Posted on 09/19/2008 8:18:13 AM PDT by Sub-Driver
Paulson plan could cost $1 trillion By: Mike Allen September 19, 2008 10:27 AM EST
Congressional leaders said after meeting Thursday evening with Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke that as much as $1 trillion could be needed to avoid an imminent meltdown of the U.S. financial system.
Paulson announced plans Friday morning for a "bold approach" that will cost hundreds of billions of dollars. At a news conference at Treasury headquarters, he called for a "temporary asset relief program" to take bad mortgages off the books of the nation's financial institutions. Congressional leaders had left Washington on Friday, but Paulson planned to confer with them over the weekend.
"We're talking hundreds of billions," Paulson told reporters. "This needs to be big enough to make a real difference and get to the heart of the problem."
Stock markets soared around the world in anticipation of the rescue, with British and Chinese indexes recording their biggest gains ever.
Senate Banking Committee Chairman Chris Dodd (D-Conn.) said on ABC’s “Good Morning America” said lawmakers were told last night “that we’re literally maybe days away from a complete meltdown of our financial system, with all the implications, here at home and globally.”
(Excerpt) Read more at politico.com ...
This is the end of moral hazard in mortgages and investing. They are even bailing out money market funds though everyone I have ever seen clearly stated in the prospectus that they could fall in value. This will only make things worse down the line. History will record that George Bush was the president that moved the USA from free market capitalism to socialism.
Once again, a poltiical reporter making comments clearly above their pay grade, and some of our Freepers falling for it.
If this new entity buys a trillion dollars in mortgages from the financial entities that own them, the only losses will be those mortgages that are fully defaulted on. And in a default, there is still a chance to sell the property on a bankruptcy offering.
Remember, the banks and brokers have already written off a little over $500 billion so far, so their cost of carrying these mortgages is already lowered. So they then turn around and sell the paper to the new entity at say, 30 cents on the dollar. There will be some more writedowns, but we will finally be able to quantify the total. The uncertainty of how much of these writedowns remained is the biggest reason why the financial stocks had not been able to find a proper pricing level.
The new entity will now own say a trillion in mortgages, but they don’t have a trillion in risk. The vast majority of this paper will likely pay off in the long run. Remember, the government actually made money over the S&L bailout in the long run.
The only reason the government is doing this is because it is too large for the private sector to handle in the short term, and because the last thing this country needs is for Goldman Sachs and Moegan Stanley to be owned by non-US sovereign funds, which is where this was leading us to (Dubai owning 49.9% of Goldman and China owning 49.9% of Morgan Stanley).
And please, no flaming about free markets and ‘let the bastards fail’. We all know that lousy governemt regulation and oversight caused a significant hand in this issue, so the need for government providing their part of the solution financially is reasonable.
However, the next mortgage broker who tries to submit a ‘stated income’ application should be shot on sight.
And I want Franklin Raines and Angelo Mozilo and Richard Fuld arrested this year!
At what point does it make more economic sense in the long-term to just let a company fail? While I understand the implications of a mega-company like Fannie Mae/Freddie Mac crash and burn (or any of the other companies being bailed out) - massive financial panic and losses.
BUT
With a price tag of $1 Trillion - I just don’t know that the collapse of said companies would be as expensive overall. At least if they collapse, the market will eventually correct and fix the problems. When the Government bails them out - the problems are still there... Nothing is “fixed” it is just, in auto-body terms - Bondoed over. A patch that hides the still-there damage.
Before it is all over, my children will be paying 110% of their income to pay back these disasters.
bttt
bttt
Hoo-Hah!! They are already planning to get in on the ground floor of the next bubble, they've got plenty in seed money to start making it happen.
Don’t forget that our government is an estimated $90 trillion short (in today’s dollars) in meeting future Medicare, Medicaid and Social Security obligations.
This “plan” is truly a case of the bankrupt bailing out the broke.
Roman Empire here we come.
It is not the government's business to bail out investors. These people, including myself, took a risk by investing money in the market and if it crashes, well, that is one of the risks.
Frankly any interference in the Free Market (other than by legitimate regulation) is unconstitutional. The buyout of Lehman and AIG was unconstitutional. The whole Freddie Mac/Fannie Mae federally guaranteed loan system is probably unconstitutional. Taking money from people who made good investments and giving it to people who made bad investments undermines the whole free market system.
You are advocating a socialist remedy for a capitalistic problem. Maybe socialism is the answer, (a lot of people feel that way) but I doubt it. You should doubt it too.
NO MORE BAILOUTS. Let the chips fall.
The way his proposal is funded, it comes from inflating the currency. If the economy recovers quickly, it could cost nothing. If we have an extended recession, we will see some serious inflation these coming years that could rival the late 70s.
hahah 1 Trillion.. they WISH.
This is a MULTI TRILLION DOLLAR MESS FOLKS! The S&L Bailout was about 1/2 a Trillion, this one is insanely bigger than that. THis is multiple trillions folks.
Everyone wants a bailout.
I’m sending my bills to D.C. Why not an auto loan bailout? An appliance loan bailout?
If you can’t afford the loan and the bank gives it to you anyway, then you both should take a hit.
And it shouldn’t cost me anything.
The Union of American Socialist States....The UASS.
You could be right on the anti-christ thing...at least...”an” antichrist.
Yes and no. There have been lots of gubmint bailouts over the years like the S&L bailouts of the late 80's. The funny thing is that each time they do this, they learn from, and correct, past mistakes, but then they go on and make new ones! Thebig problem here is that the capital markets drive our economy. If we wait for 2-8 years for them to self-correct, it could potentially make the Great Depression look like a "market dip".
If they DO do something big, then it might take years for our economy to recover.
Rather than saying "those of you involved chose badly, you lose" and cutting the losses, we're looking at EVERYONE having to fix what others screwed up. Fixing that which is irretrievably broken and hugely expensive to repair is just a waste of resources, serving only to portray those who screwed up as successful.
On the plus side, that’s a trillion dollars President Obama won’t have to spend on socializing health care and handing out walking-around cash to the Jeremiah Wrights of the world.
Isn't there a whiff of Weimar Germany in all of this chaos......or at least modern day Argentina or Zimbabwe??
Well, this move will be potentially inflationary, but the alternative would be stagflationary, which is far worse. Now, if we look at this from a political perspective, we find that doing nothing would actually help Zero (why-oh-why does the avg American think he's better for the economy?) and bring his socialist policies to every aspect of our lives. So picture 2009, banks failing, record forclosures, european unemployment numbers, a quick push by the Dem controlled government for Gubmint Healthcare for all, the sudden need for tax increases, reduction in our military to pay for more social programs, etc... Not a pretty picture.
The only possible way this will not be a disaster for the taxpayer is if, somehow, the real estate bubble is inflated.
I wonder how they will do that? Print lots of money maybe?
Inflation may become a big problem...soon.
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