breaking down the banks and the bailout

[Willie99]

ok Willie so you support the Bailout correct?

I support the Government injecting working capital into a financial system that is hurting due to many different reasons, including government regulations themselves.

I have to support these measures because the alternative can be devastating.

I don't believe it's going to cost the taxpayers anything near the 700 billion or 1 trillion dollar price tag being thrown around, that's what at risk.

I do believe the taxpayers (read Americans) will suffer much more if the government did nothing.

After the dust has settled, we eliminate the regulations that make bad loans necessary, we force lenders to de-value sub-prime loans at their inception (that'll stop that shit) and we eliminate regulations that force banks to write-off 100% performing assets.

 

[tiznow]

oh it will willie don't you worry

RTC back in 80s price tag was orginially 50 billion ended up like 100-200 billion or so

plus you miss what's going on here

this 700 billion number is just as toxic dump transferring zone where the treasury pays more than they are worth most likely in order to get it off the banks books...

like lets say there's 100 billion of toxic trash than the treasury goes and says here's 50 billion....so the bank writes down 50 billion in losses....than the treasury in turn goes and sells this garbage for 20 billion to a private equity firm....that's a 30 billion loss for the taxpayer...than at that point this 50 billion of trash they bought is no longer part of this 700 billion

it'll spread out losses between the banks and taxpayer unless for some miraculous reason this is able to reinflate the housing bubble but chances of that are next to none.....if you do reinflate it than there is a chance the treasury can wait and sell this toxic highly leveraged crap off for higher prices than they pay the banks....but chances of that are slim

the thing says its a limit in what they can hold "at any one time" this thing will be a toxic dump transferring zone....plus they are trying to include student loans, auto loans, credit cards pretty much any toxic debt you can think of....

 

[Willie99]

oh it will willie don't you worry

RTC back in 80s price tag was orginially 50 billion ended up like 100-200 billion or so

plus you miss what's going on here

this 700 billion number is just as toxic dump transferring zone where the treasury pays more than they are worth most likely in order to get it off the banks books...

like lets say there's 100 billion of toxic trash than the treasury goes and says here's 50 billion....so the bank writes down 50 billion in losses....than the treasury in turn goes and sells this garbage for 20 billion to a private equity firm....that's a 30 billion loss for the taxpayer...than at that point this 50 billion of trash they bought is no longer part of this 700 billion

the thing says its a limit in what they can hold "at any one time"

Tiz, the RTC costs less than the amount put at risk, not more.

 

[tiznow]

Opportunity Costs Incurred by the RTC in Cleaning Up S&L Insolvencies

David P. Ely
San Diego State University - Finance Department

Nikhil P. Varaiya
San Diego State University



QUARTERLY REVIEW OF ECONOMICS AND FINANCE, Vol. 36 No. 3, Fall 1996

Abstract:
This paper draws attention to an important but neglected component of the costs of the thrift cleanup as reported by the Resolution Trust Corporation (RTC). The RTC resolved 747 thrift institutions over the period 1989-1995 at an estimated cost of $90.1 billion. Since the RTC's loss exposure indirectly represented a taxpayer-funded equity position in troubled thrifts, the associated opportunity costs constitute significant costs that are in addition to the reported resolution costs. Recognition of this important category of costs raises the taxpayer burden from the official estimate of $90.1 billion to a cost of between $112 and $146 billion. Budgetary recognition of these implicit expenses would have had to affect the operations of the RTC and Congressional decisions to fund RTC activities.

 

[desrat]

Sec. 6. Maximum Amount of Authorized Purchases.

The Secretarys authority to purchase mortgage-related assets under this Act shall be limited to $700,000,000,000 outstanding at any one time

Tiz is right. The number being asked for is what can be laundered at one time. Once the trash clears the balance sheet they are free to wash some more. That means an unlimited amount of risk. What is really scary is what the Financial Fuhrer is asking for...

Sec. 8. Review.

Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.

Nothing like an unelected official who answers to no one, agency, or government entity.

 

[desrat]

They are also looking to include just about everything under this bailout.

The administration of George W. Bush widened the scope of its rescue plan by including assets other than mortgage-related securities to be taken off bank's balance sheets. Officials proposed buying what they term troubled assets, without specifying the type, according to a document obtained by Bloomberg News and confirmed by a congressional aide.

The change indicates the inclusion of instruments such as car and student loans and credit-card debt.

Link

Explain how the CRA (which I hate) caused this? Or any other over regulation? Also your 30 window on NPAs is off. In fact most of the troubled banks have been increasing the time from from having to do what you intially pointed out. WaMu has pushed their NPA to 180 days. I am going to try and find the link but I found the info on Mish's Global Economic Blog almost 6 months or so ago.

 

[Willie99]

desrat, I'm not blaming any one issue or act for this fallout, it's mismanagement by committee.

As for consumer loans, don't believe any relief should be granted. Those monies will be a total loss.

Banks writing off NPAs is not a discretionary decision.

BTW: It's refreshing to read and respond to your posts. So much dumbed down bullshit around here it gets boring sometimes.

 

[desrat]

Sorry called away by a screaming 2 year old. I see that we are pretty much in agreement about the cause, but I strongly oppose this move.

I am going to do some digging to see where I saw saw the bank info.

I typically stay away from this forum for just those reasons; usually stop in the financial forum from time to time besides the betting forums for which I come for. I refuse to trade in this market until I can see what the future holds so I have A LOT of time to kill during the day now. Unfortunately I seem to be spending it here...

 

[desrat]

Can't find the article I was looking for yet. However, while looking through some info, I have realized I was thinking of the wring thing. It is not delaying a move to NPA, it is changing the date when they start foreclosure proceedings. It was 90 days and they had moved it to 180. Obviously a lot of reasons why they would do that, not the least of which is causing an immediate mark to market. Will keep looking and post what I find.

 

[mamatried]

the problem is leverage and the banks creating this alternate marketplace and than they packaged them up and dispersed them all over the globe and nobody know who owns what

the crashing housing market wouldn't be that big a deal without all the banking leverage as well as the fancy CDOs, SIVs and other shit associated with it

5% fucking up can fuck up everything and spill into the whole economy as we are seeing

what the treasury is attempting to do is now create a market for this toxic trash nobody wants to take so they can take losses on this garbage and move on.....

the treasury isn't saving the banks many will still go under and they will have to take losses on this shit

they just averting the doomsday scenerio where the whole system locks up

If the derivatives are restructured to pay less interest, then the mortgages securing them can be refinanced to bring down the monthly payments. Consequently, the value of the houses may not be less than the cost of the mortgages. This would allow many homeowners to stay in their homes and continue to make their payments.

If the Government correspondingly buys these derivatives at a significantly reduced price, there would be no default on them and no claim on the CDS insurers. The financial institutions would then be relieved of their bad debt, and investors are likely to then provide the much needed liquidity. The Government will purchase these securities at a discount, so that the loss incurred by restructuring them won't be too costly. But not such a large discount to force the selling institutions into bankruptcy. The Government will then refinance the mortgages based on current housing values, and resell them on the open market with guarantees to make them more attractive to investors.

Hopefully, this will stabilize the housing market and stem the flow of foreclosures. If so, the refinanced mortgages will be repaid, and the Government will recoup most of its outlays.

But, even in a best case scenario, Government borrowing will have to increase significantly. And if this is not addressed, it will ultimately result in higher interest rates and a new downturn in the housing market. And neither Bush, nor McCain, nor Obama seems willing to recognize this fact.

 

[tiznow]

this isn't gonna save the housing market at least based on what has happened to date including this proposed legislation

i mean maybe they can potentially reflate it again to push for another day when its an even bigger problem

i been reading that the FHA is basically the new subprime now......

the problem is housing price/income ratios got outta wack due to extremely lax lending standards and they need to come down to historical levels.....nothing is gonna stop that fact.....

plus if you do start pulling out massive domestic stimulus packages and throwing on more debt in order to reflate the housing bubble etc....

all that's gonna do is make inflation in oil, food, insurance, etc...continue to skyrocket in a hyperinflationary way

there is no way out only way out is to keep tacking on more and more debt making inflation go ballistic at which point somewhere down the road we will be faced with this same issue only this time the problem will be even greater

 

[tiznow]

and all this reinflation would just lead to the middle class sheep getting sucked into more and more bad debt

having less and less savings

and pay more and more for food and gas

essentially ending the middle class in america

which is where we could be heading over the long term....

 

[mamatried]

It doesn't have to reignite the housing market overnight. Just stabilize it. If the foreclosures stop, and people are able to get loans, the prices will stabilize.

You are right, though - if something DRASTIC isn't done to stifle the ballooning deficit, runaway inflation is inevitable, and the standard of living will take a nosedive. Higher taxes and fewer entitlements - both of which politicians for years have been saying aren't necessary - are the least painful way out of this.

 

[Dodgingpotholes]

Why are we here? In small part because of the increase in foreclosures, but there impact is minimal. The real problem is that banks were forced to write down mortgages because of declining market values. In addition, banks are forced to write off mortgages that fall 30 days late. Historically, people tend to pay their mortgages even when they fall behind by 30 days, and people rarely have a house foreclosed on if they've been living there for more than three years. Yet banks are forced to write off these assets.

After taking such paper losses, the banks financial ratios take a serious pounding and causes such bank to suffer liquidity issues. Such cash flow problems force otherwise solid companies out of business.

So is the real problem the fact that we have too few regulations? or too many?

You see, much of the foreclosure problem is the result of government regulation encouraging (mandating) risky mortgage loans. Compound that by government regulations forcing banks to write-off mortgages, even mortgages that are still current but values have decreased, and you can see government regulations are clearly a contributory factor.

I believe the problem began in 98 or 99 when Clinton signed a lwa allowing banks, insurance companies, and other financial institution to offer cross industry products. This made for a slew of money to flow into the mortgage business and allowed 125% and other crazy loans. I saw this writing on the wall a few years ago and sold and the peak of the market.

Now you suckers can enjoy the Republican idea of welfare and wealth redistribution. Funny to see McCain from the Keating 5 to be calling for a new government agency. What a fucking flip flopper. Good luck suckers.:lol:

 

[barman]

Funny to see McCain from the Keating 5 to be calling for a new government agency. What a fucking flip flopper. Good luck suckers.:lol:

heh....He's the Reformer!

:drink:

 

[cussin'it]

McCain diverted attention from that abortion (the Keating scandal) by taking on a politically correct cause...campaign finance reform...(heh, was there really any?)

 

[Willie99]

research the Keating scandal and tell us what McCain was guilty of? After an investigation and hearings, he was essentially guilty of being in the same room. Other Senators were hit hard.

The Keating Five is a red herring and a sharp turn into lala land with respect to this issue.

When will BO have a conclusive opinion on the bail out matter? Is he waiting for the polls?

 

[cincy_]

research the Keating scandal and tell us what McCain was guilty of? After an investigation and hearings, he was essentially guilty of being in the same room.

Yup ... just like Monica was in the same room as Bubba .. it was JUST sex.

I love it when you use the "burden of proof" line ... and say he wasn't "guilty".

It's a black mark ... just like Obama's connections with infamous Chicagoians are a black mark for him ... and just like Bubba's sperm was a white mark for him.

 

[Dodgingpotholes]

research the Keating scandal and tell us what McCain was guilty of? After an investigation and hearings, he was essentially guilty of being in the same room. Other Senators were hit hard.

The Keating Five is a red herring and a sharp turn into lala land with respect to this issue.

When will BO have a conclusive opinion on the bail out matter? Is he waiting for the polls?

A red herring?

You don't see the tie of McCain the Senator of AZ where the real estate market collapsed because of this crisis. How bad the Reagan Republicans are for the economy. How deregulation caused us 10,s of billions in the 80's and now over 1 trillion 30 years later?

I am guessing you believe in bailing these guys out....again....and here we have McCain even before he gets in office saying how he is going to expand government. Once again we see how truly conservative the Repugs are...lol....

WOW glad to say I am tax exempt down here in Costa Rica.

 

[Dodgingpotholes]

research the Keating scandal and tell us what McCain was guilty of? After an investigation and hearings, he was essentially guilty of being in the same room. Other Senators were hit hard.

The Keating Five is a red herring and a sharp turn into lala land with respect to this issue.

When will BO have a conclusive opinion on the bail out matter? Is he waiting for the polls?

Well since it took 9 years after the signing of the bill from Clinton for the banks to fail I hope he takes a few weeks to sort out the whole scenario. Do you prefer we rush into this and give these thieves a trillion dollars. Why are republicans always for redistribution of wealth to the rich and would prefer to say "fuck the poor". How much health care would this trillion dollars bought over the last 9 years?