Pick Your Poison

More analysis ... on the amount of bailout needed, if any (0.00 / 0)

From Devilstower over at DailyKos...

1% of all mortgages -- the amount now in default -- comes out to $111 billion. Triple that, and you've got $333 billion. Let's round that up to $350 billion. So even if we reach the point where three percent of all mortgages are in foreclosure, the total dollars to flat out buy all those mortgages would be half of what the Bush-Paulson-McCain plan calls for.

Then we need to factor in that a purchased mortgage isn't worth zero. After all, these documents come with property attached. Even with home prices falling and some of the homes lying around unsold, it's safe to assume that some portion of these values could be recovered. In the S&L crisis, about 70% of asset value was recovered, but let's say we don't do that well. Let's say we hit 50%. Then the real outlay for taxpayers would be around $175 billion.

Which, frankly, is a number that Wall Street should be able to handle without our help. After all, the top firms on Wall Steet payed out $120 billion in bonuses alone between 2000 and 2006.  If they've got that kind of mad money, why do they need us to step in now? And why do they need twice as much as all the mortgages that are even likely to implode?

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by: CaptCT @ Fri Sep 26, 2008 at 09:22:53 AM CDT

My question precisely (0.00 / 0)

The number of times these mortgages were sold to make money is really unclear -- that ugliness raises its head when one of the paper holders tries to foreclose and a judge says, "show me the underlying paper" and they can't produce it.  the accounting on all this BS is apparently a mess.

Why NOT just buy all the mortgages directly?

Isn't that cheaper than bailing all the people with their hands out trying to get a piece of them?

I don't understand that.

meanwhile, this latest from Krugman sums up my own layperson's sensibilities on the matter:

The plan doesn't directly address the key issue of undercapitalized financial institutions; instead, it relies on the assumption that mortgage-related toxic waste is underpriced, and that the Treasury can wave its $700 billion magic wand and make everything fine again

Paulson is behaving like a true believer who is in shell shock, clapping his hands frantically and saying "I do believe in fairies" to keep the dream alive.

Pretending we are paying to address liquidity and giving Paulson the freedom to overpay for stocks to surreptitiously address overleveraging and solvency issues seems not so good to me.

We have a double crisis of "confidence" -- the Congress doesn't trust each other, and the public trusts neither Congress nor Wall ST, and the banks are playing liar's poker with each other about what they're holding -- that's why nobody wants to lend anybody any money.  How do we get to a core of integrity in all this distrust? I am not sure that money alone can do that.  Fear and mistrust in the market are fueled by this lack of information.  And if the information comes out about what's on companies' balance sheets, many could fail.  Is averting such failure good in the long term?  Probably not.

How can we force the banks to be honest about their balance sheets?  Entering into a mess with a fistful of money when the mess is caused by basic dishonesty to me seems like a way to become dishonest yourself and instead of being the honest broker, you become just another broker.  Why am I thinking of the David Mamet film House of Games?

Clearly the Dodd/Frank proposal is more responsible than the Paulson one -- but we still have our feet nailed to the floor by a starting proposal from a guy -- Paulson -- with a horribly bad record in which he has consistently mis-assessed the condition of Wall St and the seriousness of the situation.

Interesting plan, but does it address the real situation in which we find ourselves?  if not, it is just the beginning.

Due to all the mistrust going around, I would like to see a list of the 40 GOP members who are opposed to the bailout, and have a look at who's up for re-election in November.  Some of them I have read are junior members who are ideologically opposed to government intervention (looks good now, guys, but how good will it look when you don't want the government to intervene in your screwed up state economy post-meltdown?).

Brings me back to Al Gore and being worried about disrupting the country by insisting on a recount.

Looks pretty good about now, doesn't it?

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by: greenpeas @ Fri Sep 26, 2008 at 09:59:55 AM CDT

[ Parent ]

and meantime Washington Mutual folded... (0.00 / 0)

WTF guys? are they HELPING? I feel no confidence even if they DO pull out a workable plan

I mean, I know it'll take time to pull together a bailout package, but can't they do things piecemeal?

I have my suspicions as to who's next, but I'm not going to say. I just even don't want to think about it :(

.Adding Another Dimension of Vituperation Toxicity to Blogging since 1999!.

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by: nolopro @ Fri Sep 26, 2008 at 10:06:24 AM CDT

By the way, the House GOP members deserve an answer (0.00 / 0)

It is insufficient to say to them "get off it because Paulson says it won't work".  Paulson's word on what works/doesn't is not reliable and the Dems should be the first to acknowledge it (unless they also are so unsure that the deal will work that they want to make certain that the GOP is on the hook for dillydallying).

Tell the House GOP members WHY their plan does not respond to the current situation and give them a chance to get on the same page.  I'd like to listen in on that explanation, by the way.  I think they don't have a plan but rather a list of ideas without a coherent underlying understanding, but at least they (late) put something in writing rather than just refusing to vote on something.

Of course, easy for me to say, because I don't know the players and Barney Frank, who is one brilliant and streetsmart MFer, does.

The public deserves to know that alternatives have been examined and why they are rejected.  Paulson couldn't explain his way out of a paperbag the other day and was incoherent on whether or not other alternatives have been considered.

In all of this panic aobut the precious "markets" and how they "function" and we can't disturb the market or all hell will break loose -- it's probably true, the market probably loves being perceived that way, but....doesn't it occur to anyone that this is economic terrorism and brinksmanship and banditry, and it is a fucking bad way to run an internationally interlinked economy/financial system??????  

Marcy Kaptur of Ohio said of the securities the government would purchase, which are derived from the income streams of (bad) mortgages, "this is phoney money".  She was not impressed.  She didn't have a better idea, but she was calling it as she saw it -- identifying this moment as the culmination of several decades of transfer of capital from locally operated banks in communities to huge "financial services" giants.

Philosophical correctness, however, is not going to win the day here.   It was just nice to hear somebody call a pig a pig.

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by: greenpeas @ Fri Sep 26, 2008 at 10:11:16 AM CDT

Uh, greenpeas... (0.00 / 0)

Barney Frank, who is one brilliant and streetsmart MFer...

Barney Frank called a press conference last night in which he was complaining about the House Republicans not signing on with the Bush/Paulson - not a great moment in the history of the Democratic Party. I don't know what's on their list, but for a Democrat to call them out for not following the Decider's wishes is really disappointing to me.

I think the public is sophisitcated - or cynical - enough to give equal blame to both parties for the lack of a good plan, or for that matter for a bad plan if one does pass. If Democrats are counting on the same old strategy of caving in at the last moment with meaningless window dressing that Bush is going to ignore anyway, I don't think they'll get as much mileage out of it as they think they will.

And McCain might be able to somehow wrangle the mess into his advantage, as long as the media is willing to play along.

"I think the economic logic behind dumping a load of toxic waste in the lowest wage country is impeccable and we should face up to it."

-Lawrence Summers

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by: joesaho @ Fri Sep 26, 2008 at 13:59:25 PM CDT

[ Parent ]

Yes, I also saw the news conference last night (0.00 / 0)

And it was in response to that criticism by Dems that made me say I think the GOP alternate plan deserves an answer as to why it will not work (not just being brushed aside).  Sorry I wasn't clear.  Whether or not Frank dumped on the GOP for its response, I still think he's very bright and exceedingly quick on the uptake, both on factual arguments and on having political insights into what is being done and why.  I am very glad he is in on this attempt at a solution.  Very much a diamond in the rough.

It is possible that this last minute GOP pull=away from a deal was seen as yet another Lucy and the Football Moment by the Dems.  Like I said, confidence and trust in your counterpartner is not only an issue in the markets -- it's an issue in Congress.

I have not had time today to read any more about how the whole thing fell apart and where we are now.

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by: greenpeas @ Fri Sep 26, 2008 at 15:05:57 PM CDT

[ Parent ]