500,000 in CD’s the same $100,000 would happen, and for the large or regional chain banks $1,000,000 in CD’s for $100,000. These would break loose the “economic” logjam at the local level among institutions which are not responsible for this crisis and would also “economically lubricate” the meeting of local needs most effectively.

Without any prospect of systemic repair and oversight, not one cent should be forthcoming.

Return you to the regularly hijacked thread, thanks for your perusal.

Somebody said during the last few days that the big problem happened because of a word, that verified income was changed to declared income on forms…which gave mortgagors carte blanche to cooke the books. [nevermind that they were inflating the asset value telling naive borrowers that they’d catch up in the marketplace]. And of course they took out any equity stake by the borrowers.

But is that correct? Anybody know? When did that happen? Who did it? And does it matter, when the whole issue, seems to me, is on the asset side, not on the mortgagee’s income side.

Oh, and did you know the all-seeing McCain is a Teddy Roosevelt Republican?

The House republics who have signed onto this deal will not vote for it on the floor of the House. Guaranteed. This bailout will be on the shoulders of the Democrats and it’s a plan that has been hashed out by the right wingers online for days now. Do the Democrats listen to us when we call them to tell them to not vote FOR ANY BILL that comes to the floor? Nope! I called Tom Allen’s office 3 times on Thursday of last week and the people I spoke with had no idea what even Dana Perino of the White House was saying, which was in effect: THIS BAILOUT MAY NOT HELP AT ALL. THERE IS NO GUARANTEE AMERICANS WILL GET BACK THIS MONEY. No one was watching the live press conference! Spit.

It’s never been about “the economy.” From the start it’s been about ensuring those in the top 1% don’t lose any money. The only people Paulson is interested in helping are his buddies on Wall Street. Crony capitalism at its finest.

Some have cadillac, gold-plated health care plans….says McCain. Gee, are those the ones that pay benefits?

Prairie, what this all basically amounts to is Wall Street companies have been cooking their books and putting ‘band aids’ here and there to keep everything afloat. The floor could not handle this Big Boy. Enron did the same thing. They had lots of accounting books and when it was apparent they couldn’t continue the charade anymore the Big Boys sold out and left everyone holding the bag. Multiply this scheme by at least 26 companies on Wall Street!

Oh when I was at uni (thank you Irish taxpayer via the Ministry of Defense – hope you’re pleased with the return on your investment) the dominance of the neo-classical school was terrifying. There were literally no dissenting voices. Not a healthy situation in any discipline.

About the plan here’s what worries me:

I don’t have any problem with setting up a new “bad bank” in principle. That was how the failure of Lloyd’s of London was dealt with. Equitas was set up and it’s worked fine. The devil as always is in the detail.

I’d say that Obama’s insistence that US homeowners who can’t pay their mortgages get to keep their homes in return for lenders getting an equity stake sounds about right. The problem it seems to me is that Paulson and his backers. Let’s be blunt Paulson and the ruling class are now panicking. I don’t know anybody in the financial sector who doesn’t regard panic as more deadly than Bubonic Plague. To avert a public panic storm the sensible approach would be to guarantee the deposits of “ordinary” customers and investors in the banking system. That would restore confidence on main street and what’s left of the American manufacturing sector where it is really needed.

As to Wall Street – leave it to stew in its own juices, or to put it plainer. Sort yourselves out you stupid bastards.

Snuffy questions about Palin’s statement about going into Pakistan.

McCain says she shares my views. And we don’t announce we’re going in. [we just do it, eh?]

Oh, and did you know McCain is a speak softly and carry a big stick Teddy Roosevelt Republican?

I understand the meta, I’m asking about this specific point that is being floated, that everything can be blamed on Freddy Fannie and this one word change.

Hey SouthernDragon leave a comment at our place would you with a valid email addy (won’t be published) we’d like to get in touch.

mfi

Ive been screaming that FOR 2 YEARS…or when you sit next to somebody on an airpane…etc etc,if the sick are tending your kids….EVERYBODY NEEDS UNIVERSAL HEALTHCARE

NOW

As it grew — according to the industry’s trade group, the credit default market grew to $46 trillion by the first half of 2007 from $631 billion in 2000 — all that changed.

http://www.reuters.com/article…..18?sp=true

This article includes a list of countries of the world sorted by their gross domestic product (GDP), the market value of all final goods and services from a nation in a given year. The GDP dollar estimates presented here are calculated at market or government official exchange rates.

Several economies which are not considered to be countries (world, EU, and some dependent territories) are included in the list because they appear in the sources. These economies are not ranked in the charts here, but are listed in sequence by GDP for comparison.

The first list includes data for the year 20071 for members of the International Monetary Fund, for which information is available. Data are in millions of current United States dollars. These figures do not include the following nations (but may be included in the World Bank or CIA listings): Somalia, Cuba, North Korea, Iraq, several small states in Europe (Andorra, Monaco, San Marino, Liechtenstein, Vatican City) and the Pacific (Palau, Marshall Islands, Micronesia, Nauru, Tuvalu) or dependencies (Greenland).

The second list shows World Bank estimates for 2007, and the third list CIA world factbook estimates for 2007.
2007 List by the International Monetary Fund 2007 List by the World Bank 2007 List by the CIA World Factbook
Rank ↓ Country ↓ GDP (millions of USD) ↓
— Flag of World World 54,311,608
— European Union 16,830,100
1 United States 13,843,825
2 Japan 4,383,762
3 Germany 3,322,147

Rank ↓ Country ↓ GDP (millions of USD) ↓
— Flag of World World 54,347,038
1 United States 13,811,200
— Eurozone 12,179,250a
2 Japan 4,376,705
3 Germany 3,297,233

http://en.wikipedia.org/wiki/L…..es_by_GDP_(nominal)

My bold I am assuming that Flag of the World, is World GDP. I am quite sure that the 46 trillion in Derivatives is funny money because World GDP is only a little above 54 trillion dollars.
I think we should dismantle this market and slowly unwind these trades.

The tenor of this campaign is all Obama’s fault because he didn’t agree to the townhall debates.

oooh, the Obama oppo team just got a golden apple dropped right in their lap by McCain’s response on his lobbyists not taking money for as long as two years, etc.

Go for it, guys.

YES they ALL WENT TO BIZ SCHOOL TOGETHER,and learned how to steal

too right!

Kritter Klein on MSNBC. “This has been a bi-partisan effort from the very beginning.”

Just as I suspected.

The devil made me do it.

Any questions on the NY Times article on his gambling etc?

Good Morning Ian and Firedogs,

Ian – thank you again and again for all your work on this

T-Bear – waaay upthread – that China – don’t lend story was strongly refuted by the Chinese Govt. within an hour of it’s CNBC posting the other morning

some think it was an intentional side door warning, some think it was some klown in HK angling for some cash at his end. also please note, the original story said nothing about T-Bills – which is how Chimpigula gets his junk

Deep Thought from TPM: Why did Bush ruin this country?

Here’s how http://whitenoiseinsanity.word…..a-bailout/">I’M VIEWING IT TODAY. We are being duped and will be forced into something that is completely unnatural for us. Those who ignored the warnings that 9/11 was coming are the same assholes who ignored the signs on Wall Street purposely to again…get what they want.

Call me paranoid, but it seems this has been cooking for quite some time. Those who took George Bush’s advise to go shopping and bought the $1,200,000 house on their combined income of $80,000 and who bought the $80,000 Humvee to boot, just didn’t pay attention to much over the years!

Let them all collapse.

Reuters has a more current article on the compromise with more details:

To further protect taxpayers, institutions selling assets under the plan would issue stock warrants giving “taxpayers an ownership stake and profit-making opportunities with participating companies,” Pelosi’s statement said.

The plan also would let the government buy troubled assets from pension plans, local governments and small banks.

In response to a clamor for limits on executive pay, no executives at participating companies could get multi-million-dollar severance pay — known as golden parachutes — while CEO pay that encourages excessive risk-taking would be limited.

An oversight board of top officials, including the Federal Reserve chairman, would supervise the program, while its management also would be under close scrutiny by Congress’ investigative arm and an independent inspector general.

The program also calls for “meaningful judicial review of the Treasury secretary’s actions,” the statement said.

Ooopsie on the link. ;-)

The compromise plan is a dreadful flim flam. It uses smoke and mirrors to hide that it is the Paulson plan just with more verbiage. The Congress goes through the motions of not giving Paulson the full $700 billion but it really does. The government has options to exercise oversight, sell insurance on the mortgage backed securities, help distressed homeowners, and demand equity in corporations it helps but all of these have substantial caveats that ensure that virtually none of them will happen.

And as far as I can see there is no re-regulation, no Glass-Steagall, no transparency requirements, no restrictions on derivatives, no limits on leveraging, and no way to know the real value, and the extent of the losses, of financial companies.

This is another con being perpetrated on the American people, this time not with the willing connivance of the government but by the government itself.

Watching spawning salmon now as CBS Sunday Morning segues into Face the Nation with Obama.

Much better for the bloodpressure than the Ol’ Crap-shooter [and yes, I do mean that in the scatological pejorative.

Nada. Also, Snuffy didn’t follow-up on the campaign aides lobbyist payments. Their research is lagging at ABC…or they’re just facilitating TOC-S weak spin.

Are any of the critters saying they have the votes ?

A) because he blamed us all for Daddy41 not gettin’ that second term
B) because he could.

Well isn’t it a given that the “workers” shouldn’t expect to have the kind of healthcare that the privileged, like members of the Senate, have? Who do these “workers” think they are? This should be thrown back at smiley McCain at every opportunity. Elitism? Wonder if these non-gold plated plans would cover multiple surgeries for melanoma and the subsequent plastic surgeries or would those be considered the “gold-plated” options. Well, if we are the employers of congress I vote we test this plan by cutting their health benefits starting now.

Sorry for the rant. This makes my blood boil. Ian, thanks so much for the posts. I, for one, depend upon your excellent ongoing analysis. And I agree with klynn at #60. Many thanks.

IIRC Ireland’s tax rates for businesses has been retained against huge EU pressure to conform with the general rates elsewhere.

IIRC, Ireland have laws to protect those residing in a house unlike anything I’ve seen elsewhere. I believe that the home is retained even in bankruptcy, something that grew out of famine and later years of the Irish experience where landlords evicted tenets, etc. To get a mortgage in Ireland, the truism “to prove you don’t need it” is SOP.

The relaxation of verified income was a significant contributor, but indeed there are loans on the book without declared income as well.
The core problem was the deregulation which allowed these loans to be bundled and assigned an aggregate risk based on the assumption that defaults would follow historical norms. This assumption was good until the supply of quality paper was outstripped by demand. Originating lenders relaxed restrictions, but there was no corresponding increased risk assessment. With all the U of C types congratulating themselves on the success of deregulation, the bubble inflated. The secondary mortgage market flourished enabling everyone to go shopping and ignore the war economy. And now the whole thing is deflating like the Indiedome.

Speaking of Ireland, I think the bailout money should be given to George Mitchell for him to decide where it will go, because I trust him and not Hank Paulson.

Glenn has an excellent post up, the Great White Hope. Absolute must reading today. Kudos to Glenn.

I don’t get CNBC here in Spain, there was no retraction I observed, fwiw

The problem is that dogwhistle about Freddy and Fannie and minority/subprime lending is out there…and not being pushed-back-at that I’ve seen. That’s my concern.

Now CR has posted Pelosi’s statement.

Pelosi: Summary of Draft Proposal

It wasn’t the true no doc lender that was the problem but letting people with w2’s use the no doc format. In other words…the liar’s loan
and even then, if the Shrubian economy wasn’t built on a house of fake credit it might have been a contained problem

Thanks for this!

Check out how Rove Fournier’s AP is spinning this:

Under the plan, the government would purchase mortgage-backed securities and other bad debts held by banks and other investors. The money should help troubled lenders make new loans and keep credit lines open. The government would later try to sell the discounted loan packages at the best possible price.

At the insistence of House Republicans, some money would be devoted to a program that would encourage holders of distressed mortgage-backed securities to keep them and buy government insurance to cover defaults.

The legislation would place “reasonable” limits on severance packages for executives of companies that benefit from the rescue plan, said a senior administration official who was authorized to speak only on background.

It also calls for the financial sector to help make up the difference if the government does not recoup its investment in five years, the official said, but details remained unclear. 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 would require the government to try renegotiating the bad mortgages it acquires with the aim of lowering borrowers’ monthly payments so they can keep their homes.

Got that? The only good parts of the plan — the five-year fee levy of Wall Street firms to pay for the mess, the mortgage aid, and the oversight — were created by Dems, but their role in this was not mentioned, whereas the psychopathic House Republicans who have blocked any and all attempts to push for restoration of oversight are lauded as guardians of the taxpayers’ money.

Sure am glad I came back for a drive by. Will do it right now. Peace, brother.

Not quite TBear. They’re being brought into harmony slowly.

The legislation you’re talking about is “The Family Home Protection Act”

Family Home Protection Act, 1976 (that’s the text of the act.)

Family Home Protection Act (A series of Q&A from the Citizens Information Board)

One of the provisions of the draft bill permits the Treasury to buy toxic waste from 401(K) plans and from deferred compensation agreements. The draft bill can be found here. The provision is in section 102(9). This means that if Paulson’s deferred comp plan has garbage in it, it can be bailed out.

Massive conflict of interest.

T-Bear–

Sounds like a winner to me. Have you sent the plan to the Obama campaign? How about a reproducible letter we could each send to our Congresscritters?

But, then, BECAUSE it makes sense . . . it’s certain to be ignored.

Done at your textbook post.

I have a predatory lender. They are charging me with illegal fees and not applying my payments properly. According to the gov’t woman on the phone the calls regarding this practice have been extraordinary and chronic. These mortgages are where they are because the gov’t will not regulate the fees. Why won’t they pull them? Why won’t they let a judge regulate those illegal, immoral and unethical fees?? BEcause there is too much money in it. Those loans lose half their value without those fees. There only hope is getting some of us to pay those fees.

It makes me sick!! I was really praying that congress would deliver me from this hell. I can’t believe they are not going to let the judges regulate those fees. This makes it worse…because it tells me that they NEED us to pay those fees. Our gov’t is now colluding with these awful companies to force people like me to pay double and sometimes triple our payout.

I wouldn’t be in foreclosure or chapt 13 bankruptcy if the company had followed the laws…and if the poor judge had the right to stop them from charging me these illegal fees for inspection when they don’t come near my home, or escrow shortages because “they” paid my taxes late.

God help us…I am sick to my stomach about what this means.

There was an analogy proposed in the paper this morning that the situation is like a big car wreck that is blocking the highways and that the government bailout is clearing the wrecks from the road. The wrecks will be sold later to cover the costs of moving them.

This is the wrong analogy. A better analogy would be:

Our banks and other financial institutions were infiltrated by gangs of counterfeiters. These gangs used the banks assets to to create fake financial instruments which they peddled to other banks and investors. They did this by packaging badly valued loans into securities which looked exactly like the other securities. Nobody could tell them apart. They used the money they received for the securities to buy more loans and repeat the process, using leverage to produce much more in counterfeit securities than the underlying value of the loans could support.

Still, all the banks were receiving so much money that they could afford to give their executives huge compensation packages and contribute lots of money to political candidates. Eventually, the housing market slowed and they could not buy enough loans to keep the process going. Some of the loans had been constructed to allow people who couldn’t really afford them to believe that they could for awhile.

When these loans began to fail, the securities based on them began to fall in value. When this happened, the banks and investors started looking in more detail at the other securitised loans in their portfolios. That’s when they discovered that they had counterfeits in their possesion, too. They had thought that they were the only ones smart enough to have counterfeiters on their payrolls.

They tried to sell the counterfeits to the other banks and investors, but they had wised up too! They wouldn’t buy! Credit markets seized up precisely because they discovered that they were all crooks. They couldn’t admit this to the public because many of them would go to jail. They would have to get the government to bail them out. Fortunately, their poitical contributions had bought them friendly ears in the government.

Their political friend won’t expose them because the problem was so big it might bring down the whole financial system. Besides, it might make it difficult to be re-elected and the banks could play on that fear.

This is what Paulson explained to the House and Senate leadership last week. This is why they won’t tell us what he said. This is the huge problem we have. This is the problem that you have to help us bail out and hide the true nature of from the public. If you admit the true problem and try to have anyone held accountable, the whole financial system comes tumbling down. So far, only the big banks, big investors and hedge funds know that they can’t trust each other. The people only suspect it.

If the people’s suspicions are confirmed, they will stop buying. Why should they believe they can afford that new house or truck or big screen tv? Because the bank was willing to loan them money?

They can no longer trust the bank’s action because their risks are no longer aligned. Why should the bank care if they can afford it? They aren’t renting money. They are selling their access to someone who needs money (you) to someone else whe will use the probability of your future payments to back a security that they will sell to someone who has money to invest. The interest rate that you pay is set high enough to cover those that will be unable to repay. The underlying value of the property also protects the value of the security.

Until it doesn’t. When people started having to default on their loans in larger numbers than expected, the value of the securities fell. Because their were more properties than people who could buy them, the value of the properties fell. That increased the risks of other loans failing, so the value of the securities fell again. This meant that the cost of loaning money was going up which caused people to be more careful when buying. They started waiting for properties to fall in value which made them fall in value (fewer buyers). This raised the risk of default because people couldn’t refinance or sell without taking a loss.

Still, some people have to sell. They get divorced. They have a health emergency. They lose their job. Their spouse dies. If they can find a buyer, they take a loss. If they can’t find a buyer, they default or get forclosed on. Many end up in bancruptcy. The neighbors’ homes drop in value because of the sales price or the empty home next door. The value of securities drop.

Rinse and repeat…

Thanks you’ll be hearing from one or other of the team shortly.

mfi

Makes you wonder how many homeowners before foreclosure sets in will burn down their homes? Oh boy.

It’s never been about “the economy.” From the start it’s been about ensuring those in the top 1% don’t lose any money. The only people Paulson is interested in helping are his buddies on Wall Street. Crony capitalism at its finest.

For discussion purposes only, your argument is not my argument. The proposal given was to decouple the “working” economy from the fictions of the financial edifice. In that manner, the “working” economy may be able to continue function and not be drawn into or escape the worst ravages of a financial meltdown, which will occur despite whatever is done that does not address the underlaying systemic problems with an effective control. I see no hint of that happening in anything this Congress is capable of producing. But as long as economics remains an echo of babel, there is little hope of finding a solution.

As of the late 1960’s, there were only 6 giants of economic philosophy, 5 British, 1 German, NO American. Despite numerous Nobel Economic Awards, some for fraudulent intellectual produce, THAT HAS NOT CHANGED in the intervening years. YMMV

Living in interesting times, no?

There’s nothing practical I can do – other than to offer my sympathy – try not to let yourself get panicked into doing anything (and see if you can find a citizens advice bureau with a financial adviser in your area.)

Best of luck.

markfromireland

Thanks MfI, I will bookmark those for future reference, Thanks again

MSNBC Mike Viquier talking about the bipartisan Cash for Goldman Sachs Trash: “The Core of the Bill is essentially what the Secretary wanted to do.”

Pelosi: Summary of Draft Proposal

This is a tissue of half truths and lies, but mostly lies, put out for the rubes.

damn.

not surprised, but very, very disappointed.

before i read what other people think of the plan, i’d like to read it for myself. has the actual language been posted yet?

Haven’t been able to find it.

I’m very naive about this stuff and am confused about how much any of this has to do with the housing market. IIUC, there are about $11.1T in mortgages and four-to-five times that amount in credit derivatives. IIUC, Ian blames that on leverage, which I guess means that investment banks accepted deposits from and/or borrowed from the Wall Streets ultimate creditors, the American public and various foreign entities. And for every dollar that has gone into mortgages, four or five times as much money has gone into loans/bonds to businesses that have spent it on operating expenses, e.g., salaries, bonuses, rents, leases, fuel for corporate jets, etc. And those bonds are not faring a great deal better than the home mortgages.

Is that what has gone on, or am I somehow off track. Visibly my understanding of “leverage” and it significance to this mess is very shakey. Thanks for any help you can give.

thanks. the sunlight foundation doesn’t have it posted yet either.

i’m going to guess that:

1) congress doesn’t want us to see it until they’ve been able to control the media response

and/or

2) it actually hasn’t been written yet.

To further protect taxpayers, institutions selling assets under the plan would issue stock warrants giving “taxpayers an ownership stake and profit-making opportunities with participating companies,” Pelosi’s statement said.

A warrant is an equity based derivative. It is not the equity itself. It is more like an option but currently I am unsure whether what is being discussed is a put or a call option, and I seriously doubt Nancy Pelosi does either.

So, in all cases, in my opinion, if the government buys the banks crap, the government should get equity.

Assets or equity, nobody rides for free.

A warrant is an equity based derivative

you make it sound as though the fed gov is becoming a giant hedge fund. or am i hopelessly lost?

IMO this was a PR stunt to pacify the markets. What the “agreement in principle” was supposed to do before McSame rode in and screwed it up.

A warrant is an equity based derivative. It is not the equity itself. It is more like an option but currently I am unsure whether what is being discussed is a put or a call option, and I seriously doubt Nancy Pelosi does either.

IIRC, a warrant is, in effect, a call. No?

Hdege funds achieve leverage by purchasing warrants instead of stock. But the we are paying market price or more. We could be leveraging by accepting warrants rather than equity if we are getting those warrants at market, but I suspect that’s not what’s happening here.

Perhaps the point is that warrants don’t get a vote. So perhaps this is a mechanism to appease Wall Street and Free-Market Govt-Is-Evil conservatives by preventing free-market socialism, where the government owns possibly controlling equity in corporations. Just guessin’.

But the we are paying market price or more

except we aren’t actually paying anything now. isn’t it as though we were taking out a loan for the “purchase” w the only collateral the ability of future taxpayers to pay?

Everything the government does is on credit.

Leveraging means something like this. You sell $10 million in stock. You use this money as the basis to take out a loan so you can buy $100 million in mortgages. Now say you issue mortgage backed securities based on these and sell them. Now you have a $100 million in cash so you go out and buy more mortgages only this time you use your $100 million to buy a billion dollars of them. You have just leveraged your initial $10 million 100 times. This works if you, your banks, and the buyers of your paper are all sufficiently greedy. It is made easier on the upside of a bubble because the value of the underlying asset keeps going up. So even if a few percent of the mortgages default, a) the house’s value is greater than at the start and you can sell it again and b) the overall value of the mortgage package on which all this is based keeps going up as well.

As for derivatives, pertinent to this discussion, we are talking about two types. The first we have already mentioned. These are the mortgage backed securities. They are not the mortgages themselves but a financial instrument (or to use the technical term “thingy”) based upon or derived from them. These can themselves be further sliced and diced into further generations of derivatives. For example, one that is based on 50% of this derivative plus 30% of that one and a final 20% of a third. And so on and so on.

The second kind of derivative is the swap. This was a kind of insurance policy in the event that some mortgages declined in value. This derivative basically said if you pay me a certain fixed amount say every 6 months I will make good on any difference between what you initially paid for your mortgage backed security and what it is worth when you come to see me. When the housing market was going up, this amounted to essentially free money for the issuers of this kind of derivative. They could sell it as extra insurance to conservative institutions secure in the knowledge that the housing market would rise forever. Except of course it didn’t. And when the bubble burst, issuers of these derivatives didn’t face payouts on one or two of them but all of them. Now what is really amazing is that even has things got unsettled in the housing markets the unbridled greed of financial companies caused them to keep issuing these. And here’s the thing about these. Someone who wanted to take out this kind of insurance wasn’t limited to taking it out once but could take it out multiple times and so multiply their gains paradoxically off their losses. And there is yet another thing. The issuer of the swap, the one who would be stuck paying out for losses, could go and buy another derivative which insured it against any losses which it might get hit with. Then the issuer of that derivative could go out and buy one to cover any potential losses it might have and so on and so on. Again amazingly all those things were out there and companies were often both buying and selling them so that they might be the seller of one of these swap derivatives and a generation or two later be the buyer of one all involving the same initial deal.

You may be reeling about now and have decided this is madness. Well, it was. But it was a madness that took place out in the open in plain sight of governments and regulators around the world. And not one of them did jack to stop it.

Hugh, Methinks you’ve a post in there, great comment.

Thanks Ian, another keeper post.

Hi Hugh. I agree with T-Bear; this comment could be the basis for a much needed thread. I do, however, have some questions/comments on your comment.

First of all, this portion:

And here’s the thing about these. Someone who wanted to take out this kind of insurance wasn’t limited to taking it out once but could take it out multiple times and so multiply their gains paradoxically off their losses.

To what extent is/was this really happening? Per the wikipedia’s entry on credit-default swaps:

If a credit event occurs, the typical contract either settles by delivery by the buyer to the seller of a (usually defaulted) debt obligation of the reference entity against a payment by the seller of the par value (”physical settlement”) or the seller pays the buyer the difference between the par value and the market price of a specified debt obligation, typically determined in an auction (”cash settlement”).

Obviously the defaulted mortgage (or whatever) can be delivered to only one swap issuer. And, if it is sold at auction, it can’t be delivered to any. That doesn’t say it can’t happen, but it does cause some complications.

Secondly, all of the derivatives you describe are ultimatey mortgage based. Is that the extent of this crisis, i.e., mortages and their derivatives? There also exist bond-based derivatives, and I’m wondering what portion of the crsis is due to them.

Thanks again.

Thanks mfi.

Thanks as always Ian for keeping us fluent.

digg

So basically the Dems got vertually nothing except avoiding giving 700B all at once.

I know we don’t have the language yet. It seemed like the language we have heard about is:

To the extent possible help people in foreclosure, but they can’t really do that.

Some limit on executives. Ha. Some?

I have a feeling that this is going to go down as one of the political coups of the decade.

Bullseye on raising FDIC above $100,000. AFAIK, large numbers of US citizens with more than $100,000 in an FDIC insured bank account, are taking their money OUT of the bank and investing it in TBills. That’s what’s hurting US banks.

Your comment would be excellent material for an Oxdown Gazette diary.

Agree.

We also get another shot, however, at building relationships with conservatives on this issue. Black caucus, unions, liberals and Reagan Democrats can forge a powerful alliance on this issue.

Hugh, Ian and masacchio:

Hugh great comment. There’s a bigger post there as others have noted.

To all three of you: I imagine you are all communicating on the bailout plan. But boy it would be great to have you work together and come out with coherent comments on each point of the bill which is bad for us and give constructive suggestions we can point out as we fax, call and visit in person, our reps. I said the following in an earlier thread: this is Tea Party time folks and we better dump IT in the harbor and have a smart response ready.

I totally agree. This will be the tone of the campaign starting this week. The Reps will avoid ANY responsibility on being the cause. McCain will vote “No!” and show the world “he’s a maverick and wants to protect the tax payer.”

McCain is going to play both sides as will the GOP. The Dems need to be smarter.

But boy it would be great to have you work together and come out with coherent comments on each point of the bill which is bad for us and give constructive suggestions we can point out as we fax, call and visit in person, our reps.

I have a comment on this point:

According to the NYT, only in some cases do taxpayers get an equity stake. Other sources aren’t clear on this. I suspect the original idea that if it was a reverse mortgage the government doesn’t get a stake, but if the government directly intervenes it does get a stake is what happened. The reverse auction is needed because no normal investor will pay what the banks need to sell this waste for to survive. So, in all cases, in my opinion, if the government buys the banks crap, the government should get equity. Warren Buffet showed the way, and the government should insist on nothing less than the 10% guaranteed dividend convertible shares he got and they should get an amount equal to the maturity value of whatever securities they buy. If banks don’t like it, well, they obviously don’t really need the help, do they?

This should be a value-for-value transaction. The people should always get their money’s worth in assets and/or equity at market value. Or as us DFHs used to say: “Gas, grass, or ass — nobody rides for free.”

I was talking about mortgage backed securities because they are the principal focus of the bailout although the bailout has been set up from the little that has come out to cover others as well.

While defaulted mortgages can cause a loss in the value of a tranch, my understanding is that the settlement of the swap is based on the difference between the initial price and the current price of the mortgage backed security. Now while everyone knows what the initial price of the mortgage backed security was, the current price is indeterminable because these securities aren’t selling so the differential between the two can’t be determined either.

I’m way late but hopefully others will see this.
“Is Purchasing $700 billion of Toxic Assets the Best Way to Recapitalize the Financial System? No! It is Rather a Disgrace and Rip-Off Benefitting only the Shareholders and Unsecured Creditors of Banks”
http://www.rgemonitor.com/roub…..s_of_banks

Above is Roubini’s take on it.
“That document touted that provisions that liberal groups wanted had been scrapped, including increased power for shareholders on executive compensation issues.” —-http://thehill.com/leading-the-news/the-pr-game-starts-on-rescue-plan-2008-09-28.html
So no restrictions on exec pay; anyone surprised?

What $700B can’t buy: a crystal ball
http://www.chicagotribune.com/…..ory?page=1

“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.” -renegoiate with whom? People who have lost their jobs? What if the ‘trying’ doesn’t ‘work’? What about those who have already been foreclosed on despite no one knowing who actually owns the mortgage?

“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.” -renegoiate with whom? People who have lost their jobs? What if the ‘trying’ doesn’t ‘work’? What about those who have already been foreclosed on despite no one knowing who actually owns the mortgage?

In the early 1930s, the government set up the Home Owners’ Loan Corporation to:

… refinance homes to prevent foreclosure. It was used to extend loans from shorter loans to fully amortized, longer term loans (typically 20-25 years). Through its work it granted long term mortgages to over a million people facing the loss of their homes.

I propose that whenever a mortgage is sold (including to the government), the homeowner gets an opportunity to acquire the mortgage by matching the price, and that some latter-day HOLC be set up to assist homeowners in purchasing/refinancing their mortgages.

Roy Blunt is contrdicting Pelosi about restrictions on exec pay; about ’stock warrants’:
http://www.smartmoney.com/ask/…..y=19990608

‘Nuf said about ‘warrants’.

Unfortunately, no HOLC per Pelosi’s summary

Hi Hugh: I have another point of confusion about your comment. Who is loaning these leveragers the other 90% of the purchase price of the stuff they are buying? And, why should their loss be considered our problem?

Again, these warrants must be appropriately valued. This should be a value-for-value exchange. If there is no current market for these warrants, it’s easy to claim they are worth much more than reality. There are, however, some reasonable models for options pricing, e.g., Black-Scholes.

Small banks, big banks, and why wouldn’t they? Not only did they think that financial companies that they made the loans to were good as gold, they were getting fees out of making those loans and these were the same finance companies who were buying their mortgages off them (and they were getting fees off writing those) and housing was going up forever so where seriously was the risk?

Wigwam, as an ex RCR, I used OptionVue all the time and analyzed using various models, including Black-Scholes.

More on the warrants; “through warrants giving the government options for non-voting stock shares that could turn a profit once the economy improves.”

And if the economy doesn’t improve?

and housing was going up forever so where seriously was the risk?

The first law of reality: Things that can’t go on forever don’t.

“RCR”? In any case, it’s good to have someone here who understands that stuff. (I’ve merely thought about it a little bit and know enough to know that I don’t very know much.)

RCR means ‘Registered Commodity Representative’; I used to have my own biz as a commodity broker; failed as I’m lousy at cold calling and trying to persuade people I don’t know to put forth $5K for risk taking.
As a trader I did ok for my customers who listened to me; those that didn’t lost money.
As an aside to all this:
Medicare bargains going away
http://healthcare.zdnet.com/?p=1384

“through warrants giving the government options for non-voting stock shares that could turn a profit once the economy improves.”

So the up-front reason for warrants rather than equity is not to cheat the people but to prevent them in having a say in how the corporation is run, i.e., free-market socialism.

But the possibility for slight-of-hand remains and must be considered a danger:
— What is considered to be the value of the warrant.
— What is the exercise price?
— What is the expiration date, if any?
— What are the details/restrictions of the class of stock that it buys?

RCR means ‘Registered Commodity Representative’;

Cool!

Perhaps you can give me an answer to a question that I asked earlier. What portion of the problematic instruments are mortgages and their derivatives? And what portion is based on equity and bonds and their derivatives?

If most of the problem has to do with mortage-based instruments, then IMHO the problem is considerably smaller and more tractable.

oops. This comment was in reply to ubetchaiam at #192.

Ian, my question is are credit default swaps or other dubious “assets” besides mortgages also being bought by the Treasury? If so, this is scary.

You got it. Sounds good but…. When Bernanke says ‘it’s wall street lingo that Middle America doesn’t understand’ it’s VERY revealing; Again, it’s ‘father/mother knows best’; the powers that be don’t want the people to be informed and exercise what little power they have. And, seemingly, most of the population don’t want to be aware or exercise what power they do have.
“A society of sheep must in time beget a government of wolves.”
–Bertrand de Jouvenal

“What portion of the problematic instruments are mortgages and their derivatives? And what portion is based on equity and bonds and their derivatives?”

I honestly don’t know and I don’t think anyone else does. If by ‘equity’ you mean cash on hand, that is what is used as the basis for leverage and gets back to “The events of the past year are not a mere accident, but are the results of a conscious and willful SEC decision to allow these firms to legally violate
existing net capital rules that, in the past 30 years, had limited broker
dealers debt-to-net capital ratio to 12-to-1.
Instead, the 2004 exemption — given only to 5 firms — allowed them to
lever up 30 and even 40 to 1.
Who were the five that received this special exemption? You won’t be
surprised to learn that they were Goldman, Merrill, Lehman, Bear Stearns, and Morgan Stanley.”

Regarding mortgages, this is how the game is played and why Buffet, Gross of Pimco, etc are saying there is money to be made; go here:
http://news.goldseek.com/Mille…..020584.php

BUT the legislation news I have read doesn’t say who or how the Treasury will value such RBMS and associated tranches.

What bullsh** is this now.

It’s just being reported that after non-stop 24/7 negotiations, because the world’s economy is in peril, because banks and businesses are failing every minute – it will all be postponed because of the Jewish holiday on Tuesday.

Are you fu**ing kidding me??!

Then it obviously wasn’t worth the rush or trouble in the first place!

i’ll post this again when it’s on topic, but for now it probably belongs here.

the place to watch for house action on the bill is the house rules committee website. special rules and notices of action are reported here:

http://www.rules.house.gov/special_rules.aspx
http://www.rules.house.gov/rules_news.aspx

the most recent one was reported out yesterday at 5:55pm:

H. Res. 1514 Rules

Waiving a requirement of clause 6(a) of rule XIII with respect to consideration of certain resolutions reported from the Committee on Rules

The Committee granted, by a non-record vote, a rule waiving clause 6(a) of rule XIII (requiring a two-thirds vote to consider a rule on the same day it is reported from the Rules Committee) against certain resolutions reported from the Rules Committee. The rule applies the waiver to any resolution reported by the Rules Committee on the legislative day of September 28, 2008 or September 29, 2008.

amendments submitted by the minority (requiring 6 hours notice and others) were defeated along party line votes.

looks like the house will be trying to vote today or tomorrow.

linky?

thanks.

? they won’t have the votes without the votes of the jewish congresspeople.

In the United States, a federal holiday is a holiday recognized by the United States Government.

Non-essential federal government offices are closed.

So the entire world waits, because 42 congressmen want a holiday?? And while they bitch about the governments bailout and their concerns for the taxpayer – yet they’re ALL perfectly happy to take their special interest Holiday pay, out of our pockets.

My family hasn’t had a holiday for two years.
What hypocritical liars and con artists we have to lead us..

selise: http://news.yahoo.com/s/time/20080926/us_time
/congressandthefinancialbailoutroundtwo

greenwarrior: 42

The Economist has laid out the issues pretty cleanly in this article: A Fate Worst Than Debt

I haven’t seen any convincing arguments that simply letting the entire financial sector collapse will, in fact, have little or no deleterious effect on the “Main Street” economy.

Just based on early reports, it appears that the Dems have successfully stood their ground in designing the plan. In particular, the House Republican “insurance” scam, which has been universally condemned by economists as expensive and unworkable, is appended as an “option” and not as a requirement.

Thanks.

mp