Posted on 09/24/2008 7:28:52 PM PDT by jimbo123
What would you pay, sight unseen, for a house that nobody wants, on a hard-luck street where no houses are selling?
That question is easy compared to the one confronting the Treasury Department as Washington works toward a vast bailout of financial institutions. Treasury Secretary Henry M. Paulson Jr. is proposing to spend up to $700 billion to buy troubled investments that even Wall Street is struggling to put a price on.
A big concern in Washington — and among many ordinary Americans — is that the difficulty in valuing these assets could result in the government’s buying them for more than they will ever be worth, a step that would benefit financial institutions at taxpayers’ expense.
(Excerpt) Read more at nytimes.com ...
“I am worried that the people who are going to offer the securities to the government will be the ones that have the absolute worst toxic waste,” Professor Hansen said.
The problem is not that the these securities are worth less than the ‘market’ price. They are most certainly worth more, at least 50% of the original loan.
The problem is that the government will be too constrained by politics to throw out those now living in these houses and sell the properties at the market-clearing price.
If you do not know what a CDO is, perhaps you shouldn't try to describe it.
$700B is a nice round number. Anyone know how accurate it is? Do they really have any idea +/- it will work out to be? If loans remain in default, will this number creep up?
This bailout is beginning to sound to me like one of those big city “gun buyback” programs. All they ever get are the broken, rusty, and often non-functional guns turned in.
Same thing with this deal. Only the worst, most upside down loans will get sold to Uncle Sugar, while the ones with value will be retained.
Now we have a Republican candidate who wants to appoint Andrew Cuomo to head the SEC who contributed to these problems in the first place and who won't debate or campaign till he upsets everyone in Washington so badly that no deadbeat buy-out deal can be arrived at and we'll have an unprecedented economic seizure anyways!!!
What the hell are we gonna tell our grandchildren??? The inflation will be hell and is the cruelest tax of all!!! I'm getting really upset by all this while we're fighting off a Commie getting elected in the middle of a war on terror!!!
Actually, in the Merrill sale of $31B in CDO’s they sold off this summer, there’s a little catch:
They loaned the buyer 75% of the purchase price.
So while the headline says “22 cents on the dollar” — the buyer really had only 5.5 cents on the dollar invested in the purchase.
And wasn’t it also part of the Merrill deal that if the value dropped to 17 cents on the dollar, the deal was off?
They sold them they own them let them eat them. End of story!
Sell me the whole neighborhood and we’ll talk! I could see tearing them down and building apartment buildings in their place. People are always looking for 2 and 3 bedroom apartments especailly now that they have lost their homes.
I don't believe it is anything more than a SWAG.
And probably a low one at that, to prevent scaring the taxpayers any more than they already have.
I heard tonight on FOX that they (Treasury Dept. & Fed. Reserve) arrived at the $700 billion number this way:
They made a wild guess that 5% of the outstanding paper is bad debt.
The total outstanding private sector debt is estimated to be about $14 Trillion dollars ($14,000,000,000,000).
And 5% of the outstanding $14 Trillion is $700 Billion.
Voila!! We have an estimate.
And these are supposedly the most knowledgeable financial people in the government.
Just for kicks and giggles and to keep things in perspective:
- The 2009 budget proposed by President Bush is $3.1 Trillion dollars and that does not include these bailouts. So the real budget will jump up 33% to about $4 Trillion to pay for these handouts.
- Note that the total USA Gross Domestic Product for one year is also about $14 Trillion dollars - the same as the estimate for all outstanding private sector debt.
- The national debt (government) is now almost $10 Trillion dollars, increasing by about $2.2 billion every day of the year. Congress just raised the debt limit to $10.7 billion so we will be at the legal limit very soon.
- These bailouts will increase the national debt by at least a full 10% in one fell swoop. Maybe more depending on how much Bush, Paulson and Bernanke are lying to us.
- And since we will have to borrow the money (from China maybe?) we will be paying around $1 trillion dollars a year in interest on the national debt.
Terrifying. One wonder how much longer this will go on before the dollar collapses.
You have literally no idea what you are talking about.
You don't even know who the largest holders of CDO paper are.
I'll tell you: pension funds.
We have a friend, who has spent 3+ decades in the mortgage business, and he saw this coming.
He refused to write up a mortgage for illegals and those whose income could not qualify them for a legit mortgage.
I asked him this month what % of loans were bad re people not being able to make their monthly payment
His answer was 2 to 5%, which is the % Rush has mentioned since this mortgage bs has erupted and cratered out. Which means most Americans are paying for their homes.
Below were his observations and knowledge of what was happening:
1. The higher defaul % areas are often clustered where there are a lot of illegals. An illegal or a citizen would get a loan with basically minimal wages, and then he/she would rent out bedrooms and garages to illegals for 500 to $1000 per month per illegal. He said many garages in Wino country were rented to 4 to 8 illegals with 2-3 illegals in each bedroom.
2. The next danger area were the previously red lined slum areas in S California, the agricultural valleys, Oakland, San Jose, Stockton and Sacramento. Loans were made on slum property to people on welfare or minimal wages. Lifestyles and the loss of a major applianc, heating/ac unit or leaking roofs put the owners into default. House Flippers would buy the homes, put a cheap coat of paint on them, patch up the items needing major repair, then sell them to another bad debt person with Freddie or Fannie making another loan on the disaster waiting to boil over again.
3. The next bad debtors were the Nuevo Rich and even old rich going insane with the power of easy credit. He saw two types here.
3a: The young families in areas where the property value in 2-3 years was supposedly doubled or more using their new lines of credits to buy two new Suvs or luxury cars, taking big vacations the families, buying membership in very expensive health clubs, using spas weekly and often having a personal trainer to get them into Hollywood shape, and last but not least sending young children to private schools that might cost as much as Stanford.
3b: Couples his/our ages with no children at home, buying in his words McMansions in locked gate communities. Often these McMansions were in the 4 to 6000 square foot category with multiple heating and AC units, $100,000+ kitchens for a woman who hated cooking but loved to show off a beautiful kitchen. Then. the husband would have an outside kitchen/eating area that sometimes cost as much as his wife’s inside kitchen to char his buffalo burgers or designer hot dogs. Of course luxury suvs and high end luxury cars were sop. Vacations were expensive cruises or with their entire families at Disneyland or Disney World or going on a cruise with the adult children and their kids. Of course all of these luxury items were paid for with their new huge lines of credit or executive credit cards. Now, they are maxed out and unable to pay their monthly nuts re their credit lines, credit cards and their 4 million $ home is worth maybe 1-2 million, which will not cover their first/seconds/maxed out lines of credit and maxed out credit cards from $20 k to $50 K per card.
His next observation re financial institutions to be hit will be the credit card companies which basically gave unlimited credit to all of the people above in #3 and too much in the other two categories.
Great insight - thanks for the post.
Through our ex-DIL we know quite a few younger people, men and women in the 25 - 40 age group, who work for various financial companies.
They make insane amounts of money, have almost no work ethic and don’t care where the money comes from.
If they can make a deal and unload it before it hurts them they are content and so are their managers.
I am amazed at how much money there seems to be flowing through their businesses - they discuss money and deals in amounts that are stunning but they seem to do very little for it.
If they are plugged into the right job at the right time it just falls into their laps.
Their salaries, commissions and bonuses would bring tears to the eyes of traditional hard working middle class people but they spend it faster than they make it. They have a hugely overdeveloped sense of entitlement and almost all constantly complain about not getting a bigger cut of the bounty.
They have no respect for maturity or for career employees like your friend at all.
To me it seems there is a whole culture and attitude within some segments of the modern financial industry that is completely foreign to traditional American values and ethics.
Thanks for the kind words.
Your reply had some very pertinent info re what is happening out there:
“Through our ex-DIL we know quite a few younger people, men and women in the 25 - 40 age group, who work for various financial companies.
They make insane amounts of money, have almost no work ethic and don’t care where the money comes from.
If they can make a deal and unload it before it hurts them they are content and so are their managers.
I am amazed at how much money there seems to be flowing through their businesses - they discuss money and deals in amounts that are stunning but they seem to do very little for it.
If they are plugged into the right job at the right time it just falls into their laps.
Their salaries, commissions and bonuses would bring tears to the eyes of traditional hard working middle class people but they spend it faster than they make it. They have a hugely overdeveloped sense of entitlement and almost all constantly complain about not getting a bigger cut of the bounty.”
These people, you have described are very similiar to the ones who have driven my 40 something son up the wall. The ages of the fast spenders in his area are mid 30 to about 50.
He has a very responsible job, works long hours and has had employees follow him when he left his previous job for his current one, where he has worked for a decade. He is responsible for real measureable results, and if he doesn’t do his job correctly, people could be seriously injured or killed.
These heavy and fast spenders as he labels them were tough to be around until the past couple of years. Some of them have lost their homes or will be losing them do to their spending patterns or the evaporation of their jobs that probably weren’t real jobs.
He feels besides the mortgage blowup, many of the fast spenders have two other problems. One is the maxed out credit cards which I mentioned in my earlier reply.
The second one is the apparent failure to pay federal and state income taxes, they owe.
I had stopped listening to Rush most of this year, Sean and others due to their whining about John Mc and republicans in general. Post Palin, I started listening to them again and so many of their ads are pushing outfits which deal with the IRS for people who owe a lot of money in back taxes.
I discussed these ads with this son, and he said the fast spenders he knew would brag about how they $crewed the IRS or didn’t pay them while living a great life style.
Those days apparently are coming to an end as the IRS is acting on many of these people, which is why there are so many ads on the radio and tv re companies which deal with the IRS or supposedly have a plan where the overspenders don’t have to pay their credit card debts.
Is this true? Cuomo ryhmes with homo. I wouldn't trust him or his father as far as I could throw a community organizer.
Q2. If they are worth 22 cents on the dollar and we will not be paying any more for them, why can't the banks just hold on to them (or sell them to investors at 22 cents on the dollar)?
I'll tell you: pension funds.
My mother and mother-in-law, Lord have mercy I don't know what they might do.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.