A Market Based Alternative To The Wall Street Bailout

File this one under a moment of personal privilege, as it has nothing to do with “GA” politics, except for the fact that our GA delegation in Congress is currently deciding on how it will vote regarding the largest bailout in the history of the world.

While not gleeful about the prospects of the Paulson bailout plan announced last week, I’ve resigned myself to the position that, absent strong federal government intervention, the current crisis on Wall Street will result in a total collapse of our banking system, economic system, and in many ways, our republic.

While I think the plan is workable, it needs some tweeks, at a minimum.  The dilemma, at least to me, is how do we fix the underlying liquidity and structural problems with our banking system without rewarding the bankers who created this mess in the first place?  Yet, if the fix is too punitive, those same bankers are forced out of business, with a similar result as if no “fix” ever took place.

There’s an excellent analysis here , and I would encourage anyone who is having difficulty understanding the basics of what is going on to read that gentleman’s diary’s.  (Yes, it’s from RedState, but his analysis is detailed, yet in layman’s terms, and is not partisan).   

I came to the conclusion yesterday, after absorbing Paulson’s testimony to Congress, that there has to be a better way.  Paulson intends to pay higher than current market prices for the toxic loan portfolios in order to flood the market with capital.  I think this is too much of a wealth transfer to the taxpayers, with dubious expectations of results.   Yet, I would still admit, I would prefer it to doing nothing.

While it may be too late for counter proposals, this one kept me up last night.   But if we’re already at the point of acknowledging that the mortgages currently on the books are indirect liabilities of the taxpayer, and we have created a bailout of Wall Street in order to save main street, why don’t we just bite the bullet and bail out main street?

Instead of buying “toxic” portfolios with dubious value, why not allow the Fed to create an RTC type entity to refinance and hold mortgages?    Anyone with a mortgage currently on the books would be allowed an automatic refinance into the new fed pool of mortgages, at a rate of 5%.   The loans would be subject to a limit of 100% of current appraised value.   If the mortgage amount is higher than 100% of the new appraisal, the fed and the mortgage holder would split the amount.  (There’s your bailout, Wall Street).   Given the low doc nature of these refis, it would seem that closing costs could be minimized to appraisal, title search, origination fee capped at .25% of the loan amount, and attorney’s fees. 

As a bonus, the loans would be assumable.  This would encourage people who are at or near 100% loan to value to stick with their mortgage, knowing that when interest rates go up, (and they will), their home will have additional value because it has a 30 year fixed rate loan at 5%.   This will help create equity in exisiting homes, while not encouraging additional new construction (oversupply) because new construction will not qualify for this program.

This would have much of the same effect as the proposed bailout.  Capital would be freed up overnight on Wall Street.   Homeowners would see relief across the board, not just the ones who borrowed over their ability to pay.   Wall Street would be able to sort out its own winners and losers based on who has the most loan exposure to loans over 100% LTV, but wouldn’t have Congress dictating how to run their business.  (After all, Congress has yet to prove they can run Congress).

So, it’s an idea.  I’m throwing it out there.  Clearly would need additional details to be legislation, but it may get some conversation started.

But if you like the idea, and you know a GA Congressman or Senator who hasn’t decided on how to handle the bailout, you may want to send this idea their way.

63 comments

  1. The loans would be subject to a limit of 100% of current appraised value. If the mortgage amount is higher than 100% of the new appraisal, the fed and the mortgage holder would split the amount. (There’s your bailout, Wall Street).

    Please explain this further. It sounds like if one currently has a mortgage of $120K (at some interest), but the appraisal comes in at $100K, the loan gets rewritten at $100K at 5% and the taxpayer and the current lien holder eats the $20K and the home owner just got a fifth of his/her house paid off.

    I wonder if I can get someone to appraise my house at half my current loan?

    Icurus, wouldn’t something similar happen if we allow these companies to enter bankruptcy and let all this play out in a bankruptcy court (rate renegotiation and selling off of assets to private investors instead of the government at the taxpayer’s expense)?

    Currently, I’m still in the “do nothing” or “do less” column. Since I believe it was government intervention that got us here, I believe less regulation is better regulation. However, if fraud, coercion or other illegal activity took place, some prosecutions of those involved are in order, even if those involved are elected officials or appointees.

  2. Icarus says:

    100% LTV loans were very easy to get until about 12 months ago. Yet property values are declining. That’s a large part of the current problem. Most of the current problems aren’t “Subprime”, but Alt-A, and now, even prime.

    Because we know that these portfolios are filled with loans of questionable LTV’s, re-calibrating the actual value of the loans is essential to understanding what the real values are here.

    By getting a current appraisal (which getting an inflated appraisal is much harder now than it was 2 years ago, as well), we should have a “floor” value for the home, if properly marketed. Giving the homeowner a new, low interest rate that is assumable gives them incentive to stay in the home, and/or sell it with equity when the time comes.

    As for the write-off portion, it also allows the bank to quantify what the problems are, sooner rather than later. In the current situation, the unknown may be worse than the reality. The gvt. is still eating some of the problem, the lender is eating some of the problem, and the homeowner doesn’t walk away from the home that they owe more than it’s worth, so they don’t further exacerbate the problem.

  3. Forcing the asset re-evaluation, as an exercise, might be a good assessment tool, but I don’t think acting on the result is actually necessary. (I have a problem with this when property tax is the issue as well). In business you realize very quickly, actual value is what someone is willing to pay. Anything else is arbitrary. Therefore, “most of the current problem” would be arbitrary.

    Also, depreciation doesn’t necessarily give someone cause to “walk away.” Think of a newly purchased auto.

    Personally, I think “hysteria” is the biggest problem. “Maintain, Adapt and Overcome!” was advice I was given when I was in the military. I believe it is well warranted here.

  4. IndyInjun says:

    This bailout is extortion being perpetrated for, and by, FRAUDSTERS.

    Yes, there may be drastic consequences fairly quickly.

    Let the markets work. Let the guilty be punished.

    If this bailout passes the very moral fabric of the country will be torn apart.

    As the markets spoke Monday, passage of this bailout will cause an immediate explosion in energy prices, followed by a Weimar inflation that will wipe out “fools” like me who actually had savings to retire on.

    This may be a choice of poisons, but I choose to let the chips fall where they may, which will result in brutal punishment for the perpetrators, either as traitors or under Sarbanes-Oxley.

  5. IndyInjun says:

    Icarus,

    IF there is a bailout, you are right.

    Also, the line of defense should have always been with the bank deposits. Everything above that, which the securties are, should be allowed to go to zero.

  6. GreenAllTheWay says:

    As Congress considers a $700 billion bailout for Wall Street and the banking sector, there are calls to restrict the pay and severance packages for CEOs at investment houses, banks and mortgage lenders poised to be benefit from the plan put forward by U.S. Treasury Secretary Henry Paulson and Federal Reserve chairman Ben Bernanke.

    Executives from some of the major investment and commercial banks involved in the financial upheaval and bailout earned hefty paychecks last year, according to proxy statements outlining their salaries, bonuses and stock options:

    Lehman Brothers Chairman and CEO Richard Fuld Jr. made $34 million in 2007. Lehman (OTC:LEHMQ) filed for Chapter 11 Bankruptcy protection earlier this month.
    Goldman Sachs (NYSE:GS), which Sunday gained Federal Reserve Bank approval to become a bank holding company, paid its Chairman and CEO Lloyd Blankfein $70 million last year. Co-Chief Operating Officers Gary Cohn and Jon Winkereid were paid $72.5 million and $71 million, respectively.
    Morgan Stanley Chairman John Mack earned $1.6 million. Chief Financial Officer Colin Kelleher got a $21 million paycheck in 2007. Morgan Stanley (NYSE:MS) also received approval to become a banking holding company, a shift that allows Morgan and Goldman to bring in bank deposit assets which offer more solid financial footing.
    Merrill Lynch CEO John Thain was paid $17 million in salary, bonuses and stock options in 2007. Merrill (NYSE:MER) is being acquired by Bank of America (NYSE:BAC). BofA CEO Kenneth Davis earned $25 million in 2007.
    JP Morgan Chase & Co. Chairman and CEO James Dimon earned $28 million in 2007. Chase (NYSE:JPM) acquired troubled investment house Bear Stearns earlier this year with the federal government promising to take on as much as $30 billion in Bear assets to help get the deal done.
    Fannie Mae CEO Daniel Mudd received $11.6 million in 2007. His counterpart at Freddie Mac, Richard Syron, brought in $18 million. The federal government announced earlier this month it was taking over the mortgage backers with Herbert Allison to serve as Fannie CEO and David Moffett the new CEO at Freddie.
    Wachovia Corp. Chairman and CEO G. Kennedy Thompson received $21 million in 2007. He was succeeded by Robert Steel as CEO in July. Steel is slated to get a $1 million salary with an opportunity for a $12 million bonus, according to CEO Watch. Wachovia (NYSE:WB) is one of the banks that could be sold in the midst of the financial crisis.
    Seattle-based Washington Mutual (NYSE:WAMU) will pay its new CEO Alan Fishman a salary and incentive package worth more than $20 million through 2009 for taking the helm of the battered bank, according to the Puget Sound Business Journal.
    CEOs of large U.S. corporations averaged $10.8 million in total compensation in 2006, more than 364 times the pay of the average U.S. worker, according to the latest survey by United for a Fair Economy. In 2007, the CEO of a Standard & Poor’s 500 company received, on average, $14.2 million in total compensation, according to The Corporate Library, a corporate governance research firm. The median compensation package received was $8.8 million.

  7. bowersville says:

    Let’s see.

    Mortgages are written for 100% based on an inflated appraisal.

    The mortgages are bundled and sold to Fannie/Freddie and then resold to private firms.

    Fannie/Freddie and private firm assets based on long term unsecured mortgages(other than the actual real property, which has been artificially inflated).

    Real property values continue to appreciate, based on “generous’ appraisals.

    Sub-prime mortgages become worthless as people walk away, now Alt-A and Prime.

    Actual real property value deflates, the system(available credit) freezes.

    “Floor” value, about 30-50 cents on the dollar because repo’s are failing to meet the minimum bid which is pay off on the mortgage.

  8. I hate and I meanHATE to say this: I agree with Rush. He said and paraphrase, “We are at a turning point. We are either on the edge of what is a major crisis that leads to complete socialization of our economy or we can be at the beginning of what could be a major boom in the free market economy. We can either go with what the Fed and Treasury secretary wants to do, let government (taxpayers) bail out the economy or we can take this opportunity to get rid of Sarbanes-Oxley, lower (or suspend for a few of years) capital gains taxes (I add lower income taxes) and let the private sector bail out the economy.” The latter would reward those that have made good decisions (like Indy) bail out those that didn’t, while at the same time not give government more power and not punish those taxpayers that had nothing to do with the current mess.

    I said I agree with Rush… Well actually, he’s agreeing with what some of us have been saying for a long time. But if we have to give him credit to get it done… so be it.

  9. Doug Deal says:

    DNA,

    Sadly, the Republicans blew their credibility by selecting an incompetent moron like Bush because he was an early favorite they all had to get behind, and because they allowed crooks and spineless snakes like Trent Lott lead the party in Congress.

    If they had actually cared more about governance than trying to “hold on” to power, they might be in a better position to put forth REAL solutions and calm the public rather than hope they can sell Democrat-Light(er) and limit there losses.

  10. bowersville says:

    BREAKING

    McCain has challenged Obama to come out of seclusion, go back to Congress with McCain and go to work on resolving this crisis.

    McCain has asked the host group to post pone the debates Friday night.

    Obama may actually put his “judgement and leadership” on public display without a “present vote.”

  11. Doug Deal says:

    Icarus,

    How about adding some carbon sequestration to your driveway. The hardest known substance just happens to be diamond, so it could also be a long lasting one that will take you well into the age of flying cars, you know 1999.

  12. btpull says:

    First and foremost we need to put the risk of mortgage lending on the private sector and not the public sector now and in the future.

    Second we need to dissolve at least Fannie Mae and possibly Freddy Mac. I really wish more politicians along with the news media would focus on how the epicenter of this crisis centers around Fannie Mae.

    How many reporters have included in their news stories that Fannie Mae is given quarterly housing goals by the Federal Government?

    “For each calendar year, we are subject to housing goals and subgoals set by HUD. The goals, which are set as a percentage of the total number of dwelling units underlying our total mortgage purchases, are intended to expand housing opportunities (1) for low- and moderate-income families, (2) in HUD-defined underserved areas, including central cities and rural areas, and (3) for low-income families in low-income areas and for very low-income families, which is referred to as “special affordable housing.” In addition, HUD has established three home purchase subgoals that are expressed as percentages of the total number of mortgages we purchase that finance the purchase of single-family, owner-occupied properties located in metropolitan areas, and a subgoal for multifamily special affordable housing that is expressed as a dollar amount. We report our progress toward achieving our housing goals to HUD on a quarterly basis, and we are required to submit a report to HUD and Congress on our performance in meeting our housing goals on an annual basis. ”

    I personally do not know how to get us out of the current crisis or if the current crisis is truly a crisis given Wall Streets ties to the Federal Reserve and the Treasury Department. I do know if we do not do 1 and 2 above we will find ourselves back in this situation in a generation or two.

    If you want to see a nice graph on how this whole mess circled from Wall Street through Fannie Mae and back to Wall Street their is a nice graph on page 5.

    http://secfilings.nasdaq.com/edgar_conv_html%2f2008%2f02%2f27%2f0000950133-08-000795.html#FIS_BUSINESS

  13. Sorry, Icarus, but our economy faces a bleak future, particularly if the latest $700 billion bailout plan ends up passing. We risk committing the same errors that prolonged the misery of the Great Depression, namely keeping prices from falling. Instead of allowing overvalued financial assets to take a hit and trade on the market at a more realistic value, the government seeks to purchase overvalued or worthless assets and hold them in the unrealistic hope that at some point in the next few decades, someone might be willing to purchase them.

    One of the perverse effects of this bailout proposal is that the worst-performing firms, and those who interjected themselves most deeply into mortgage-backed securities, credit default swaps, and special investment vehicles will be those who benefit the most from this bailout. As with the bailout of airlines in the aftermath of 9/11, those businesses who were the least efficient, least productive, and least concerned with serving consumers are those who will be rewarded for their mismanagement with a government handout, rather than the failure of their company that is proper to the market. This creates a dangerous moral hazard, as the precedent of bailing out reckless lending will lead to even more reckless lending and irresponsible behavior on the part of financial firms in the future.

    This bailout is a slipshod proposal, slapped together haphazardly and forced on an unwilling Congress with the threat that not passing it will lead to the collapse of the financial system. Some of the proposed alternatives are no better, for instance those which propose a government equity share in bailed-out companies. That we have come to a point where outright purchases of private sector companies is not only proposed but accepted by many who claim to be defenders of free markets bodes ill for the future of American society.

    As with many other government proposals, the opportunity cost of this bailout goes unmentioned. $700 billion tied up in illiquid assets is $700 billion that is not put to productive use. That amount of money in the private sector could be used to research new technologies, start small business that create thousands of jobs, or upgrade vital infrastructure. Instead, that money will be siphoned off into unproductive assets which may burden the government for years to come. The great French economist Frederic Bastiat is famous for explaining the difference between what is seen and what is unseen. In this case the bailout’s proponents see the alleged benefits, while they fail to see the jobs, businesses, and technologies not created due to this utter waste of money.

    The housing bubble has burst, unemployment is on the rise, and the dollar weakens every day. Unfortunately our “leaders” have failed to learn from the mistakes of previous generations and continue to lead us down the road toward economic ruin.

    You want a market-based alternative? Get the government out of the way, and let the actual market work freely.

  14. Icarus says:

    “That amount of money in the private sector could be used to research new technologies, start small business that create thousands of jobs, or upgrade vital infrastructure.”

    That’s the point of this whole exercise Taft. The government can afford to hold these seemingly non-productive assets, while giving the private sector the equivalent liquidity to become productive again.

    However, I still contend that instead of writing a check to Wall Street for assets of unknown value, the infrastructure is already in place to allow anyone holding a mortgage to refi into a gvt. backed mortgage. The end result is the same, (The government holds about $1 Trillion in mortgages), while the portfolios of toxic mortgages are liquidated and the owners of these securities must seek new uses of their capital, many of which will choose the 30 year treasuries needed to finance this project.

  15. John Konop says:

    The bottom line I warned many of you about this issue year ago. At the end as I told you years ago we are on the hook via tax payer guarantees.

    We have no choice but to fix the problem because once tax payers were put on the hook with no real regulations it was not the free market system.

    I have a few suggestions to fix the problem.

    Short Term

    1) We should convert loans to 40 years for people in trouble and not let the home owner file bankruptcy on the debt similar to student loans. This would hold the home owner responsible for their decision and stabilize the market.

    2) We should have strict oversight similar to SBA loans on all government backed programs. If the program is private let the market dictate the rules.

    3) If we do a bailout tax payers should hold equity interest and have full recourse on all assets of the corporation. Also we should gain on the upside with interest and value increase similar to a sub debt structure.

    This is just a start.

  16. Bill Simon says:

    John,

    Interesting suggestions. Will you allow for the possibility of the following:

    Loans on houses were made to people who did not have good credit…AND…a large percentage of these folks were classified as “disadvantaged” by the government…AND…a chunk of these disadvantaged people were of a type of ethnicity that could be classified as non-Caucasian…AND…had the banks NOT been required to lend them money, people like YOU (seriously, John, you) would have screamed and hollared about how “racist” those banks were for not lending to this group of people?

  17. Doug Deal says:

    John,

    Really?? That is part of your solution? Convert to 40 year mortgages? Have you ever done the math? If not, let me do it for you.

    Per 100,000 on a 6% loan, the monthly payment on a 30 year loan is a few cents short of $600, not including things like taxes, PMI, HOI and taxes.

    For a 40 year loan, it is a few cents over 550 a month. $50 a month per $100,000 financed. WOW!!! How about just telling people to cancel their subscription to cable and with the extra $70 or so dollars left over from that savings they can then take the family out to red lobster. Also, if it was a legitimate loan, the intrest rate would go up at least a quarter but probably a half a percent.

    40 year loans are bad ideas at any level. Equity builds too slowly because that $50/month comes out of the part that is actually paying off the balance, while you start out paying the same amount in interest, which decreases more slowly.

  18. Doug Deal says:

    For a long term solution to recover the funds spent on any bailout plan, they need to do a forensic audit of every defaulted loan and if any significant fraud is shown (mis-stated income, bogus appraisals, fraudulent documents, etc, the people responsible should be criminally charges and have their personal assets seized to pay for the damage they caused as restitution.)

    This might mean that the flipper who lied about the house being his primary residence, or the no-doc loan applicant who doubled his income and asset figures or the loan officer who submitted a phoney appraisal to underwriting lose their assests, instead of the innocent taxpayers being taxed out of them.

  19. I still don’t understand why the taxpayers have to be on the hook. Why is it that every time there is some sort of crisis the initial reaction is more government intervention. I still believe we have a choice here. We can either become more Socialist or as Icarus attempted, come up with a free (free-er) market solution.

    Here’s mine (I’m sure, as a libertarian, it will be said that I over simplified the situation.) It only consist of two parts:

    1.) All residential property purchased in the next 12 months can later be sold with zero capital gains tax, regardless of whether it was your personal residence or not. (consequence, property values turn around and start appreciating immediately)

    2.) Any existing mortgage (paper) purchased over the next 12 months pays zero tax on the interest income generated by the loans. (consequence: existing loans become attractive to smaller financial institutions and the risk currently being concentrated with the big guys wanting the bailout gets spread out to willing participants,as opposed to unwilling taxpayers. The large financial institutions also get an influx of capital.)

    I agree that these are pretty simple. I believe there is more and better ideas out there. But these are at least in the spirit of less government involvement not more.

  20. Icarus says:

    Daniel,

    I think those would have been great solutions 12-18 months ago, and could be incorporated into whatever solution is crafted now. The problem, at least as I see it, is that the capital markets need liquidity, and they need it now. (actually, yesterday, or two weeks ago). There is going to have to be some heavy handed fed intervention of some flavor to stave off a crash. It’s time to pick our poison.

  21. John Konop says:

    Doug Deal

    Let me help educate you on what is the alternative proposal. The current proposal is to have tax payers write down the loan and eat the equity.

    My point is simple the person who took the loan should not get a fee lunch. You are right this is not a great investment for the home owner, yet they can recover over time as the market turns. Also but nit letting them off like a student loan program it help stabilize the paper.

    At then this problem was created by putting tax payers at risk. Now we must cut the best deal for people who played by the rules!

  22. John Konop says:

    sorry

    Let me help educate you on what is the alternative proposal. The current proposal is to have tax payers write down the loan and eat the equity.

    My point is simple the person who took the loan should not get a fee lunch. You are right this is not a great investment for the home owner who took the loan and cannot afford the payment, yet they can recover over time as the market turns. Also by not letting them off the hook like a student loan program it helps stabilize the paper.

    At the end this problem was created by putting tax payers at risk. Now we must cut the best deal for people who played by the rules!

  23. Doug Deal says:

    My point is that conversion to 40 year loans is like building a fort out of toothpicks to fend off the Sioux. There is virtually no benefit to it, but the government involves itself in private contracts.

  24. Icarus says:

    Instead of extending the amortization, I’m suggesting lowering the rate.

    The Fed 30-year treasury is currently about 4 3/8. Loaning the money out at 5% leaves enough spread for servicing and a little for default. It lowers the payments for everyone, giving a much higher chance that the loan will repaid, and frees up consumer income for other stimulative spending.

    The banks are relieved of these toxic portfolios, because just about everyone will refinance under this situation. That floods the banks and investment funds with replinished captial, many of which will invest in the new, federally guaranteed treasuries that would have to be issued to cover the new mortgages.

    We’d need to get really serious about balancing the operating budget, however, because this would send us from a deflationary environment to an inflationary environment over night.

  25. John Konop says:

    Doug Deal

    This is the problem if we do not fix the payment issue the market will blow up. I do like Icarus’s idea better put both concepts focus on a person being able to pay. This is why I think the bailout solution is looking at the problem backwards.

    Also this is the best idea to protect people who played by the rules.

  26. Doug Deal says:

    John,

    You really do not read what people post, do you?

    The Konop-Deal debate, a one act play.
    John Lets extend amortization of debt.

    Doug That is foolish, as the difference between a 40 and 30 year mortgage is insignificant in monthly payment and in the long run harms the homeowner.

    John Non-sequitur about things unrelated to extending amortization.

    Doug It is silly to extend amortization.

    Icarus I’m agaisnt extending amortization.

    John non-sequitur on other issues, and I agree with icarus.

    Maybe now you can chime in and call Bill Simon a racist and we can duplicate every conversation you have had on PP.

  27. Icarus says:

    Doug,

    So we can all be one big happy family again, John wants to get payments down so that they are affordable for people already in the houses. You are correct in that extending the amortization on a home mortgage is not as effective as lowering the interest rates. Now that we all agree, Congress has apparently agreed to do the ass backwards bailout.

    And why would Konop need to call Bill a racist when Jane is busy calling him a Neocon/Jew on another thread?

  28. John Konop says:

    Doug Deal

    If you extend the time or pay interest only like Icarus proposed the net affect is you are lowering the payment and not paying down much equity in the near future. The concept is the same figure out a way to keep people from foreclosing until values bounce back. Because if the values bounce back (3 to 5 years) people at risk can sell the home and not stick tax payers with the default guarantee.

    Also by lowering the foreclosure rate home values will rise again and lenders will extend credit because they will trust the asset value.

  29. Doug Deal says:

    John,

    Read this slowly, so it is easier to understand. Digest every word. The difference (take a break, concentrate) between the monthly payment (keep it up, you are doing well) between 40 and 30 year mortgages (almost done!) is negligable (that’s a toughie, look it up if you have to).

    If you do not increase the interest rate for the higher risk 40 year loan, which is artificial, the difference is less than 10% (around 8%) on the PI part of the loan. It is like paying $1.00 on a coke instead of $0.92. Thats if you do not increase the interest rate for the longer loan, if you do, it is a wash AT BEST. (Look that expression up as well).

    Additionally, if you add in the other components of the loan, the insurance and taxes, the savings is only about 6% to the home owner.

    Mucking with the contracts between private individual for what amounts to no gain is not only a stretch of federal authority, it is an utterly stupid one.

    If you are going to do that, why not just drop the interest rate 1 point or subsidize the each loan by the equivilent of 8 percent of the PI.

    On each $100,000 of a loan, at 6%, dropping the rate by less than 1% will account for the same savings that extending the amortization by 10 years will accomplish. People aren’t jumping off bridges for $600 a year (less than one car payment on $35,000 car), they are doing it because they overspent by several hundreds to over a thousand. You really do not understand this?

    If this was even close to all that was forcing these people into default, it would only cost $1.5 billion a year to subsidize the 3+ million (very generous estimate) people in or nearing default by giving them $50 a month. If the estimated cost is 750 billion, you have effectively solved 1/500 th of the problem. Nice work, there John.

    You claim to understand so much about financial markets, yet you do not even know basic math? Then keep arguing points the people you are arguing with aren’t making.

  30. Doug Deal says:

    Icarus,

    I didn’t read your post before I responded to John, because I read from the bottom up. Anyway, I am with you.

    My hope is that this bailout amounts to the US acting as a temporary holding company and offloading loans as quickly as possible (even at a small loss) as liquidity returns.
    My other hope is that laws are passed to not include more day to day regulation, but that the amount of liabilities that a financial company can take on is limited to a number that prevents them from becoming “to big to fail”. You know, arguably a valid use of the commerce clause for once.

  31. John Konop says:

    Doug Deal

    I already said Icarus had a better idea. The point I was making was a way to make the payment lower while using less tax payer money.

    The interest only vehicle would have the largest impact. I am not for subsidizing the interest rate because that money will be needed for reserves for lack of equity pay down.

    I am for forcing the people with this product to not have walk away rights like a student loan.

  32. Doug Deal says:

    I am not against those other provisions of any form of bailout, I was just examining the one that I thought was not effective or wise.

    If a bailout of some sort is a must, then it must be done in a way that it is not something in which the people who benefit from it end up doing cartwheels straight to easy street.

    I am not a big fan of bailouts, but if it comes, the debt should be purchased at a discount to account for the lower current market value. Further, the homeowner would have to sign off on a rider with a few new terms (a fixed special rate in return for student loan like bankruptsy exclusions as well as criminal penalties for failing to pay in good faith like there is in child support cases).

    As the market returns to normal and when these homes are paid off due to sales or the debt itself is sold (with the new terms going with it), the Feds can lower their stake in the market of bad debt.

    If done properly, the program could pay for itself, eventually.

    However, the law needs to be written as to forbid Congress from extending the program beyond it’s initial scope. Otherwise, home loans will become another “right” guarenteed by the Federal Government.

  33. David says:

    All of this bailout stuff is crap anyway. Starting back in the mid-70’s with Chrysler, the taxpayers have been propping up fiscal irresponsibility ever since. Bottom line is this: If you haven’t “earned” the ability to qualify for a mortgage, ie being a good credit risk, then you have no “right” to buy or own your own home. Don’t like it? Tough. Rent until you can buy your own home. Wealth envy and vote buying schemes that prop up the least common denominator of the undeserving in this country is slowly ruining everyone and it is sickening.

  34. John Konop says:

    VERY GOOD POINT!

    “However, the law needs to be written as to forbid Congress from extending the program beyond it’s initial scope. Otherwise, home loans will become another “right” guarenteed by the Federal Government”

  35. Game Fan says:

    It usually pays to pay attention to what Warren Buffett has to say. And after the movie “I.O.USA” he was included in a panel discussion where he said it usually doesn’t pay to bet against the USA. This won’t compute with the “end of world” types.

    Markets are responding to news that Berkshire Hathaway has agreed to purchase Goldman Sachs perpetual preferred shares valued at $5 billion and received warrants to purchase additional preferreds valued at $5 billion. The Berkshire Hathaway acquisition is a vote of confidence in the U.S. financial service sector. Goldman Sachs also announced its intention to raise another $5 billion through the sale of common shares to the public.
    http://network.nationalpost.com/np/blogs/tradingdesk/archive/2008/09/24/berkshire-hathaway-amp-goldman-sachs-fbi-amp-fannie-and-freddie-vialoux.aspx

  36. Bill Simon says:

    “And why would Konop need to call Bill a racist when Jane is busy calling him a Neocon/Jew on another thread?”

    Thank you for reminding me of that thread, Icarus! I gotta go see how Jane’s excuses are coming along.

  37. Three Jack says:

    there’s affordable food on the shelves, plentiful fuel in most places outside the se, stock market hovers around 11,000, people are not jumping out of high rise windows; why is the government attempting to bail itself out of a self inflicted jam that seems to only be effecting a relatively small number of people within the high end financial market?

    for once i agree with ron paul. let this thing run its course without (more) government intervention.

  38. Game,
    Of course he is, now. He just bought low with a guarantee to buy more at the same price. Now he wants others to buy into the financial industry… even if the buyer is BIG GOV.

  39. Bill Simon says:

    Daniel,

    Ask yourself this: AIG operates as both a primary insurer and a re-insurer.

    A re-insurer is a company that sells an insurance policy to cover losses of, say a really big sugar factory explosion in Savannah. That reinsurance policy doesn’t kick-in until losses hit a certain dollar amount, and then the policy covers the amount over that high limit.

    NOW…picture a disaster of some sort, not a natural one (no hurricanes, no tornadoes in Tornado Alley) that happens with a REALLY big loss…and AIG, the reinsurer, is out of business.

    Tell me all about the “good” that this “screw the financial industry” mentality will do to help get THAT enterprise back on its feet…after it already purchased its policy.

    You (and Konop, and whoever else is bleating about how dare the government “bail” out AIG) don’t know jack-doo-doo about how things like insurance works.

    And, hopefully, the folks in Washington won’t listen to you….because, in the end, there will be an even BIGGER financial hand-out that will have to come into play if an insurer like AIG goes under.

  40. I know jack doo-doo about insurance.

    And I know even more jack doo-doo about the U.S. Constitution. And I don’t see anywhere in there where it comes close to allowing the Federal Government to buy up all of the crap they’re proposing to buy up. Or to do about 95% of the rest of the crap they do up there, either.

    I don’t care if you call it a “bail” out or corporate welfare or jack doo-doo, it’s just plain wrong, and I look forward to the day when the people who have played havoc with our economy, our banking system, our financial markets, and our money end up rotting in jail.

    “Gentlemen, I have had men watching you for a long time and I am convinced that you have used the funds of the bank to speculate in the breadstuffs of the country. When you won, you divided the profits amongst you, and when you lost, you charged it to the bank. You tell me that if I take the deposits from the bank and annul its charter, I shall ruin ten thousand families. That may be true, gentlemen, but that is your sin! Should I let you go on, you will ruin fifty thousand families, and that would be my sin! You are a den of vipers and thieves.” President Andrew Jackson

  41. Other great Jackson quotes:

    “If Congress has the right under the Constitution to issue paper money, it was given to be used by themselves, not to be delegated to individuals or corporations.”

    “I am one of those who do not believe that a national debt is a national blessing, but rather a curse to a republic; inasmuch as it is calculated to raise around the administration a moneyed aristocracy dangerous to the liberties of the country.”

    Dang, those are good.

  42. GreenAllTheWay says:

    Fishman was the new chief executive officer for Washingon Mutual — WaMu — the nation’s largest savings and loan, which was taken over Thursday night by federal bank regulators and quickly dumped in a fire sale to JPMorgan Chase for the Wal-Mart-like price of $1.9 billion.

    But don’t cry for Fishman, who reportedly was sky-high — literally — last night, on a flight from New York to Seattle, when WaMu collapsed. Even though he’s only been on the job for less than three weeks, he’s bailing out with parachute worth close to $20 million, according to an executive compensation analysis conducted for the New York Times by James F. Reda Associates.

    That’s right, $20 million for 17 days on the job … and his company failed.

    Fishman, who formerly was chairman of Meridian Capital Group, apparently was much coveted by WaMu, which was counting on him to lead the failing thrift out of mortgage troubles that pushed the bank to a $3.3 billion second-quarter loss.

    According to filings with the Securities and Exchange Commission, WaMu threw a $7.5 million bonus at Fishman when it hired him on Sept. 8, and guaranteed him an immediate cash severence of $11.6 million — both of which he gets to keep.

    He also was eligible for annual bonuses of up to 365 percent of his annual base pay — set at $1 million — to go with millions of shares of company stock.

  43. Bill Simon says:

    Indy,

    None, it appears. This is who he did give to, according to OpenSecrets.org:

    FISHMAN, ALAN
    BROOKLYN,NY 11201
    MERIDIAN CAPITAL
    11/28/07
    $2,000
    Recchia, Domenic M Jr (D)

    FISHMAN, ALAN H MR
    NEW YORK,NY 10004 MERIDIAN CAPITAL GROUP/CHAIRMAN
    5/10/07
    $2,300 Romney, Mitt (R)

    FISHMAN, ALAN MR
    GHENT,NY 12075
    MERIDIAN CAPITAL GROUP/CHAIRMAN
    5/7/07 $500
    Wager, Richard C (R)

Comments are closed.