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

It's a bottomless pit. Mortgages that are 10 years old should be pretty safe unless there is some home equity loans on top.

Homes bought in the bubble markets could decline another 20-30% so $2 or $3 trillion should be good to add to the US $10 trillion debt.

I wondering how the US is going to afford the interest.

 

My understanding of this $700 billion proposal is that its purpose is to take the bad mortgage debt out of the financial system. In that regard its set up and purpose is similar to that of the Resolution Trust Company(RTC), set up in the 1980's to hold the properties, the defaulted loans, and ultimately resell all of this from defaulted S&L's.

The goal is to keep financial systems working. The alternative would be a meltdown of banks in the eyes of Paulson and Bernanke.

While I worked in commercial real estate during that period, sadly my first hand experience was not focused on the RTC. My basic business model had collapsed, I had troubled real estate investments, my former clients were not candidates for purchasing from the RTC, and I didn't watch it closely.

It did resell everything it took over back into the market. I'm not sure of whether it made money or not. I know there was a total $150 billion debt bailout of the debacle, with the Feds (taxpayers) funding $125 billion of that.

I believe that amount was security for the federally insured deposits for the approximately 1,000 banks (S&L's) that failed during the period, though I'm not 100% sure.

Did the RTC make money on holding and reselling properties and loans on properties? Not sure. One has to look in depth at its records.

The S&L crisis did not result in a complete economic meltdown and destruction of the financial system. The overall banking system continued to operate. There were significantly tighter financial controls across the board. There was a total meltdown for a period of time on commercial real estate lending. That totally stopped that industry in its tracks. In time those restrictions lifted, and lending proceeded albeit at a much slower and tighter pace.

The 1st goal of this effort, if it passes Congress is simply to see if the US financial system continues to operate.

After that the relative success or failure of this effort will be measured over a long term.

 

I just wrote my senators and congressman opposing the bailout.

 

Is the fraud on the part of the borrower lying about his income or the lender lying about??

Seems like fraud is mentioned all the time towards the lenders (banks) but I haven't seen or heard where they have discovered this "fraud"

People borrowing more than they could afford, on houses overpriced and then borrowing 100% on a variable rate mortgage WHILE mortgage rates were lowest in years or ever..... I keep seeing bad decisions on the borrowers side with way too lax lending on the lender side. Both lose out when the borrower fails to pay, let them pay for their stupidity. (not above it myself, just letting the blame fall on those responsible.)

 

Good ideas, it's been a bit since I've written mine on anything!

 

Why is there a need for this?

 

Email or old school?

 

Hey Guys,

Maybe someone has already stated this, but I'm kinda slow sometimes. So did we just buy $700 billion in mortgaged houses?

If so, those are not a complete loss, are they?

 

It has to go through congress. And I don't think anyone knows how much of a loss the gov will take.

http://money.cnn.com/2008/09/22/new...posal_Monday/index.htm?postversion=2008092215

 

it depends on how much we pay for it at 30 cents on a dollar i would be happy
i would start at 10c and come up incrementally . let the market take care of it.Buy till you reach 500 million

 

Well that's a scary thought. That will drive the price of houses even lower. We were planning on selling our house and moving next spring. Well, at least the next house we buy will cost less also.

 

No it wont. right after the takeover you go back to the old rules of the mortgages being tax deductible and the prices will go back up. In another world we should use our leverage to the benefit of the tax payers

 

Email. Heck, they will vote for this damn thing before a regular letter would get read. Plus, I think they weigh them all the same nowadays. Got a form response back from my congressman - nothing from my Senators. I also noticed he has a statement which I agree with:

"I have serious reservations about the Administration’s bailout proposal. The structure of the plan appears designed to maximize returns for Wall Street and minimize protections for the taxpayer.

The Administration’s plan completely eviscerates the concept of moral hazard. It would enrich the Wall Street executives whose reckless investments caused the financial crisis. The taxpayer is being asked to risk billions to protect the bonuses of investment bankers."​

 

Hmmmm...

I'm not sure if that would work, but I hope you're right.

 

Should have linked here and asked him to join the discussion.

 

i do not think they are going to do it like this. They want to decide how to price it and that would be very bad. we would over pay. My way it would be the fastest way to recovery. If the price is right we can also give breaks to homeowners to stay in their home. After all we got a good price for them.

 

I think the whole thing is nothing but a complete scam. They can sub-contract out all the work to third parties. It will be the same crooks and incompetents that created this mess in the first place that make a pretty penny out of this.

 

Yep.

Why is it so hard for people to see this?

The same guy who fed this mess (Paulson), was the former CEO of Goldman Sachs and was part of the Wall Street environment that caused this crisis, is in charge of fixing it??!!!??!?

They have the incompetents writing the legislation (like the oil companies writing the energy policies).

Why is Congress and the American public tolerating this???

It is sickening to see no protests, no marches, no campaigns by any organized group to fight this.

It is like lambs being led to the slaughter.

If this legislation passes in its current form, the United States and real estate are going to be damaged for the next 10 years.

Say goodbye to the American way of life as we know it today.

 

The goal of the debt buying proposal is to keep the financial system working. It will keep banks operating and secure your deposits.

The fear of not doing this is a complete market meltdown. Currently financial institutions are not lending to one another. Institutions don't trust one another. Nobody knows who will fail next.

I would think that if there was one massive buyer of this debt, The US Treasury, and lots of sellers, then the rules of demand and supply take effect;

Very little demand, a huge huge supply. Prices should be very low.

The caveat from the treasury perspective should be not to buy so low that it drives some of the institutions into bankruptcy. That would defeat the purpose of the proposal which is to keep banks running.

Upon buying the treasury will own assets that are performing (i.e paying a rate of return on the purchase) but not performing as well as when they were first issued.

If you buy a note that was originally made up of 100 mortgages each at $100,000, the original note value was $10 million. It had mortgages paying the note holder some aggregate amount of money.

Now lets say 12 of the properties already went into default. No mortgage payment income on them. Say 9 of the properties are already facing delinquency and late payments. That cuts the income on that portion of the debt. Maybe there could be a problem with another 13 properties because the real estate values in their areas have dropped below the value of the mortgages. Ooops....that means a potential problem with another 13% of the mortgages.

The whole thing is complex. Its a moving target. Payment on the mortgages could terminate. On the other hand, someone may become current and that mortgage becomes a solid payer.

Meanwhile the new mortgage holder, the Treasury Dept. can do a lot with the package of mortgages. It is going to unbundle the note. Its already got 12 properties in default. It owns the properties and needs to resell them.

It may work out new mortgage terms with the 9 late payers and it may approach or be responsive to the holders of the properties whose values are now less than the mortgages themselves.

The treasury will be getting some return on the purchase and it will have to deal with the individual properties it owns in these packages of notes. It will assign this to many players in the private markets, including auction houses, residential brokerage firms, mortgage firms, etc. each one getting some fee.

If the treasury is the dominant player in these markets it can command pricing. For disposition of a mass of homes it might get real estate brokerage firms to cut their commisssions drastically, or go to a different form of payment. Who knows.

In any case I would think the process would start with the treasury buying mortgages at low prices.

As to Pizzaman's question about non review of Treasury's actions by courts or administrative boards....I agree....its a good question.

Since the treasury will be working with taxpayer money it's actions need to be reviewed and evaluated in some capacity by the taxpayers and/or their representatives.

 

Who says? The same people who caused this mess in the first place?

Everytime the government tries to rush legislation, they try and scare you. All it leads to is more government and fewer rights and liberties for the citizens/voters.

War on Drugs
War on Terror
War on Default

Why do people keep falling for the same tactics over and over again?

I guess you just have to accept there are no political parties. There is no democracy.

The US government is a private corporation and we are all assets in this country as US citizens. Our only puprose is to produce to create profit (taxes) for the US government and provide returns for its investors (China, Saudi Arabia, Japan, Federal Reserve, etc.)

How anyone in their right mind can believe anything coming from Congress, the President, Paulson, or Wall Street is beyond belief.

We all are just an asset line on the balance sheet of the United States of America, Inc.