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

Discussion in 'Politics & Religion' started by earlpearl, Sep 20, 2008.

  1. #1
    I've only done a quick read on this. I might get some of this wrong. Also I haven't looked at pricing of the subprime mortgage debt and associated mortgage debt that has been securitized....but it is a big costly, somewhat risky, and possibly profitable profitable.

    It will be interesting and important to follow it as it is amazingly expensive and adds enormous debt to the US govt already laden with enormous debt.
    SEMrush
    I haven't looked to see how this debt is currently being priced. Large amts have already been written down to zero or deeply low prices as financial institutions have taken huge loss writeoffs on this debt paper.

    It is deeply complex with large denominations made up of many mortgages. Some of them having already gone into foreclosure, some of the mortgages are probably moving toward default or suffering with late payments, and others being paid off on a timely basis.

    On top of that the mortgages that have gone into default leave the note holders with properties that they clearly wish to resell.

    The other immense complication is an ongoing assessment of values on these properties.

    In any case, securities that are going to be bought up have value. Its just that nobody knows how much value, and the values are changing as properties go into forclosure.

    Still the performing mortgages have value, and the foreclosed homes have value. The securitized debt is anything but worthless.

    I went through this process once before when the commercial real estate market tanked at the end of the 1980's. In my market property values probably recovered their pre collapse prices about in about 5 or 6 years. In other regions it took longer. Commercial property values are crazy higher than they were before that period....and in this market the higher values are justified with rents that are dramatically higher than in 1989.

    I hope this process works well. It will be expensive and complex to manage. I'm sure as with the RTC set up in the late 1980's it will ultimately fade from the horizon as all bad debt and properties are returned to the private markets. It just will take years to do so.

    I'd love to hear other opinions.
     
    earlpearl, Sep 20, 2008 IP
    SEMrush
  2. zangief

    zangief Well-Known Member

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    #2
    Who made the debt ? They
    Who will pay the debts of the goverment ? Of course the tax payers.
    Time to pay and it is still not over.

    [​IMG]
    [​IMG]
     
    zangief, Sep 20, 2008 IP
  3. bogart

    bogart Notable Member

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    #3
    One issue is the maintenance of the forclosed properties. The subprime buyers had no money left over to repair or bought the properties in need of repair (fixer-uppers)

    A second issue is that the US bails out the scum and they continue to do the same thing.

    We don't really know what the impact of the financial crisis will be. We all know the waste that occured after Hurricane Katrina in 2005. New Orleans is in no better shape.

    It's better to let the market sort this out and use a RTC/FIDC solution.

    I also hear that the FIDC has extended protection to money market funds. What is going to happen if the DOW goes down to 7000 or worse?
     
    bogart, Sep 20, 2008 IP
  4. browntwn

    browntwn Illustrious Member

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    #4
    If the purpose of spending 700,000,000,000 in taxpayer money is to free up credit markets - why not take that same 700 billion and write new loans backed up by actual security?

    I cannot accept that people who made bundles writing bad loans over the last few years get bailed out and leave US taxpayers holding the bag. This just does not seem fair or equitable to me.
     
    browntwn, Sep 20, 2008 IP
  5. soniqhost.com

    soniqhost.com Notable Member

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    #5
    There are a lot of people who made tons of money flipping homes, until they got stuck with homes they couldn't sell.

    Now the idea behind the bad debt trust is that over time the true value of the loans will come out the government will be able to sell the loans and get the money back. Will they get all of it, not but I would assume that would get 70-80 % back when everything is said and down, in the mean time, it gets the bad debt off of the banks balance sheets and allows them to function again which is good for the rest of the economy.
     
    soniqhost.com, Sep 20, 2008 IP
  6. zangief

    zangief Well-Known Member

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    #6
    So the this means (for the finance system) that you can take more risks cause if you fail , the goverment will come and save you.A new way of capitalism and the free market.This will be only a temporary solution,imo.

     
    zangief, Sep 21, 2008 IP
  7. bogart

    bogart Notable Member

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    #7
    bogart, Sep 21, 2008 IP
  8. wisdomtool

    wisdomtool Moderator Staff

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    #8
    The stock markets went on a frenzy, but I don't see why anyone besides Wall Street will be happy. Every single American wake up with an additional $30 000 per head just because some bankers have been wining and dining too much and took too much risk. It makes me wonder how are they going to pay for this, not including the bills of the Iraqi and Afghan Wars as well as current spending deficit.

     
    wisdomtool, Sep 21, 2008 IP
  9. korr

    korr Peon

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    #9
    Shuffling the location of the debt around isn't going to solve the problem... Using debt to pay off debt isn't going to work, especially when the payback is going to have to come from the very pool of people who is at risk from defaulting on mortgages...Taking more money out of this pool is going to inevitably cause another percentage point or two of defaults, and that translates into more trillions of derivatives built on defaulting mortgages.

    If stock prices don't fall because of government intervention, the dollar will. Maybe not against other fiat currencies, but it will against things of real value.
     
    korr, Sep 21, 2008 IP
  10. wisdomtool

    wisdomtool Moderator Staff

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    #10
    The rise of the crude oil prices back to above $100 is already an indication of what is to come for the USD. Coupled with the lowering of interest rates, we may be back to square one where crude oil and commodities are concerned.

     
    wisdomtool, Sep 21, 2008 IP
  11. soniqhost.com

    soniqhost.com Notable Member

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    #11
    The banks won't get the full face value of their assets, so there is a price to pay for excess lending practices and they will absorb a lot of the losses. The other option would be to let all the financial companies fail and if you go that route, then every company or business that needs a loan to function is unlikely to get one, so companies that had no connection to housing or financial will now be unable to function because of the mess on wall st, both options aren't great but the bailout is less evil of the two in terms of pain to the American worker.
     
    soniqhost.com, Sep 21, 2008 IP
  12. bogart

    bogart Notable Member

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    #12
    With 1970s style inflation the housing prices will recover. But the DOW will take a big hit.
     
    bogart, Sep 21, 2008 IP
  13. pizzaman

    pizzaman Active Member

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    #13
    pizzaman, Sep 21, 2008 IP
  14. soniqhost.com

    soniqhost.com Notable Member

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    #14
    soniqhost.com, Sep 21, 2008 IP
  15. pizzaman

    pizzaman Active Member

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    #15
    every half ass bank has a US operation
     
    pizzaman, Sep 21, 2008 IP
  16. soniqhost.com

    soniqhost.com Notable Member

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    #16
    Not every bank has a US operation
     
    soniqhost.com, Sep 21, 2008 IP
  17. pizzaman

    pizzaman Active Member

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    #17
    fixed it already
     
    pizzaman, Sep 21, 2008 IP
  18. Hon Daddy Dad

    Hon Daddy Dad Peon

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    #18
    Jim Rogers

     
    Hon Daddy Dad, Sep 21, 2008 IP
  19. bogart

    bogart Notable Member

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    #19
    Jim Rodgers mentions a 'Super Crash' is possible. Nobody knows how bad the mortgage crisis really is or how much fraud was involved in the mortgage industry. I heard a program on the BBC the other day where a owner of a mortgage company estimated that 75% of all subprime loans invloved some fraud.

    I guess the 'Super Crash' occurs when the FED and US Treasury runs out of money or causes a dollar crash. I doubt that the proposed $700 billion bailout will be the last.
     
    bogart, Sep 21, 2008 IP
  20. wisdomtool

    wisdomtool Moderator Staff

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    #20
    Is $700 billion enough is another question. Initially, the proposal was calling for $50 billion, that really didn't ring a bell with the investors. Then came the $700 billion. What is next? After $700 billion? The mortgage market is $12 trillion and that is the mortgage market alone.

     
    wisdomtool, Sep 21, 2008 IP