Good bank--Bad bank

[loweyecue]

Re: Good bank--Bad bank

Toast,

I'm not disparaging your knowledge (or lack thereof) of MBS's - I'm merely pointing out that no matter what - the bad bank ultimately only transfers losses from the previous owners of the bad debt to the US government, and from there to the taxpayer.

The MBS's are not strictly speaking derivatives as a whole. If all the tranches comprising an MBS are kept together, the effect is exactly as if you owned all the mortgages the MBS was built with.

The derivative aspect occurs when only certain tranches are isolated out.

The lower the tranche - the closer to losses the owner of the tranch is exposed to. Thus if we had an MBS of say $10M value with 10 tranches, the first 3 tranches might be equivalent to the overall MBS losing $1M of capital. This is obviously a simplification, but the point is that rather than all tranches equally sharing the losses, MBS's are set up so lower tranches take the losses first.

There are some tactical differences between buying the bad debt and just giving money to the banks, but essentially the goal is the same: drowning the bad debt with government credit.

From the example above - if the government buys the bad tranches, there will be little if any value left. Conversely if the government also gets the high level tranches, then it is possible the tranches go up in value over time as the full feared losses fail to materialize.

But I know which outcome I think will happen!



Vino,

Don't get me wrong, I am not a fan of the FIRE economy. I merely point out that the removal of credit means a lot of things are going down in magnitude.

The 150K farm you speak of: would you still want it if your income was reduced 66%? And interest rates were 15%? Because that's what 1985 was.

So I have two questions:

Can you realy still buy the mortgages anymore? Didnt they get divvied up in tranches and sold 15 times over? If so how could you possibly find someone who owns an entire mortgage in order to buy it?

If you want to buy the tranches how do you or anyone else trace back to the actual underlying mortgages taht were used to create the tranche? Some tranches (with junk rating) were pooled together, re-tranched and re-sold! How do you ever trace back through that mess? If you can't trace back how do you go about pricing anything?

[metalman]

Re: Good bank--Bad bank

So I have two questions:

Can you realy still buy the mortgages anymore? Didnt they get divvied up in tranches and sold 15 times over? If so how could you possibly find someone who owns an entire mortgage in order to buy it?

If you want to buy the tranches how do you or anyone else trace back to the actual underlying mortgages taht were used to create the tranche? Some tranches (with junk rating) were pooled together, re-tranched and re-sold! How do you ever trace back through that mess? If you can't trace back how do you go about pricing anything?

very astute point. ain't easy getting that dried out, moldy toothpaste back in the tube.

[vinoveri]

Re: Good bank--Bad bank

Vino,

Don't get me wrong, I am not a fan of the FIRE economy. I merely point out that the removal of credit means a lot of things are going down in magnitude.

The 150K farm you speak of: would you still want it if your income was reduced 66%? And interest rates were 15%? Because that's what 1985 was.

Interest rates were 15% b/c of what Volcker had to do to tame inflation - which of course was caused by the same "class" of group thinking kenseyian money-printing ninkumpoops - that exist today.

Real income was not 66% lower than today c1ue - perhaps you're thinking of nominal income - or maybe rentier derived income?

And perhaps you could include a comparision of real levels of debt between 1985 and now to round out your analysis - I think that may tell more of the story of how the money masters have succeeded in bankrupting our country.

[c1ue]

Re: Good bank--Bad bank

So I have two questions:

Can you realy still buy the mortgages anymore? Didnt they get divvied up in tranches and sold 15 times over? If so how could you possibly find someone who owns an entire mortgage in order to buy it?

If you want to buy the tranches how do you or anyone else trace back to the actual underlying mortgages taht were used to create the tranche? Some tranches (with junk rating) were pooled together, re-tranched and re-sold! How do you ever trace back through that mess? If you can't trace back how do you go about pricing anything?

IQ,

You can't buy the mortgages if they've been MBS'd, or if you did then it would be debatable what you wind up with since the interest payments are claimed by the MBS tranches.

As far as I can tell, we don't have one mortgage (and its interest payment stream) being sold multiple times. There are derivatives like CDOs which are 'side bets' on the MBS's, but the mortgages and MBS itself are not affected by these CDOs 'failing' or 'succeeding'.

As for tracking down - this is easy. Every month there are interest payments going out to each of the various MBS tranches. Reassembling isn't a matter of finding the parts, it is a matter of whether the 'safer' AAA tranches and their holders are willing to sell; the AA, A, BBB, and what not tranche holders are definitely willing to.

Because these weaker tranches are holding up to 100% losses, while the AAA holders have paper losses but have a higher confidence interest rate stream. The AAA holders still have the 'ride out interest payments until maturity' choice.

Interest rates were 15% b/c of what Volcker had to do to tame inflation - which of course was caused by the same "class" of group thinking kenseyian money-printing ninkumpoops - that exist today.

Real income was not 66% lower than today c1ue - perhaps you're thinking of nominal income - or maybe rentier derived income?

And perhaps you could include a comparision of real levels of debt between 1985 and now to round out your analysis - I think that may tell more of the story of how the money masters have succeeded in bankrupting our country.

Vino,

Real purchasing power incomes weren't 66% lower, but nominal incomes were. The 66% is a pulled out of thin air estimate, but probably not an order of magnitude off.

The point is - why would nominal real estate, stock, bond, and other prices going to 1985 levels not necessarily also affect income? As expressed by massive unemployment levels?

And sure, debt levels were notionally overall in 1985, but amounts of debt actually being repaid these days is lower also.

As for Volcker-15%-inflation taming - while we don't have inflation (yet), the funding of continuing debt is still at issue. We may yet see high interest rates associated with the tripling or quadrupling of Treasury sales coming up this year.

[ax]

Re: Good bank--Bad bank

Soros bad bank plan

http://www.bloomberg.com/avp/avp.htm...9DiD2dWMHE.asf

Soros, Rogers, Meredith Whitney, MSN (Markman and Jubak), all point out how the bad bank plan won't work. The market seems to love it. What really (seriously) is the government doing here? Just buying time? And who is actually buying stocks at this point?

[GRG55]

Re: Good bank--Bad bank

Soros, Rogers, Meredith Whitney, MSN (Markman and Jubak), all point out how the bad bank plan won't work. The market seems to love it. What really (seriously) is the government doing here? Just buying time? And who is actually buying stocks at this point?

Situation seems quite fluid right now. Hard to tell what is really going on.

Transparency? :rolleyes:


Yesterday:

"Bad bank" may be put on hold: report

Fri Jan 30, 2009 5:49pm EST
WASHINGTON (Reuters) - Policy-makers have yet to reach a consensus on how a U.S. government-run bad bank would work and the idea may not move forward, CNBC television reported on Friday, citing unnamed sources.

"The government-run bad bank idea that was being floated ... apparently has hit a snag, it might not happen," a CNBC anchor said recapping an earlier report...

...Gasparino said the Treasury Department has been talking with the chief executives at the biggest Wall Street banks on how to proceed and may shelve the idea of an aggregator bank and instead provide across-the-board guarantees for the troubled assets clogging up banks' balance sheets.

"The aggregator bank is been put on hold indefinitely," he said. "They may do a hybrid: aggregator bank-guarantees. This thing right now has hit a major snag."...

This morning:

'Bad Bank' Run By FDIC Possible By Next Week: Source
By: Albert Bozzo, Senior Features Editor | 31 Jan 2009 | 01:01 PM ET

Talks continue between the Obama administration and financial industry representatives over a so-called 'bad bank' plan to buy toxic assets. If progress continues to be made an announcement is likely late next week, according to a source familiar with the discussions.

Talks are taking place again today, following a round Friday when speculation arose that a snag had been over the thorny issue of how to price the assets, which the banks would sell at a discounted price to the government entity.

That no longer appears to the case. The talks are said to have yielded agreement that the FDIC would run the bad bank, according to an source. That scenario has been widely speculated, especially since FDIC Chairwoman Sheila Bair has been a leading proponent of the bad bank concept. She had already essentially volunteered to have the banking supervision agency administer the program, which it did 15 year ago with a similar program meant to ease the savings and loan crisis.

"It’s not a 100 percent, but its where they are now," said the industry source, adding that Thursday could be the announcement day.

[BadJuju]

Re: Good bank--Bad bank

Good bank, bad bank, I'm the bank with the leverage. :p

[tsetsefly]

Re: Good bank--Bad bank

I just cant see how the bad bank idea would work, not only because it leaves this walking zombies but because so what if these banks can start lending if there are no people to lend???

[Jim Nickerson]

Re: Good bank--Bad bank

I just cant see how the bad bank idea would work, not only because it leaves this walking zombies but because so what if these banks can start lending if there are no people to lend???

For one who is willing to call Paul Krugman a "hack," I must assume you are economically enough qualified to figure out the answer to your own question, so get back to us with it.

[tsetsefly]

Re: Good bank--Bad bank

For one who is willing to call Paul Krugman a "hack," I must assume you are economically enough qualified to figure out the answer to your own question, so get back to us with it.

Ahh yes, I thought I might get flak for that... maybe hack was the wrong word, but he is wrong most of the time and incredibly arrogant...

and maybe hack also, the guy has for years put his political beliefs and try to make them sound as economic realities, when the majority of the time he couldn't be further from the truth...

[Thailandnotes]

Re: Good bank--Bad bank

when the majority of the time he couldn't be further from the truth...

examples, links, specific references please.

yackety yack, don't quack back.