Huge Bailout Proposal--$700 billion--Suck the bad debt out of the financial system

the main problem is that 700 billion is a drop in the ocean of the real problems. what they are really worried about (and keeping very quiet about) is a chain reaction collapse of CDTs (credit default swaps) worth 60+ trillion dollars.



http://www.marketoracle.co.uk/Article6498.html

 

The $700 billion will get us through the election.

 

possibly.. when is it again?

 

Bogart:

I suspect their goal is to keep banks/financial institutions operating and save the financial system from large scale collapse. I hope that is their singular goal. The credit system is teetering and there are failures occuring as we speak.

Who is to blame? The mortgage companies got their fees and are gone. The originating banks made these mortgages. They are either stuck with them or they securitized them and sold them to other institutions. The ones that hold the mortgages are part of the blame game. They bought these things and didn't do due diligence on their credit worthiness. From the link provided by Pizzaman it appears that the credit rating agencies totally f*cked up. They need to be hammered IMHO.

I suspect to save the credit system one needs to move fast.

The banking institutions are going to take big big writedowns and losses in selling this to the US. If this system is to go forward, IMHO the Gov needs to buy at firesale prices. If you are buying at $0.25 on the dollar, the gov basically buys equal to or more than the entire value of sub prime mortgages as originally issued as the gov would suck in the value of $2.8 trillion in mortgage value. Will that be so low that it wipes out banks? I don't know. If it is that low, then the gov should buy higher I suppose since the goal is to keep the institutions healthy. The real effort is to keep the institutions alive and give them trust in one another that they will start making loans to one another as they did up to this crisis. That will reinstate liquidity.

Its an ugly mess no doubt. There are no sweet answers.

My guess is that simply not doing anything will see the big banking institutions crash and the credit markets die. That would be a bigger disaster.

@Logicflux: I think Newt Gingrich would be most helpful by saying or doing something productive. It appears Congress's review of the original Paulson request modified his original proposal to not give him that ultimate power. Give credit to folks who addressed that. Newt is Monday Morning Quaterbacking and trying to score political points.

 

the problems run far, far deeper than people not paying their mortgages back.

the links in my post above are to articles detailing how the banks have traded (gambled) with each other with CDTs (a type of spread-betting insurance policy) to the tune of over 1000x more than the toxic sub prime debts themselves.

and in their greed to make money while it was good they've over leveraged themselves by 30 times their capital, so with capital backing of only $100 million, means they have on average gone in for $1.5 trillion dollars losses, assuming the property values would always continue rising.

the credit crunch people refer to was basically the point the suddenly realised they didnt actually know the extent of their liabilities any more and all suddenly stopped lending before they went any further in.

it's collosal, and unstoppable.

 

Leverage is a wonderful thing when all goes well. When things go the other way... well it is a small detonator charge that makers a nuclear bomb work. I wont pretend to know exactly how deep the water is, but the greater the leverage the more likely they've invented the economic equivalent of a black hole.

If so... well, I worked my way thru college as a butcher... if I eventually get to live in the road show version of Mad Max after an economic holocaust, the skill oughta come in handy. Guess we're gonna find out.

 

Nobody knows the details of the bill but I am thinking that the bamks will be getting over on this. If the US were to buy $2.8 trillion for $700 billion, it may help to straighten out the mess. Howver, if it's closer to 100% then the bailout has been for nothing.

 

bill is supposed to be available online
http://i.cdn.turner.com/cnn/2008/images/09/28/ayo08c04_xml.pdf

 

6 more weeks

Once the elections are over Bernake will go underground. The FED can't risk a collapse in an election year or they may face a political blacklash.

 

There should be a reading in DC tomorrow. The lawmakers are pushing this bailout through without weighing the risks.

 

The same thing happened after Hurricane Katrina in New Orleans. Thousands of prepaid credit cards were passed out that were used to buy liquor or spent in strip clubs. Thousands of trailers were purchased that are stilling sitting on lots in Arkansas and even a luxury liner was rented to house refugess which sat empty. The US spent 200 billion+ on New Orleans and there is little or no improvement.

 

they may not even make it that long.

globally the banks were bailed out at an average rate of 188 billion per day over the last week I read somewhere yesterday.

700 billion would guarantee more like one week

 

The 188 billion figure probably is so high due to collapses like AIG, Washington Mutual, Lehman Brothers etc.

I believe $700 billion plus the continued FED loans with get the US through the next 6 weeks. I hope so anyway.

This is turning into a worldwide financial crisis. Banks in Britian and the Netherlands are also failing.

British mortgage lender Bradford & Bingley will be nationalized. Britian's biggest mortgage lender HBOS PLC has already fallen victim to the credit crunch, and was taken over by rival Lloyds TSB PLC in a $21.85-billion deal on Sept. 18.

http://biz.yahoo.com/ap/080928/eu_britain_bradford_bingley.html

Benelux bank Fortis nationalised to stop collapse

Stricken Beligian-Dutch bank Fortis was bailed out by the governments of Holland, Belgium and Luxembourg to the tune of €11.2bn (£8.9bn) after investors deserted the bank last week.

http://www.telegraph.co.uk/finance/...ank-Fortis-nationalised-to-stop-collapse.html

 

Not everyone is happy with the bailout.

 

A lot of people will be singing the blues on this bailout.

 

I liked this one.

 

Amen. Couldnt agree more.

 

I agree the most.

 

The miss use of funds during Katrina was absolutely appalling. I listened to talk radio today on a 8 hour business trip, And politician after politician stated that most citizens that contacted them was against the bailout. I am surprised that it received the number of votes it did.

 

Like a deer in headlights.