Alarming News

September 25, 2008

So…

…are we for the bailout or against the bailout?

Posted by Karol at 11:20 AM |
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Comments

Something about the government buying up assets so crappy that no private firm is willing to take a chance on them gives me pause. Giving the Secretary of the Treasury so much discretion in the absence of meaningful oversight is troublesome. And it’s unclear from what I’ve read why $700 billion must be borrowed immediately rather than providing funds on a rolling basis. I’ll trust the folks who say some form of bailout is necessary, but don’t think many of the people actually negotiating the legislation have any clue what they’re doing.

Posted by: Alceste at September 25, 2008 at 11:43 am

Against.

Posted by: Tatyana at September 25, 2008 at 11:47 am

I’m a’gin it.

Posted by: Jay at September 25, 2008 at 11:47 am

I’m a bit torn, but one thing to keep in mind: it’s not that companies necessarily WANT to sell these securities and can’t, it’s that due to current rules they must mark an illiquid asset to where they COULD theoretically sell it, if they had to or wanted to. If we have to do that, how come we don’t determine property taxes based on the same math? i.e. if I own a house that I bought for $500,000 but every day I pay taxes based on what price I could sell the house for THAT DAY if I had to, then it would only be worth half that.
Companies will not be forced to sell these assets to the new government agency, it will just be an option that they will have at their disposal. Also, nobody really thinks these assets are worthless. They are just illiquid. 95% of mortgages are not in default and will continue to make payments, but because nobody is willing to make a bid on them inline with what they are worth, companies that hold them are forced to value them at the highest bid.

Posted by: Tex in the City at September 25, 2008 at 11:55 am

p.s. all that being said the small-government side of me absolutely hates the idea.

Posted by: Tex in the City at September 25, 2008 at 11:56 am

I’m for it if it will prevent a depression, against if it won’t. The problem is, nobody – not Bush, not Paulson, not Bernake – knows whether we’re actually in that much trouble or whether the bailout will work if we are.
I’ll guarantee you one thing, though. It will pass, because Congress doesn’t want to take the blame for not doing anything if we have a full-scale meltdown.

Posted by: Eric at September 25, 2008 at 12:00 pm

“For or against” isn’t the question.
“Who among you are so goddamned stupid to support federal government taking a trillion dollars of taxpayers’ money to bail out insufferably stupid people who want us and future generations to pay for the consequences of their bad decisions?”
As I’ve said before, “too big to fail” is a myth. And if something is “too big” because of the federal government creating it and/or propping it up, the entity is “too big” not to fail.
God, it’s time for the entire federal government to simply collapse under its own corruption and incompetence. It really has gotten so bad that we’d be better off as 50 separate, squabbling states.
“Something about the government buying up assets so crappy that no private firm is willing to take a chance on them gives me pause.”
Dude, that should give you NIGHTMARES, not just pause. Even Alexander Hamilton would balk at this unconstitutional federal action.

Posted by: Perry Eidelbus at September 25, 2008 at 12:04 pm

Eric, if there is a “depression,” it will be only because government got us into this mess in the first place. Do you really expect government can then get us out of it?
“I own a house that I bought for $500,000 but every day I pay taxes based on what price I could sell the house for THAT DAY if I had to, then it would only be worth half that.”
Tex, that’s because government can employ violence to force you to agree with their higher assessment, and to force you to pay property taxes in the first place.

Posted by: Perry Eidelbus at September 25, 2008 at 12:07 pm

Against.

Posted by: Snoop-Diggity-DANG-Dawg at September 25, 2008 at 12:21 pm

If Huck is against it, I’m against it….and he’s against it.
by the way…make sure you all watch the huckster on Fox this saturday or Ssunday at 8 P.M. for the premier of his show “Huckabee”.

Posted by: Larry at September 25, 2008 at 12:28 pm

The problem is two folds.
Do we want to give any agency that much power?
Can we afforted the consequence of letting the mortage back securities business collapse?
Concerning the power of 700billion to buy of bad loans – it is no difference then the Federal Reserve buying back government loans to control the money supply. Of course do we want the Sec of the Treasury to have almost dictatorial power of the US economy that the Fed have?
The only complexity is do having someone willing to buy bad loan encourage more financial institutions to make risky loans and other institutions to invest in them? I don’t think the government should be in the business of encourage bad business practice. Banks and financial institutions would strictly control credits only if there is a real chance of defaults, and therefore would not loan to people that have no business buying a house or invest in bad business ventures.
All the politicians are saying help people keep their home. People who can’t afforted a house should not keep their house. The US government should stop telling people that every American deserve a house. Tighter default laws. If we want to solve this problem we should solve it where it all start. To many people getting loans that they have no business getting. There bad loans get bundle up and send around the financial market.
We lead us to the second part of the problems. All the financial companies that invest in mortgage back instruments is going under. They have a cashflow problem. I don’t know much about how the risks and pricing of these exotic instruments works but apparents it is not worth as much as they pay for them in the market due to uncertainties of the quality of the underlaying loans. Maybe they are unable to get rid of them at all even at the lower price. Let these financial firms fails would have a rippling effect on the financial markets and the world economy but I think that is the only way to wake the world up from this dreamscape investment environment we were in the last several years, of stocks trading in the hundreds of multiple of their values, and spiraling real estate market. I think it would be a good think to let the market bleed for a while.

Posted by: Anh at September 25, 2008 at 12:28 pm

“Of course do we want the Sec of the Treasury to have almost dictatorial power of the US economy that the Fed have?”
Imagine how much power Hank Paulson would have. Now imagine that much power wielded by Obama’s choice for Treasury Secretary.
Whatever power is bestowed, always consider the worst possible man who could enter that office.
“The only complexity is do having someone willing to buy bad loan encourage more financial institutions to make risky loans and other institutions to invest in them? I don’t think the government should be in the business of encourage bad business practice.”
Sadly, we haven’t learned since the 1930s. The federal government perpetuates moral hazard by constantly bailing out whoever begs for it. Now Texan shrimp farmers want “relief,” meaning taxpayers being robbed because shrimp farmers don’t want the accept the risk of their jobs.
“All the politicians are saying help people keep their home. People who can’t afforted a house should not keep their house. The US government should stop telling people that every American deserve a house.”
Couldn’t agree more with this and the rest.
When government wants to “help” someone, remember that it implicitly comes from robbing others to help that person.

Posted by: Perry Eidelbus at September 25, 2008 at 12:35 pm

I’m for it, in much the same way I’d be for a spinal tap. Sucks being the cornerstone of the global economy.

Posted by: Shawn at September 25, 2008 at 1:05 pm

Tex, you hit it on the head. This mark-to-market accounting rule is the main cause of this mess. As you said, only 5% are in default but they are reacting as if 100% are.
If they did away with mark-to-market, which btw is how the insurance business operates, you could solve a lot of problems.

Posted by: Ed Z at September 25, 2008 at 1:26 pm

If the words “unreviewable actions” or “no oversight” are included in the document I’m VERY against it. Ditto for any executives getting compensation of any kind.
Also, there’s no proof that providing all of this money will help the economy. They just picked the 700 billion number because “it was big”. There’s no data, knowledge, or anything backing up this decision. It’s politicians squawking and throwing money around willy nilly so it looks like they’re doing something.

Posted by: Pokerwolf at September 25, 2008 at 1:31 pm

Opposed.

Posted by: Dorian Davis at September 25, 2008 at 2:01 pm

Since the details are still jejune, I’m ambivalent. However, I also have a considerable stockpile of .45, 9mm, & 7.62mm with the tools to use them, a nice chunk of ready cash, and enough wine to last me for a couple of years. However, I’ll need to pick up a couple cases of Tanqueray this evening.

Posted by: Casca at September 25, 2008 at 2:41 pm

But the alternative to mark-to-market is even less transparency regarding a bank’s ability to meet its obligations to depositors and other creditors. Why should assets that can’t be sold today count for anything greater than $0 toward a bank’s reserves?
That said, I’m also 100% against the bailout for many of the reasons stated above.

Posted by: Jim Lesczynski at September 25, 2008 at 2:55 pm

Anytime you hear of a “grand compromise” or “bipartisan solution” orchestrated by members of the federal government you should locate the antacid.
Think “comprehensive immigration reform.”

Posted by: Gerard at September 25, 2008 at 3:07 pm

MSNBC says they have approved it. So this whole discussion is obsolete.
We all have no voice int the matter.

Posted by: Tatyana at September 25, 2008 at 3:22 pm

Eric, if there is a “depression,” it will be only because government got us into this mess in the first place. Do you really expect government can then get us out of it?
Oh yes, that’s almost certainly true. This is ultimately the result of Congressional fiddling in the mortgage market. But that’s entirely irrelevant right now – we are where we are.
And yes, I think the government has the power to have a large salutary effect on the situation, if not “fix it” altogether. I’m just not sure if what Congress is doing will result in the correct application of that power. We’ll see.

Posted by: Eric at September 25, 2008 at 4:43 pm

MSNBC says they have approved it. So this whole discussion is obsolete.
We all have no voice int the matter.

That’s kind of dramatic, don’t you think? We have our say in these matters every two years.

Posted by: Eric at September 25, 2008 at 4:52 pm

We have our say in these matters every two year
Financial crisis like this one, as well as 700bln cabbages doesn’t happen to fall on us every two years.

Posted by: Tatyana at September 25, 2008 at 5:17 pm

I’m voting “present.”

Posted by: KS at September 25, 2008 at 5:19 pm

I find it ironic that this supposedly neocon government has “gone socialist”. Taxpayers are bailing out the inept (and maybe the corrupt); I never expected to see the USA doing that, and I’d've put good money on same.
However, Bush’s legacy may be changed by this action. It’s certainly possible to view this as a ‘country over party’ decision.

Posted by: bryan at September 25, 2008 at 5:20 pm

Will the 700 Billion dollar bailout fix come with legislation fixing the causes of this mess?
Will the Community Re-investment Act be repealed? No.
Will loans to illegal aliens be made illegal? No.
Will any of the regulators of or corporate executives of Fannie Mae, Freddie Mac, Bear Stearns, etc or the legislators they own be held accountable? No.
Will anyone look into the role of Goldman-Sachs in this before giving one of their former executives greater power? No.
Am I for an unConstitutional Deal that re-enforces this scam and robs the taxpayers? No.
There is only about 350 Billion in bad loans. Let the government buy these and then sell them to a company willing to foreclose on the properties.

Posted by: RonL at September 25, 2008 at 8:37 pm

Start matching $1 in spending cuts with $1 in bailout funds, and I might start thinking about it.

Posted by: Sean at September 25, 2008 at 10:43 pm

BTW, the Bush administration is 100% lame duck in all this. The few conservatives that might have offered him a bit of support have to have thrown up their hands by now.
Bush is making FDR look thrifty.

Posted by: Sean at September 25, 2008 at 10:50 pm

NO! HELL NO! Damn them all and start over.

Posted by: twolaneflash at September 26, 2008 at 2:22 am

“we are where we are”
If someone got me into a crisis, and his track record is about making things worse before bailing out irresponsible others at my expense, I simply won’t trust him to get me out of the latest one that he again caused.
A free market would sort this out, and with no more pain than a “government” solution. It’s quite simple, really: the value of these “distressed assets” needs to fall to real investors’ valuation, where such investors will be willing to buy them in the hope of uncertain returns. Instead, the federal government is coercing money from me so that the holders of these bad investments can walk away with less loss than otherwise, and I have to experience greater losses than otherwise.
“And yes, I think the government has the power to have a large salutary effect on the situation, if not “fix it” altogether. I’m just not sure if what Congress is doing will result in the correct application of that power. We’ll see.”
Oh, a “salutary effect” is certain, but think the 1930s and 1970s when government tried to fix things.

Posted by: Perry Eidelbus at September 26, 2008 at 9:48 am

bryan, Congress actually has had a liberal majority since 1996, not that it makes any difference. Sean is correct in his comparison of Bush to FDR. It just goes to show that “Republican” is hardly synonymous with “fiscal conservative.” Before this, Bush was rightfully compared to LBJ in the growth of federal spending. He’s only gotten worse.
Reagan “played ball” with Congressional Democrats, agreeing to continue their social spending in return for their passing Reagan’s tax cuts. Bush just goes along with whatever massive spending today’s Dems want, so that they’ll keep funding his wars. The American taxpayer is made to fellate one while being sodomized by the other.

Posted by: Perry Eidelbus at September 26, 2008 at 9:53 am

Whenever the government tells me to panic, whenever they flail their arms and demand that we take action Right Now!, I’m suspicious of their motives.

Posted by: mary at September 26, 2008 at 11:16 am

I’m ambivalent. The estimates of ‘losses’ and ‘costs’ imply incredibly high default rates on the mortgages in the securities. Half of the US isn’t going to just up and walk out of their house so they can rent.
If we do the whole ‘mark to maturity’ scheme, it’s a guaranteed loser for the taxpayer, because there will be some defaults. If the government facilitates liquidity in the market, and pays market prices, a la The Resolution Trust Corporation, then it’s probably a pretty reasonable proposition.
Individual companies may not wish to buy lots of securitized mortgages because, as we have seen, they have finite capital and capitalization requirements. Put another way, they have obligations and other opportunities. Moreover, they have a risk of ruin [which is exacerbated by the fact that prices for illiquid commodities are volatile]. The government is the infinite capital machine [at least on a short term basis], and can eat the risk [which is partly why Bernanke is pushing mark-to-maturity valuation for the feds].
Insofar as the government is an agent tasked to make us collectively better off, I think the opportunity is there. Pragmatically, the government is actually populated by ‘tards, and they will find a way to f’ it up.
I take great delight in the fact that Eideltalk blathers on about being a fiscal conservative, when in fact he is championing Economic Liberalism.
As a mental exercise, if 20 Saudi Oil Sheiks put together $700B and came in and baught the distressed debt, would it be bad? How about the Russians?

Posted by: David at September 26, 2008 at 11:43 am

Err, I meant to write 2006, but with how Republicans revealed themselves to be fiscal spendthrifts, it might as well have been 1995. Sigh.

Posted by: Perry Eidelbus at September 26, 2008 at 1:02 pm

I think Steve is probably a lot smart than Eideltalk.

Posted by: David at September 26, 2008 at 1:59 pm

The government is the infinite capital machine [at least on a short term basis], and can eat the risk [which is partly why Bernanke is pushing mark-to-maturity valuation for the feds].
What a load of horseshit. Government isn’t an infinite capital machine — it’s an infinite taker of capital. The taxpayer is the one being forced to assume the risk.
Insofar as the government is an agent tasked to make us collectively better off, I think the opportunity is there. Pragmatically, the government is actually populated by ‘tards, and they will find a way to f’ it up.
That right there is the problem with government: I don’t want it to make me “collectively” better off. “Collectively” only means bringing the successful down to the level of the least successful, which is the real “race to the bottom” that anti-globalists fail to realize.
I don’t want to be “collectively” anything. Let my neighbors pay for their own things and assume their own risk, without picking my pocket, just as I would do to them.
I take great delight in the fact that Eideltalk blathers on about being a fiscal conservative, when in fact he is championing Economic Liberalism.
Actually, while I refer to “fiscal conservatism” here and there, I’m better than that: I’m a die-hard Ayn Rand libertarian. Democrats have made “fiscal conservative” meaningless, anyway, as their definition means spending as much as they want, and paying for it with taxes as high as necessary.
I oppose government bailing out anyone whether individuals or private companies. So how are you so deluded to say I’m “championing Economic Liberalism”? Or are you talking about classic liberalism, meaning free markets?
As a mental exercise, if 20 Saudi Oil Sheiks put together $700B and came in and baught the distressed debt, would it be bad? How about the Russians?
Neither good nor bad, but at least they wouldn’t be spending my money. Do you understand the difference? They’d be investing their own money, and assuming the risk themselves, without leaving me on the hook should things go bad.
Look at all the money that Sovereign Wealth Funds have recently poured into various financial institutions. Good or bad investments? Only time will tell, but they’re the ones assuming the entire risk.
Are you ever going to wake up to reality, or am I just going to have to continuing schooling you?
Oh, and I’m still waiting for you refute what I wrote previously, douchebag.

Posted by: Perry Eidelbus at September 26, 2008 at 3:26 pm

Oh good lord, what a laugh from that Steve guy. Citing Warren Buffett isn’t exactly the best thing to do, considering he’s talented at spotting undervalued companies but a real idiot on raw economics. Most of all, he’s an Obama supporter.
Buffett is betting on U.S. government involvement — meaning he’s too cowardly to do more than wait for government to “stabilize” things. After all, why didn’t he jump in himself, if the potential returns were so good? His actions alone, demonstrated by his investment in Goldman Sachs, could help “restore confidence,” right?
Steve blathered: “Actually, 15-25 percent is not bad, and just shows that credit markets are generally more rational and data driven than equities. During the Internet bubble and collapse you had mispricings of hundreds of percent, even an order of magnitude.)”
How much is Steve personally investing, or is he just going to let the government do it for him? If the latter, than he has NO CLUE if “15-25 percent is not bad,” or if it’s 30% or 50%. It’s also an average return for hundreds of billions of dollars. For a lot of the worst securities, perhaps only a few would touch them short of triple-digit returns.
Quoting Ricciardi, what a laugh! Does Steve have any clue who he is, you know, he was one of the big guys directly responsible for starting Merrill on the road to hell. And now Ricciardi wants the federal government to bail people out using others’ money.
Steve continued: “On the planet Vulcan, Mr. Spock and other rational, super-smart traders and investors would have cleared this market already.”
Wrong. It’s not about how “rational” or “super-smart” the economic actors are, but the quality of information available, and whether prices are allowed to adjust in a free market so that markets can properly clear. Right now, the federal government is providing bad information by promoting this bailout, because would-be buyers have no reason to appraise the securities at their true value.
Further reading on the basics of market clearing:
http://eidelblog.blogspot.com/2006/01/rule-of-law-overpriced-market-clearing.html
http://eidelblog.blogspot.com/2006/02/how-do-markets-clear.html

Posted by: Perry Eidelbus at September 26, 2008 at 3:44 pm

One might say that Steve could teach you a bit about capitalism. He’s got ‘Built a successful business from the ground up’ on his resume.
I enjoy the fact that there are people like you as competitors in the market.

Posted by: David at September 26, 2008 at 9:44 pm

Here’s a free clue: ditch what you learned in that high school economics class and pay attention to what I can teach you. You’re confusing “free market” with “capitalism.” Your boyfriend Steve’s brand of “capitalism” is faux free market in that he wants the benefit of free enterprise, but the security of socialist government to rescue him.
Oh, and how exactly am I a “competitor” to your boyfriend? I’d really like you to explain that.
Moreover, the statement “Built a successful business from the ground up” means nothing. So many are “successful” because of government loans, grants and regulation. Even if someone wasn’t directly helped by government, there’s hardly a “free market” in anything today because of all the government meddling and rent-seeking: government encourages one company or one industry, to the detriment of anyone else.
Once again, you offer no rebuttal of any substance or intelligence, let alone wit. And I’m sorry I linked to a couple of posts whose words are too big for you. But thanks for playing!

Posted by: Perry Eidelbus at September 28, 2008 at 3:53 pm
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