Friday, September 19, 2008

Devil's In The Details

And the details of Uberbailout are coming at the future. Kinda. Maybe. We'll see.
Here's what we know so far:

The plan: The federal government would buy up "hundreds of billions of dollars" of illiquid mortgage assets at a deep discount from banks. The Treasury Department is likely to run the program directly, unlike the savings and loan crisis of the 1990s that led to the creation of the Resolution Trust Company.

"The federal government must implement a program to remove these illiquid assets that are weighing down our financial institutions and threatening our economy," said Paulson.

What remains to be seen is how the Treasury Department will structure the purchases and what price they'll pay.

The cost: While the proposal calls for the purchase of "hundreds of billions of dollars" of bad loans, it's unknown what taxpayers will ultimately pay for the bailout.

The government will likely buy the assets at below-market rates and hold onto them until the market recovers. Ideally, the loans could then be sold at a gain.

"The government could make a profit, a substantial profit," said Jaret Seiberg, a financial services analyst at the Stanford Group, a policy research firm. "The pricing mechanism is going to be central."

Will it work: The jury is still out, although experts are cautiously optimistic the plan will help the housing crisis.

The plan will help banks shore up their balance sheets by removing hard-to-value assets. This would address the seemingly endless rounds of writedowns and capital raising that have been rocking the financial sector.

Without these bad loans weighing on their books, banks may be more willing to lend. Or at least that's the goal.

The problem is that the bailout will not automatically make banks profitable, nor will it stop the slide in home values that is wreaking havoc on the economy.

Will it help homeowners: It's unclear at this point. If the government buys an entire securitized loan, it could opt to help struggling homeowners by modifying the terms. This could include reducing a loan's interest rate or principal balance.

But it could prove difficult to snap up all the securities sold on a mortgage, experts said. And as long as investors still hold a piece, they could block any changes to the loan.

If the plan doesn't stem the tide of foreclosures, home prices will not stabilize and the economy will not recover, experts said.

The more I hear about this plan, the less I like it. It seems like nothing more than the mother of all corporate welfare programs and sets a horrendous precedent. Surely the airlines and auto industry will want a piece of this action too.

Taxpaying homeowners won't see a dime. Worse yet, the millions of Americans who don't have a mortgage and rent aren't going to see a dime either, but will be expected to pay their taxes towards this.

And even better, Republicans are going to say that helping out ordinary Americans will be too expensive and not fiscally responsible. It's 54 days before a Presidential election. There's no way this is going to get passed without a disatrous amount of pork, riders, and perks for fat cats. Both sides will threaten to block the bill.

You thought this week was bad? Try next.

How Bad Was It?

Seriously, how bad was the financial situation yesterday about noon or so when the Fed let it slip that UberBailout(tm) was coming and it goosed the markets by 400?

You notice that not a single Beltway type is saying "This is a bad idea." How bad is the situation that the most fractured and partisan Congress in the history of the country is united in an election year?

How bad, indeed? This bad.
It was a room full of people who rarely hold their tongues. But as the Fed chairman, Ben S. Bernanke, laid out the potentially devastating ramifications of the financial crisis before congressional leaders on Thursday night, there was a stunned silence at first.

Mr. Bernanke and Treasury Secretary Henry M. Paulson Jr. had made an urgent and unusual evening visit to Capitol Hill, and they were gathered around a conference table in the offices of House Speaker Nancy Pelosi.

“When you listened to him describe it you gulped," said Senator Charles E. Schumer, Democrat of New York.

As Senator Christopher J. Dodd, Democrat of Connecticut and chairman of the Banking, Housing and Urban Affairs Committee, put it Friday morning on the ABC program “Good Morning America,” the congressional leaders were told “that we’re literally maybe days away from a complete meltdown of our financial system, with all the implications here at home and globally.”

Mr. Schumer added, “History was sort of hanging over it, like this was a moment.”

When Mr. Schumer described the meeting as “somber,” Mr. Dodd cut in. “Somber doesn’t begin to justify the words,” he said. “We have never heard language like this.”

“What you heard last evening,” he added, “is one of those rare moments, certainly rare in my experience here, is Democrats and Republicans deciding we need to work together quickly.”

Scared shitless. Scared to the point where they unanimously have decided it is a good idea to spend upwards of a trillion dollars in the latest attempt to fix this problem.

That should terrify you, because up until now everything they've tried has failed. It has failed so miserably that this is now the only option remaining.

If this fails, we lose.

The same people responsible for this mess are telling us they now need trillions of your money to fix this and that they have no choice or the economy implodes.

Do you believe this is over?

The ride is just beginning.

In Which Barry O Kicks McSame's Ass

This right here? This is Barry winning this election. (h/t AmericaBlog)

This morning Senator McCain gave a speech in which his big solution to this worldwide economic crisis was to blame me for it.

This is a guy who's spent nearly three decades in Washington, and after spending the entire campaign saying I haven't been in Washington long enough, he apparently now is willing to assign me responsibility for all of Washington's failures.

Now, I think it's a pretty clear that Senator McCain is a little panicked right now. At this point he seems to be willing to say anything or do anything or change any position or violate any principal to try and win this election, and I've got to say it's kind of sad to see. That's not the politics we need.

It's also been disappointing to see my opponent's reaction to this economic crisis. His first reaction on Monday was to stand up and repeat the line he's said over and over again throughout this campaign -- 'the fundamentals of the economy are strong' -- the comment was so out of touch that even George Bush's White House couldn't agree with it.

I'll take Charles Nelson Reilly in the middle for the MY TANK IS FIGHT!

Zandar's Thought Of The Day

To reiterate the GOP position:

Taxpayer money for the UberBailout, what, 2 trillion? No problem. We're protecting America.
Taxpayer money for the Iraq War, 3 trillion? No problem. We're protecting America.
Taxpayer money for rebuilding hurricane ravaged homes? Fiscally irresponsible, those people need to live with the consequences of their own choices.

Compassionate conservatism for all. Vote Republican for more.

More On The UberFix

Hank Paulson gave more details this morning on this gubment superagency that will magically make everything better.
Treasury Secretary Henry Paulson on Friday called for the U.S. government to spend hundreds of billions of dollars to take toxic mortgage assets off the books of financial firms to restore financial stability.

"We must now take further, decisive action to fundamentally and comprehensively address the root cause of our financial system's stresses," Paulson told a news conference.

"The federal government must implement a program to remove these illiquid assets that are weighing down our financial institutions and threatening our economy," he said.

There are only two things you need to know.

  1. The people who got us into this mess have failed at every single opportunity they have been given in the last several years to fix this mess so far.
  2. The people who got us into this mess have now fucked up so badly that these same people now say they need trillions of taxpayer dollars to fix it this time.

Feel better? I know I do.

[UPDATE] When US Senators are throwing around numbers like a trillion dollars as "back of the napkin" calculations, then we're truly fucked.

Ironically Enough

I am reminded by sharp readers that while America is being plundered of trillions, that today (Spetember 19th) is International Talk Like A Pirate Day.

The irony, she is thick like grog today.

In Which Zandar Loses His Temper Completely And Fails To Be Dispassionate

The meltdown on Wall Street?

It's not Wall Street's greed. It's not lack of regulation. It's not arcane and byzantine debt packaging. It's

It's all those goddamn poor black people that those evil liberal Democrats forced Wall Street to give loans to in the name of affirmative action and that of course has ruined our patriotic American banking system.

No, seriously.
OK .. so we all know that a lot of really bad real estate loans were made. The political class would sure love for us to believe that the blame here rests squarely on “greedy” (try to define that word) mortgage brokers and lenders. The truth is that most of the blame rests on political meddling in the credit decisions of these mortgage lenders.

Twenty years ago the buzz-word in the media was “redlining.” Newspapers across the country were filled with hard-hitting investigative reports about evil and racist mortgage lenders refusing to make real estate loans to various minorities and to applicants who lived in lower-income neighborhoods. There I was closing these loans in the afternoons, and in the mornings offering a counter-argument on the radio to these absurd “redlining” claims. Frankly, the claims that evil mortgage lenders were systematically denying loans to blacks and other minorities were a lot sexier on the radio than my claims that when credit histories, job stability, loan-to-value ratios and income levels were considered there was no evident racial discrimination.

Political correctness won the day. Washington made it clear to banks and other lending institutions that if they did not do something .. and fast .. to bring more minorities and low-income Americans into the world of home ownership there would be a heavy price to pay. Congress set up processes (Research the Community Redevelopment Act) whereby community activist groups and organizers could effectively stop a bank’s efforts to grow if that bank didn’t make loans to unqualified borrowers. Enter, stage left, the “subprime” mortgage. These lenders knew that a very high percentage of these loans would turn to garbage – but it was a price that had to be paid if the bank was to expand and grow. We should note that among the community groups browbeating banks into making these bad loans was an outfit called ACORN. There is one certain presidential candidate that did a lot of community organizing for ACORN. I won’t mention his name so as to avoid politicizing this column.

These garbage loans to unqualified borrowers were then bundled up and sold. The expectation was that the loans would be eventually paid off when rising home values led some borrowers to access their equity through re-financing and others to sell and move on up the ladder. Oops.

Right now this crisis is being sold to the American public by the left as evidence the failure of the free market and capitalism. Not so. What we’re seeing is the inevitable result of political interference in free market economics. Acme bank didn’t want to loan money to Joe Homebuyer because Joe had a spotty job history, owed too much money on his credit cards, and wasn’t all that good at making payments on time. The politicians told Acme Bank to figure out a way to make that loan, because, after all, Joe is a bona-fide minority-American, or forget about opening that new branch office on the Southside. The loan was made under politicial pressure; the loan, with millions like it, failed – and now we are left to enjoy today’s headlines.

So … why aren’t you reading the whole story in the mainstream media? Come on, are you kidding me? Do you really expect the media to blame this mess on deadbeat borrowers and political interference in the free market when it is so easy to put the blame on greedy lenders and evil capitalists? Remember … there’s an election going on. One candidate is decidedly anti-capitalist. Do the math.

I'm doing the math, Neal. I'm seeing an economy in the red. I'm seeing mortgage brokers selling loans to anybody and everybody with NINJA loan crap for years because there was no regulation and wall street looked the other way. And yes, as long as housing prices went up these companies made hundreds of billions.

But if you actually think that Wall Street was forced to make loans to people who couldn't pay by Democrats, you really are a complete moron.

No offense.

But it sure is a great excuse to blame anytbody but the GOP, the Wall Street titans getting golden parachutes and the companies that frittered away trillions of YOUR mortgage dollars in bad investments and then are taking that money BACK in turn from the American taxpayers all over again. It sure is a great excuse to blame black America for Wall Street's shitty investments. It's not like those mortgage brokers preyed on people by hiding the fine print and taking advantage of them. They got paid to do so. It was institutionalized fraud against millions of poor Americans of ALL races.

And you're telling me Lehman Brothers is the victim here?

Fuck you, Neal Boortz. Fuck you and your entire racist bullshit.

You do the math.

Global No Confidence Vote: Deal Or No Deal Pt 5

The Ultimate Deal is about to be made.

Sick and tired of making individual Deals with individual companies, Helicopter Ben, Hammerin' Hank, and the whole Deal or No Deal crew has decided to fundamentally change America's economy from capitalism to kleptocracy.


Everybody on Main Street will pay for it.

The motherfugger of all bailouts is about to be upon us. .

Not the PROFITS mind, that's still privatized. But all the junk mortgage debt...millions...BILLIONS...TRILLIONS...even reaching into the stratosphere of OVER A QUADRILLION DOLLARS of toxic, mutant derivative funny paper is about to be dumped on our backs.

We just became a socialist country.

The federal government, in what will be its most far-reaching attempt yet to contain the financial crisis, is poised to establish a program to let banks get rid of mortgage-related assets that have been hard to value and harder to trade.

Leaders from the House and the Senate were briefed on Thursday evening by Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke.

"The root cause of distress in capital markets is the real estate correction and what's going on in terms of the price declines in real estate," Paulson said at a press briefing after the meeting. "So we're coming together to work for an expeditious solution aimed right at the heart of this problem, which is illiquid assets on financial institutions' balance sheets."

Many details of the plan remained unclear, but it is likely the government would take on tens of billions of dollars in mortgage assets - if not more.

House Speaker Nancy Pelosi, D-Calif., said late Thursday night that lawmakers expected to get the proposal from Treasury in a matter of hours.

"We hope to move very quickly - time is of the essence," Pelosi said.

Paulson, Bernanke and other officials expect to work through the weekend with congressional leaders to finalize a plan, said Brookly McLaughlin, a Treasury spokeswoman.

Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee, said he believes legislation could be acted on next week.

Let's get this out of the way: Obama will not save us on this. The Democrats are behind this plan 100% as much as the Republicans are. This could be signed into law before the end of the month, a behemoth government agency who will simply take all the nasty results of risk away. Risk is for poor people. Change we can believe in!

The questions are staggering. With American taxpayers already on the hook for trillions in bad mortgage paper for Freddie and Fannie, we're now going to be proud owners of trillions more of it. How will we possibly pay for it? Easy...we make the money up.

The road to hyper-inflation is now clear as day. We're simply going to pretend this debt doesn't exist and replace it with money we believe does backed up by a dream and faith.

Faith-based economy. When you're asking yourself why you lost your health insurance, why you can't afford to send your kids to college, why you can't afford a place to live anymore, why you can't afford transportation costs, why you can't afford gas and food and water in a few years, go back to this week.

We just sold our country to save the financial industry. Only the creation of massive amounts of fiat money -- trillions and trillions -- will be able to retire this debt.

The dollar is on the verge of becoming a third world currency. It'll start small, of course.

Options that U.S. officials are considering include establishing an $800 billion fund to purchase so-called failed assets and a separate $400 billion pool at the Federal Deposit Insurance Corp. to insure investors in money-market funds, said two people briefed by congressional staff. They spoke on condition of anonymity because the plans may change.

Another possibility is using Fannie and Freddie, the federally chartered mortgage-finance companies seized by the government last week, to buy assets, one of the people said.

``We will try to put a bill together and do it fairly quickly,'' House Financial Services Committee Chairman Barney Frank, a Massachusetts Democrat, said after the meeting. ``We are not in a position to give you any specifics right now'' on the proposals, he said when asked about the potential cost.

The likelihood of the government taking on yet more devalued assets, after the seizures of Fannie, Freddie and AIG and the earlier assumption by the Fed of $29 billion of Bear Stearns Cos. investments, may spur concern about its own balance sheet.

Debt Concern

The Treasury has pledged to buy up to $200 billion of Fannie and Freddie stock to keep them solvent, while the Fed agreed Sept. 16 to an $85 billion bridge loan to AIG. The Treasury also plans to buy $5 billion of mortgage-backed debt this month under an emergency program.

``It sounds like there's going to be a giant dumpster for illiquid assets,'' said Mirko Mikelic, senior portfolio manager at Fifth Third Asset Management in Grand Rapids, Michigan, which oversees $22 billion in assets. ``It brings up the more troubling question of whether the U.S. government is big enough to take on this whole problem, relative'' to the size of the American economy, he said.

I've got news for you, Mr. Mikelic. It's not. The derivatives attached to these nightmares are a thirteen-digit number...more than orders of magnitude of the entire global economy.

So what does it matter then if we say "Let's just toss another $1.2 trillion dollars into the pile!" Where is it coming from? Who knows? Who cares? We're the government, we'll just make it up!

Our entire economy is about to be turned into a giant dumpster, surely. We're the dumpster. All the plans you're expecting Obama to do for us, universal health care, new jobs in the green energy sector, getting off foreign oil, all that just died this week along with any hope we had.

Whoever is President in January is the new Herbert Hoover. We'll all be living in the giant dumpster when the debt the government takes on in your name detonates and wipes out the global system.

The US government is on the verge of committing economic suicide.

You think things are bad now?

You have no idea. None. Well, if you've been reading Global No Confidence Vote you have some idea. But this is scaring even me beyond the capacity for rational thought. This is endgame stuff, folks. This is going to end America as we know it.

The good intentions that will pave the road to the Second Great Depression goes right through The Motherfugger Of All Deals here.

And it will pave right over each and every one of us.

Forget wheelbarrows of cash. Start thinking about self-reliance. Start thinking about what you'll need to have on hand to survive this. Start thinking about the skills you'll need to have in the new barter economy that will replace this. What's coming down the pike is going to be worse than you ever imagined.

And more than ever...


Cross-posted over at the Frog Pond.


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