Washington Post NOT over keen on the bale out!

[Mega]

http://www.washingtonpost.com/wp-dyn...d=opinionsbox1
Mike

[we_are_toast]

Re: Washington Post NOT over keen on the bale out!

It Ain't over till it's over?

Mad as hell

[Jim Nickerson]

Re: Washington Post NOT over keen on the bale out!

http://www.washingtonpost.com/wp-dyn...d=opinionsbox1
Mike

From Mike's link above:

With truly extraordinary speed, opinion has swung behind the radical idea that the government should commit hundreds of billions in taxpayer money to purchasing dud loans from banks that aren't actually insolvent. As recently as a week ago, no public official had even mentioned this option. Now the Treasury, the Fed and congressional leaders are promising its enactment within days. The scheme has gone from invisibility to inevitability in the blink of an eye. This is extremely dangerous.

This strikes me as a good article, Mike, thanks for bringing it here, and the article suggests alternatives.

I don't know if it is "dangerous" or not. My impression is these congressional assholes have sat with their heads up their asses for more than a few years doing nothing, and suddenly they seemed inclined to take a monumental step into debt. To me the situation is insane, and no telling where actions based on insanity will lead.

[The Outback Oracle]

Re: Washington Post NOT over keen on the bale out!

http://www.washingtonpost.com/wp-dyn...d=opinionsbox1
Mike

The cancelling dividends thing might be an idea but the rest of it is pretty much tripe like the current proposal.
If the Govt takes equity in all the Banks to cover ALL the dodgy liabilities...they'd own the lot...just like fannie and Freddie

[Mega]

Re: Washington Post NOT over keen on the bale out!

See, the ROP will want to bury this, the Dems will want to spin it out.............O-BAN-A is doing MUCH better because of this & if they can keep it up in the air..............
Mike

[RebbePete]

Re: Washington Post NOT over keen on the bale out!

Write your senators, write your representative, write anyone and everyone who doesn't run away fast enough. I just did. Express your displeasure at the Treasury plan. The Congress and Senate web sites provide an easy form to send a comment to your elected representatives. Use it.

- Pete

[jtabeb]

Re: Washington Post NOT over keen on the bale out!

http://www.washingtonpost.com/wp-dyn...d=opinionsbox1
Mike

"But in buying bad loans before banks fail, the Bush administration would be signing up for a financial war of choice."

Would not be the first time, would it.

[Chris]

Re: Washington Post NOT over keen on the bale out!

E pluribus hokum or
When the gamblers bail out the casino
By Spengler

Why should American taxpayers give US Treasury Secretary "Hank" Paulson a blank check to bail out the shareholders of busted banks? Why should the Treasury turn itself into a toxic waste dump for their bad loans? Why not let other banks join the unlamented Brothers Lehman in bankruptcy court, and start a new bank with taxpayers' money? Or have the Treasury pay interest on delinquent mortgages, and make them whole? Even better, why not let the Chinese, or the Saudis or other foreign investors take control of failed American banks? They've got the money, and they gladly would pay a premium for an inside seat at the American table.

None of the above will occur. America will give between US$700-$800 billion to the Treasury to buy any bank assets it wants, on any terms, with no possible legal recourse. It is an invitation to abuse of power unparalleled in American history, in which ill-paid civil servants will set prices on the portfolios of the banking system with no oversight and no threat of legal penalty.

Why are the voices raised in protest so shrill and few? Why will Americans fall on their fountain-pens for their bankers? If America is to adopt socialism, why not have socialism for the poor, rather than for the rich? Why should American households that earn $50,000 a year subsidize Goldman Sachs partners who earn $5 million a year?

Believe it or not, there is a rational explanation, and quite in keeping with America's national motto, E pluribus hokum. Part of the problem is that Wall Street, like the ethnic godfather in the old joke, has made America an offer it can't understand. The collapsing the mortgage-backed securities market embodies a degree of complexity that mystifies the average policy wonk. But that is a lesser, superficial side of the story.

Paulson's dreadful scheme will become law, because Americans love their bankers. The bankers enable their collective gambling habit. Think of America as a town with one casino, in which the only economic activity is gambling. Most people lose, but the casino keeps lending them more money to play. Eventually, of course, the casino must go bankrupt. At this point, the townspeople people vote to tax themselves in order to bail out the casino. Collectively, the gamblers cannot help but lose; individually they nonetheless hope to win their way out of the hole.

....

As it is, many of the baby boomers now on the verge of retirement will spend their declining years working at Wal-Mart or McDonalds rather than cruising the Caribbean. Some of them still have time to tighten their belts and save 10% of their income (by consuming 10% less), plus a good deal more to compensate for the missing savings of the 1990s.

....

The homeowners of America hope against hope that somehow, sometime, the price of their one only asset will bounce back. The character of Mortimer Duke in the 1983 film Trading Places comes to mind. After losing his fortune in the frozen orange juice futures market, Duke screams, "I want trading reopened right now. Get those brokers back in here! Turn those machines back on! Turn those machines back on!" If a reverse takeover of the US government by Goldman Sachs is what it takes to turn the machines back on, the American public will support it. Sadly, there is no reason to expect the bailout of bank shareholders to have any effect at all on American home prices, which will continue to sink into the sand.

Contrary to what the Bush administration says, it is not the case that banks' troubled mortgage assets cannot be sold in the private market. Those are the so-called "Level III" assets that banks say they cannot value. But that is only a dodge that the banks use to postpone taking losses. There is a ready bid for these assets from hedge funds, in multi-hundred-billion-dollar size. The trouble is that the market bid is 25% to 30% below the prices that banks carry these assets on their books. Traders at Wall Street boutiques who specialize in distressed securities say that US regional banks regularly make discreet offers to sell private mortgage-backed securities (not guaranteed by a federal agency) at prices, for example, of 75 to 80 cents on the dollar. Hedge funds bid, for example, 55 to 60 cents in return.

On rare occasions, the bank seller and the hedge fund buyer will meet in the middle, although very few transactions occur. Although many banks are desperate to sell, they cannot accept the offered price without taking losses over the threshold of mortality, for write-downs of this magnitude would destroy their shareholders' capital. Investment banks typically hold about $30 of securities for every $1 of capital, so a 3% write-down would leave them insolvent. Lehman Brothers classified 14% of its assets as Level III at the end of the first quarter; Goldman Sachs was at 13%. Why is Lehman bankrupt, and Goldman Sachs still in business? If Secretary Paulson, the former head of Goldman Sachs, had not proposed a general bailout last week, we might already have had the answer to that question.

For the Paulson bailout to be helpful to the banks, it must buy their securities at much higher prices than the private market is willing to pay. Otherwise it makes no sense at all, for the banks could sell at any moment to the hedge funds. But that is a subsidy to private banks, administered at the whim of the Treasury Secretary, without oversight and without the possibility of legal recourse.

Some Democrats in Congress are asking for some form of oversight, but it is hard to imagine how they might use it, for a Treasury with $800 billion to spend would constitute the whole market bid for low-quality mortgage assets, and would set whatever prices it wished. Professionals with years of experience set prices on these securities with great uncertainty. How would an overseer determine if it had set the correct price? And if the Treasury decided to bail out one bank (say, Goldman Sachs) rather than another, how would the overseer judge whether that decision was judicious, politically motivated, venal, or arbitrary?

Opposition to the Treasury plan is disturbingly thin. Bloomberg News on June 21 quoted the Democratic chairman of the Senate Banking Committee, Christopher Dodd, saying, "I know of nobody who is arguing over the amount of money or even about that the secretary ought to have the authority to purchase these toxic instruments, these bad debts."

...

Alas for the gamblers of America: they will tax themselves to keep the casino in operation, but it will not profit them. Where, oh where, is America's Vladimir Putin, who will drive out the oligarchs who have stolen the country's treasure and debased its currency?

http://atimes.com/atimes/Global_Economy/JI23Dj06.html

[Milton Kuo]

Re: Washington Post NOT over keen on the bale out!

http://atimes.com/atimes/Global_Economy/JI23Dj06.html

For the Paulson bailout to be helpful to the banks, it must buy their securities at much higher prices than the private market is willing to pay. Otherwise it makes no sense at all, for the banks could sell at any moment to the hedge funds. But that is a subsidy to private banks, administered at the whim of the Treasury Secretary, without oversight and without the possibility of legal recourse.

Related to the excerpt above is this new article from Bloomberg:

Bernanke Urges Against U.S. Buying Assets at `Fire-Sale' Prices
http://www.bloomberg.com/apps/news?p...mjE&refer=home

Bernanke is saying that the bail-out plan should buy assets at hold-to-maturity value rather than at a fire-sale price. In other words, taxpayers should not be given a discount to purchase garbage they neither need nor want.