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September 20, 2008

Comments

Charlie (Colorado)

Yes. It's an issue of information. A market is only "perfect" if the speed of information transfer is high compared to the transaction time. What the multiply-derived securities, CDS's etc did was eliminate this, at which point there is an asymmetry of information that means you can't value these things. When the rumors and bad news get big enugh, this assymetry is on the short side, and the market collapses --- everyone wants to sell, no one wants to buy, and poof.

Charlie (Colorado)

Oh, and "first!"

TCO

You guys lack the balls to call
Bush out. you make me sick.

TCO

Watch that Palin bounce evaporate. That's the base walking away. That's Republicans lacking an identity.

Barney Frank

Didn't Paulson say that the government's intention was to hold the assets they buy to maturity rather than trying to create a market for them and sell them?

glasater

A trip down memory lane and from a comment by Cathyf --and where has her brilliance been recently?

TCO

Why not just have the government buy Goldman Sachs and get it over with. Would be a lot cheaper than bailing out all the other banks.

Oh...and Paulson deserves to be lynched.

Charlie (Colorado)

You guys lack the balls to call
Bush out. you make me sick.

Well, we certainly wouldn't want to cause you any pain, TCO.

Not that I'll particularly miss you, but bye.

Trolls local 136

If folks are worried that too much might be paid for these Republican Nationalized financial institutions, there is a way to minimize the harm and possibly even provide a tax rebate to the ultimate payee, the taxpayer;

Since they are so eager to saddle us with UNprofitable enterprises, perhaps we could balance the national ledger by NATIONALIZING THE PETROLEUM INDUSTRY.

After all, we have a Republican precedent.

(Only Nixon could go to China)

Semanticleo

Is that you, John Wayne? Is this me?

Charlie (Colorado)

Cathy's slideshow is excellent. Thanks.

As I recall, she works in the Street herself; she may be a little busy right now.

JM Hanes

TCO:

"That's Republicans lacking an identity."

And yet, strangely enough, party affiliations show Republican numbers growing by leaps and bounds.

bad

Furthermore, once the sludge is off Wall Street's books and some big banks turn out to be insolvent for certain, will they really be allowed to fail? Or will Bernanke and Paulson prop them up yet again?

Thoughts?

Charlie (Colorado)

You know, two things just occurred to me.

First, the way this is working out is that the government is assuming the risk that these securities are overvalued by buying them out. It would seem that this will have very immediate effects on the credit markets; the "are they worthless" securities are now going to have a value of some sort.

The second thing that occured to me is that the real estate market is showing signs of a bottom; this would suggest that the people who were going to default have, on the main, already done so, and the remaining mortgages will continue to perform. What I've read is that this is something like 95 percent of existing mortgages.

If so, that suggests those securities's real value is something like 90-95 percent of their face value.

No wonder people are starting to look for ways to get into the market created by this.

kim

TCO, you missed the point. This wasn't a free market; it was manipulated by crooks. Why shouldn't Bush confront them?
========================================

bad

You guys lack the balls..

I'm at least as well hung as Hillary.

stevesturm

me thinks the reason the likes of Merrill couldn't now sell the sludge to private buyers is less a lack of buyers with capital and more a lack of information about just what comprises the sludge. Given the the way mortgages were sliced and diced and packaged, there is no reliable information about the contents of any specific pack of sludge. And without that information, a buyer can't figure out what the likely cash flows are, can't estimate default rates and thus very logically decides to sit things out.

I hadn't heard that Paulson says they want to hold these to maturity (per Barney Frank above), but until there is some legitimate information about the components of the packages of sludge, Treasury may not have any choice but to hold them.

Which now brings me to my big concerns: (1) that the government will overpay for these assets (a point Tom discussed above, although I don't necessarily agree with his suggestion) and (2) we won't use our leverage (the negotiating kind, not the financial kind) to exact some decent terms for banks and other firms coming to the taxpayer with their hand out. These firms owe their continued existence to us taxpayers; it's only fair and proper that they pay a price for coming to us with their hand out (if they don't like the terms, they can pass on the bailout and go it alone). For the list of what I think Paulson should demand of these beggars, see my post (wish) here...

Charlie (Colorado)

Bad, my guess is that once these things are off the books, there won't be a lot of insolvency. In fact, using my information-theoretic model, I suspect that this whole thing was a function of poor information flow, and that very few (or none!) of these companies were really insolvent, except transiently.

Swanson TV Dinner

NYT

"Policy makers cannot say where it all ends. News reports are unrelentingly talking of “crisis.” After decades of deregulation and free-market fealty, antiregulation, small-government Republicans are putting the government in control of a big chunk of the financial sector.

All of which has left Washington in the midst of a political convulsion that both parties are struggling to understand and turn to their advantage — or at least keep from turning against them.

The capital almost had the feel of wartime. President Bush appeared in the Rose Garden and gravely appealed for bipartisanship."

Bush....gravely appealed for bipartisanship.

I like the turkey ones with the mashed potatoes and that little apple crisp thing.

Swanson TV Dinner

"manipulated by crooks. Why shouldn't Bush confront them?"

Uh, you're too late for dinner....

Charlie (Colorado)

...the reason the likes of Merrill couldn't now sell the sludge to private buyers is less a lack of buyers with capital and more a lack of information about just what comprises the sludge.

Agree. Also, based on nothing more than inuitiion, I suspect that these packages of sludge generally aren't all subprime NINJAs or anything like that: you'd naturally want to mix them up so the risk would be lessened. So, just statistically --- based on that unfounded intuition --- each package should be largely composed of performing loans.

The trick will be avoiding a situation where Schumer and his ilk come up with a way that makes it easy for the consumer to walk away from loans, or get them marked way down to below realistic valuations.

Charlie (Colorado)

Look, mashed potatoes, C&P of a NYT article isn't exactly contributing much, is it?

Team America

"You guys lack the balls to call"

I like your balls. Durka, durka, durka, muhammed jihad!!!

kim

Keep your forks, there's pie.
===================

SOCIALIST FIEND.

"The trick will be avoiding a situation where Schumer and his ilk come up with a way that makes it easy for the consumer to walk away from loans, or get them marked way down to below realistic valuations."

Because Corporate Welfare is OK when Republicans are the authors and enablers.

The little people can suck eggs............

bad

Clarice

Check out the comments in this HE post SWarren originally posted.

"Selena, Texas" is posting about money back from taxes, under Obama's plan vs McCain's plan. The figures are erroneous but may represent some form of astroturfing.

LUN

sbw

Trolls and their ilk have such fat fingers. They can't pick up anything fine. Big O's talk seems nuanced to them because they can't see fine enough to grasp the nothing that is there.

Now, courtesy of Troll Blocker 3, I didn't get TCO's original laugher, but from the reaction I'd venture that the trolls can only carp and are unable to suggest a workable alternative.

They have nothing to offer but rust and indigestion.

Swanson TV Dinner

"Look, mashed potatoes, C&P of a NYT article isn't exactly contributing much, is it?"

Been following your fulminations, BushTanker.

Don't quite understand your superiority complex. Rehash and ReMix seems to be your strength, but it is a poor substitute for that of a paid journalist.

bad

STD

There are drugs to cure some of them.

Gefilte Fish

"suggest a workable alternative."

Nationalizing Exxon seems doable

Main Street Business

"The little people can suck eggs..."

If they have money for eggs, then they should have enough money to pay their mortgages. If folks paid for what they signed up for, we wouldn't be here. No one forced anyone to sign a note. Boo hoo.

sbw

See? Nothing serious. There can't be. There is no there there.

Without a Time reporter to cover for them, they'd be called out to gales of laughter.

Main Street Business

Let me add that the Dems in Congress forced the banks to provide loans to those who would not have otherwise made the loan. Congress created the problem, Congress can pay for it now.

SOCIALIST FIEND

"if folks paid for what they signed up for, we wouldn't be here. No one forced anyone to sign a note. Boo hoo."

And if women didn't dress provocatively, there wouldn't be any rape.

Nufong

"And if women didn't dress provocatively, there wouldn't be any rape."

You mean like that Duke stripper?

bad

Fiend

Not logical. Try again.

Jim Rhoads aka Vnjagvet

There seems to be some static on the line. Not much in the way of wisdom, though. Just slogans and cliches.

sbw

Ah. New trolls, if not a new class of trolls.

JM Hanes

Maybe we should just let the trolls play with themselves. Oh, wait.

Science Officer Spock

"And if women didn't dress provocatively, there wouldn't be any rape."

You sir, are highly illogical. I am giving you a virtual Vulcan shoulder pinch.

Note: I ran it through the U.S.S. Enterprise computer and troll traffic is directly related to national poll results.

bunky

WSJ on Friday said the worldwide value of credit default swaps was 58 trillion. I know a trillion ain't what it used to be but yowza. These are "instruments" (I said instrument)that are hard to "mark" and then sell. Should be fun to watch.
PS, I wonder how many of those ACORN has??

DrJ

JMH,

You mean like Onan-ticleo?

Slk

We should have the trolls buy Fabreeze! Congress writes Treasury and says forgive the loans. Biden writes the letter personally every year. Since 1996 it's 80 billion. That's the 'loans,' not the aid that is 100s of billions over five years, this is the second cycle for MCC, US agency budgets, etc. So, the US mortgages are in trouble. The US has been doing these 'loans' and aid cash for 11 years now and no one thought it might catch up with them. This was the US doing business. So, why isn't my mortgage paid?

bad

Krauthammer on Bush: Linked Under Name

It is precisely that quality that allowed him to order the surge in Iraq in the face of intense opposition from the political establishment (of both parties), the foreign policy establishment (led by the feckless Iraq Study Group), the military establishment (as chronicled by Woodward) and public opinion itself. The surge then effected the most dramatic change in the fortunes of an American war since the summer of 1864.

That kind of resolve requires internal fortitude.

Watch for Obama to add "resolve" to his speeches. Will "humility" and "moment" stay?

SOCIALIST FIEND

"You mean like Onan-ticleo?"

Give that trollop a seegar !!!

Sorry folks, I just had to screw with you on that troll blocker bullshit.

mea culpa-but that doesn't change the comments one iota.

Don't have a response to nationalizing the oil interests, do you?

Semanticleo

Gilgamesh, Swanson TV Dinner, Socialist Fiend,
Gefilte Fish. I got a million of 'em.

baked alaska

Big S nuance:

During a quick stop at a diner in Cleveland, Ohio, Sarah Palin was asked for her reaction to the AIG bailout.

"Disappointed that taxpayers are called upon to bailout another one," she said. "Certainly AIG though with the construction bonds that they're holding and with the insurance that they are holding very, very impactful to Americans so you know the shot that has been called by the Feds it's understandable but very, very disappointing that taxpayers are called upon for another one." [...]

Though she has been on the campaign trail for nearly three weeks, Palin has yet to hold a press conference, and this morning's stop marked the first time she answered a question from the press on the fly, prompting concerned looks from staffers.

http://www.cbsnews.com/blogs/2008/09/17/politics/fromtheroad/entry4454940.shtml

FCDD

USIP passed because Congress bought them with a new office on the mall between war memorials. Bush was allowed.

baked alaska

"Of course, it's a fungible commodity and they don't flag, you know, the molecules, where it's going and where it's not. But in the sense of the Congress today, they know that there are very, very hungry domestic markets that need that oil first. So, I believe that what Congress is going to do, also, is not to allow the export bans to such a degree that it's Americans who get stuck holding the bag without the energy source that is produced here, pumped here. It's got to flow into our domestic markets first."

sbw

[Poof] I didn't see anything from SOCIALIST FIEND. Did you?

baked alaska

http://www.youtube.com/watch?v=hvUsdmqGYV8

ShortButWaddly

"I didn't see anything from SOCIALIST FIEND. Did you?"

It's hard with those scales on yer peepers.

centralcal

THE INCREDIBLE SHRINKING OBAMA

LUN

PeterUK

"The capital almost had the feel of wartime. President Bush appeared in the Rose Garden and gravely appealed for bipartisanship."

Bush....gravely appealed for bipartisanship."

Well yes,with Reid Pelosi,Kerry, Rockefeller,Obama et al in the "Loyal" Opposition, appealing for bipartisanship would be grave.They would stab their own grandmothers for political advantage, so dumping on your country is a mere bagatelle.

ml

Question for the one of the financially savvy folks here. What happens to all of the homes associated with all of the failed mortgages now? The value of the property behind all of these failed loans is certainly worth more than 10 or 20 percent on the dollar, or are people that defaulted on their loans going to be allowed to keep their homes?

Oscar Acosta

"Disappointed that taxpayers are called upon to bailout another one,""

Doesn't she know her Bona Fides are tied to Bush?

richard mcenroe

isn't this similar to what hit the Japanese banking industry in the 90's?

Raoul Duke

Don't be mad. I tried to give you hints.

eker

It's not systemic because it's the economy stupid. Dems do this every lame duck year. So, ban short selling and drop the AAA rating. Foreign countries with gold are not buying, they're selling. Japan is all inflation without energy. So, Gold really is all natural resources.

M. Simon

You guys lack the balls to call
Bush out. you make me sick.

And we hope you die painlessly from your disease.

Or live long and prosper after you recover.

PeterUK

"Gilgamesh, Swanson TV Dinner, Socialist Fiend,
Gefilte Fish. I got a million of 'em."

You forgot Fuckwit,it's so you.

sbw

PUK, "Selfish" is the one he omitted.

Put the Lime in the Coconut

Ian Welsh on Obama's FDR moment......

"It is the defining moment in Obama's presidency and he hasn't even won the election. The US Congress is poised to give Hank Paulson, a Bush appointee, 700 billion dollars and dictatorial powers free from judicial review or any constraints, to bail out the banking sector. Ordinary citizens, having gone bankrupt, lose their houses. Banks, having gone bankrupt, will be bailed out, and the same people who caused them to go bankrupt will be left in control of them, so they can run them into the ground yet again.

If Obama does not tell Reid and Pelosi to stop this bill, he will be reduced not just to clean-up duty for the Bush administration, which was always going to part of his job, but he will do that cleanup on Bush's and Paulson's terms. If Obama would prefer that ordinary Americans should also get some help, too bad. If Obama would prefer that bank CEOs who ran their companies into the ground should lose their jobs, too bad. If Obama thinks that reforming the financial system is necessary as a condition of bailing it out, too bad."

Extraneus

I don't have a great appreciation for the nuances of much of this, so skip the comment if your tolerance for cluelessness is low, but assuming that the cute Wall Street slide show is an accurate summary, it seems evident that if there weren't a bunch of NINJA loans, there wouldn't be these pails of smelly paper to deal with.

Conversely, once there were significant numbers of sub prime loans, didn't that necessitate that systems be devised for bundling them together with nicer-smelling ones in order to average out the risk somehow? IOW, isn't this just a simple case of cause and effect? If so, the real cuprits are the ones that motivated the banks to loan money to people who were bad risks. Has that been fixed yet?

I still don't get what "predatory lending" is.

RichatUF

Charlie-

The trick will be avoiding a situation where Schumer and his ilk come up with a way that makes it easy for the consumer to walk away from loans, or get them marked way down to below realistic valuations.

Hasn't the congress already done so with the last housing act they passed in June or July? Everyone was complaining about it. There was language in there about mortgage workouts and something like a 45k tax credit over 3 years and a 7.5k tax credit for 1st time home buyers.

I'm so confused:(

On the point about information, I was thinking the banks didn't want to unwind them, in part, because they are worried about the legal risks of doing so. Both on the contractual side of pulling one of them apart may trigger more claims against the bank, but also on the mortgage side as the bank gets sued by mortgagee's (class action!!).

Harvey Mudd

Now I went and made you mad at me

Extraneus

Ordinary citizens, having gone bankrupt, lose their houses. Banks, having gone bankrupt, will be bailed out, and the same people who caused them to go bankrupt will be left in control of them, so they can run them into the ground yet again.

Here's a good example of what I don't get about this. Ordinary citizens can't pay their mortgage? Why not? Who doesn't pay their mortgage? And who "caused" these ordinary citizens to borrow money they couldn't pay back? "Predatory" lenders?

PeterUK

Were not mad at you,we just think of you as a shit sandwich , but without the bread.

Tutti Fruitti

From the AP:

"Wall Street turmoil left John McCain scrambling to explain why the fundamentals of the U.S. economy remained strong. It also left him defending his support for privately investing Social Security money in the same markets that had tanked earlier in the week.

The Republican presidential nominee says all options must be considered to stave off insolvency for the government insurance and retirement program, and top McCain advisers say that includes so-called personal retirement accounts like those President Bush pushed in 2005 but abandoned in the face of congressional opposition."

How is McCain ever going to get ANYONE to think seriously of letting Wall Street comingle their interests with Social Security? It's just not rational or feasible.

RichatUF

"Predatory" lenders?

The exact same folks that are running the Obama campaign: ACORN and Penny Pritzker.

I really wish this would get carried far and wide.

Compasionate Excrement.

"Were not mad at you,we just think of you as a shit sandwich , but without the bread."

Sorry......upset tummy?

bad

From centralcal's link:

Mr. Obama, however, has a kind of welcoming emptiness.

Funny. I've always found him to be quite full...of it.

LUN

centralcal

Extraneous, I think you have a point - it wasn't only the lenders, predatory or otherwise, but the borrowers were also to blame.

I personally know two families. One bought an overpriced house, got a large equity line, then sat back until the ARM kicked in. So, they maxed out the equity line, ran up their credit cards, etc. and filed bankruptcy. Meanwhile they are living in an even newer, larger home - which they purchased using the cash they got from the original equity line.

The other family custom built a mini-mansion, also had a big equity line. They took out the line, made a down payment on a new home and walked away from the original home, letting it go into foreclosure.

There were lots and lots of "buy and bails" going on for several months. So I have to wonder if the problem wasn't merely the mortgages themselves, but the HELOC's which were based on inflated home values.

I am a financial dummy, but I can see blatant fraud, even if I can't describe it.

ecker

What is sub prime? If it's the CHA, I don't want to buy those. If it's like certain areas I don't want to buy those either. The US government can't buy and package without telling me what I'm buying, so why would I buy a package of garbage.

PeterUK

Well me old fruit,At this point it is irrelevant what McCain or Obama thinks,Bush is the President and he has gone and done it.By the time McCain is president this will be water under the bridge.
BTW,didn't you know the markets have been running pensions for decades?

Charlie (Colorado)

Here's a good example of what I don't get about this. Ordinary citizens can't pay their mortgage? Why not? Who doesn't pay their mortgage? And who "caused" these ordinary citizens to borrow money they couldn't pay back? "Predatory" lenders?

Ex, I think you're exactly on the button here. Most of these mortgages are performing. The biggest number I find is 9 percent in some default, and that's at one of the hair-on-fire buy-gold-and-bullets sites. That means 91 percent aren't in default, and of that 9 percent, some significant percentage, 50 percent or more, will not go to foreclosure --- they'll be renegotiated. Most of the foreclosed properties will be sold eventually, yeilding some value. So once again, it appears that the value of the underlying assets will turn out to be something about 90 percent of the face, or more. The problem is to keep from haivng a bank run before the market can find its value.

bad

I can see blatant fraud, even if I can't describe it.

There used to be a stigma attached to not honoring one's debts. Now there are many who brag about walking away from financial obligations, not unlike Bill Ayers avoiding his debt to society and crowing about it.

duster

Why not foreclose? Is it a slum from CHA? They need to be torn down. Foreclose, tear down, build offices and condos.

I won't buy a tent. I am not in your boat and don't want to go there. The root cause is housing, solved.

Does Obama know that Merrill guy?

Charlie (Colorado)

The US government can't buy and package without telling me what I'm buying, so why would I buy a package of garbage.

I think you've got a good point under that: the way this will be sorted out will include having to find our way back through the maze to what the actual properties are. probably the way to do this is by selling the securities at some discount --- I heard someone suggest 65 cents on the dollar --- with the buyer taking the risk that its not worth while. My back-of-envelope says the potential gain is pretty close to 30 percent over 2 years. I'd guess with an orderly market, there are a lot of people who will sign up for that kind of action.

M. Simon

Democrat Racists may sink Obama.

Democrats racists? Who knew?

RichatUF

How is McCain ever going to get ANYONE to think seriously of letting Wall Street comingle their interests with Social Security?

Getting rid of Dem supporting Gramscians on Wall Street and corporate boards would be a good place to start.

Low and behold: the "Clinton +/- 10 year rule" holds again. He reformed the Community Reinvestment Act effective in 1995, and it took Bear Stearns about 2 years from then to understand and exploit it. From there, Dem political posturing and self-dealing ends up being costly to the United States, with the usual "You fucked up...you trusted us" fingerpointing and blameshifting.

Charlie (Colorado)

How is McCain ever going to get ANYONE to think seriously of letting Wall Street comingle their interests with Social Security? It's just not rational or feasible.

I always find myself wondering if being an idiot doesn't cause trouble in your regular life.

I'd guess you're an employee of a city government somewhere, so probably not.

baked alaska

By PAUL KRUGMAN
Published: July 14, 2008

And now we’ve reached the next stage of our seemingly never-ending financial crisis. This time Fannie Mae and Freddie Mac are in the headlines, with dire warnings of imminent collapse. How worried should we be?

Well, I’m going to take a contrarian position: the storm over these particular lenders is overblown. Fannie and Freddie probably will need a government rescue. But since it’s already clear that that rescue will take place, their problems won’t take down the economy.

Furthermore, while Fannie and Freddie are problematic institutions, they aren’t responsible for the mess we’re in.

Here’s the background: Fannie Mae — the Federal National Mortgage Association — was created in the 1930s to facilitate homeownership by buying mortgages from banks, freeing up cash that could be used to make new loans. Fannie and Freddie Mac, which does pretty much the same thing, now finance most of the home loans being made in America.

The case against Fannie and Freddie begins with their peculiar status: although they’re private companies with stockholders and profits, they’re “government-sponsored enterprises” established by federal law, which means that they receive special privileges.

The most important of these privileges is implicit: it’s the belief of investors that if Fannie and Freddie are threatened with failure, the federal government will come to their rescue.

This implicit guarantee means that profits are privatized but losses are socialized. If Fannie and Freddie do well, their stockholders reap the benefits, but if things go badly, Washington picks up the tab. Heads they win, tails we lose.

Such one-way bets can encourage the taking of bad risks, because the downside is someone else’s problem. The classic example of how this can happen is the savings-and-loan crisis of the 1980s: S.& L. owners offered high interest rates to attract lots of federally insured deposits, then essentially gambled with the money. When many of their bets went bad, the feds ended up holding the bag. The eventual cleanup cost taxpayers more than $100 billion.

But here’s the thing: Fannie and Freddie had nothing to do with the explosion of high-risk lending a few years ago, an explosion that dwarfed the S.& L. fiasco. In fact, Fannie and Freddie, after growing rapidly in the 1990s, largely faded from the scene during the height of the housing bubble.

Partly that’s because regulators, responding to accounting scandals at the companies, placed temporary restraints on both Fannie and Freddie that curtailed their lending just as housing prices were really taking off. Also, they didn’t do any subprime lending, because they can’t: the definition of a subprime loan is precisely a loan that doesn’t meet the requirement, imposed by law, that Fannie and Freddie buy only mortgages issued to borrowers who made substantial down payments and carefully documented their income.

So whatever bad incentives the implicit federal guarantee creates have been offset by the fact that Fannie and Freddie were and are tightly regulated with regard to the risks they can take. You could say that the Fannie-Freddie experience shows that regulation works.

In that case, however, how did they end up in trouble?

Part of the answer is the sheer scale of the housing bubble, and the size of the price declines taking place now that the bubble has burst. In Los Angeles, Miami and other places, anyone who borrowed to buy a house at the peak of the market probably has negative equity at this point, even if he or she originally put 20 percent down. The result is a rising rate of delinquency even on loans that meet Fannie-Freddie guidelines.

Also, Fannie and Freddie, while tightly regulated in terms of their lending, haven’t been required to put up enough capital — that is, money raised by selling stock rather than borrowing. This means that even a small decline in the value of their assets can leave them underwater, owing more than they own.

And yes, there is a real political scandal here: there have been repeated warnings that Fannie’s and Freddie’s thin capitalization posed risks to taxpayers, but the companies’ management bought off the political process, systematically hiring influential figures from both parties. While they were ugly, however, Fannie’s and Freddie’s political machinations didn’t play a significant role in causing our current problems.

Still, isn’t it shocking that taxpayers may end up having to rescue these institutions? Not really. We’re going through a major financial crisis — and such crises almost always end with some kind of taxpayer bailout for the banking system.

And let’s be clear: Fannie and Freddie can’t be allowed to fail. With the collapse of subprime lending, they’re now more central than ever to the housing market, and the economy as a whole.

LEE ATWATER

"If my opponent had his way, the millions of Floridians who rely on it would've had their Social Security tied up in the stock market this week. Millions would've watched as the market tumbled and their nest egg disappeared before their eyes," he said.

"I know Sen. McCain is talking about a 'casino culture' on Wall Street, but the fact is, he's the one who wants to gamble with your life savings, and that is not going to happen when I'm president. When I'm president, we're not going to gamble with Social Security." Obama said

http://www.cnn.com/2008/POLITICS/09/20/campaign.wrap/

NOTE TO SARAH PALIN-----

I always find myself wondering if being an idiot doesn't cause trouble in your regular life.

I'd guess you're an employee of a city government somewhere, so probably not.

Posted by: Charlie (Colorado) | September 20, 2008 at 06:12 P

ArugulaSalad

Baked........

They don't read Krugman, even if you paste it to their foreheads.

Charlie (Colorado)

The problem is that Social Security is gambling on Wall Street. Unless the economy grows enough to make up for the fact that Social Security itself is undercapitalized, the exact same thing will happen.

The Krugman piece is a little more sensible than he's been recently. For example: "there is a real political scandal here: there have been repeated warnings that Fannie’s and Freddie’s thin capitalization posed risks to taxpayers,...."

These included multiple attempts by the Bush Administration and McCain, as we've linked in these threads. But then he goes a bit astray:

"... but the companies’ management bought off the political process, systematically hiring influential figures from both parties." The problem here being that as we've also gone through in some detail, most of the major operators in these things have been, not just D's, but are now associate with the Obama campaign and the Clinton administration.

Barney Frank

Question for the one of the financially savvy folks here. What happens to all of the homes associated with all of the failed mortgages now? The value of the property behind all of these failed loans is certainly worth more than 10 or 20 percent on the dollar, or are people that defaulted on their loans going to be allowed to keep their homes?

I make no assertion of fincacial savvy but will take a stab at it.

What the government is buying are not individual mortgages but mortgage backed securities and credit default swaps.
The first is a security backed by a bundle of mortgages in turn backed by real estate.
The second is in essence a form of insurance in case a debt related investment (for instance an MSE) defaults.
These instruments are the largest problem in the financial sector but have little effect on individual mortgages.
Any individual house that is foreclosed on will be liquidated (often at auction) just as in the past. The Feds are not (at least I hope they aren't) going into the business of selling houses or foreclosing on them.

The Feds are acting as what is known as a 'bad bank' which absorbs the bad debt so that the 'good banks' can clean up their balance sheets and presumably become or stay solvent.

PeterUK

"They don't read Krugman, even if you paste it to their foreheads."

Ask your therapist about this,you are somewhat confused.

Michael Clayton

You know, you guys could have a sense of humor about stuff. No need to feel so foolish. It's just that your so focused on........well I'm not sure what you are focused on, except maybe NOT losing.

A losing proposition.

Extraneus

Anyone who loans hundreds of thousands of dollars to someone with no down payment and a poor debt-to-income ratio deserves what they get, and I really don't want my tax dollars used to bail them out. However... If the banks were forced to loan the money to "sub prime" borrowers -- say by government regulations put in place by race hustlers, former street agitators or community organizers -- then the people who forced them should be strung up for all to see.

Can we agree on that at least?

kim

Hey, Leo, that's a machine you are trying to talk to.
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Jane

They don't read Krugman, even if you paste it to their foreheads.

I recently read about Krugman. Here - I'll repost it for you:

It appears Paul Krugman, the far leftist political columnist (he also masquerades as an "economist"), who writes for the New York Times, was on a panel discussion yesterday on healthcare, somewhere in New York City - open to the public with one or two hundred folks in attendance.

Krugman, or course, talked about how important more government involvement was in healthcare - talking up how well Medicare supposedly works (for which he was rightly criticized by a conservative on the panel, who highlighted Medicare's cost, inefficiency, the fraudulent claims, and the unsustainability of the system). Typical discussion on a political issue.

But then things got more fun. Krugman suddenly turned to the audience and asked, "How many Canadians do we have here?" Seven hands went up. Krugman than asked, "OK, how many of you hate Canadian healthcare - that think Canada has a really bad healthcare system?" All seven hands went up again.

Want me to post that to your forehead?

Charlie (Colorado)

See above: (refresh if you don't see it):

"Too bad - the Times readership would probably benefit from some sound economic analysis of this plan. Instead the Times is peddling the hyper-partisan Krugman."

PeterUK

"You know, you guys could have a sense of humor about stuff. No need to feel so foolish. It's just that your so focused on........well I'm not sure what you are focused on, except maybe NOT losing.

A losing proposition."

This is hilarious,confused,but hilarious."I have nothing to say,but will say it anyway".

Emile Zola

"then the people who forced them should be strung up for all to see.

Can we agree on that at least?"


Absolutely. I am bipartisan about proper justice for all.

But proper punishment must ensue.

I propose any guilty of using public office for personal gain spend hard time in an actual prison. Follow up with parolees being required to live in Section 8 housing and using ONLY public transportation to and from their minimum wage jobs for the remainder of their time.

Extraneus

You mean there are people who personally gained from forcing banks to loan money to borrowers who weren't credit worthy? Please tell us who they were.

Jim Rhoads aka Vnjagvet

During the early 80s, I represented a purchaser of the assets of a failing REIT. Those assets were non-performing or marginally performing shopping center loans secured by wrap around mortgages. My client purchased the loans at a 25 to 30 percent discount on the face value of the notes.

Most of the centers had lost anchor tenants and were in pretty bad parts of cities all over the country. The obligors on the notes were typically Netherlands Antilles entities formed by foreign investors, or wealthy European slumlords.

We cleaned up the portfolio in about two years. The key was that we foreclosed on a number of properties and were quite willing operate the centers, which we did if the borrowers didn't clean them up and perform the maintenance covenants in the mortgages or pay as the notes required.

Only one out of nearly one hundred filed bankruptcy. We still got the property in that one.

The client made a bundle of money on the deal, and I made a good living as "the enforcer". My fees were generally paid by the borrowers who had defaulted.

The point of all this is that there are bottom feeders like my old client that see this kind of thing as an opportunity.

Charlie (Colorado)

Tom's analysis above more or less replicates mine, although he's not saying it in terms of information and systems theory: the point of this is to put the weird shit (new technical term for some of the MSE's and CDS's) into a new bucket and assign them a value. WHATEVER that value is, it's known. The government, having for our purposes an arbitrarily large asset base, can afford to spend some time valuing them and sorting them out, just as the Resolution Trust Corporation did with the S&L assets.

In the mean time, now that the weird shit is off their books and assigned a value, an orderly market with more or less full information can resume.

Sam

I made a post here about two years ago in which I chided you for the perilous economic policies of BushCo and in particular how a major financial storm was brewing as a result of a housing ponzi scheme. Every single one of you here disagreed with me and mocked my warnings of impending doom.

So I would like to take the opportunity to point out how ridiculous you mental dwarfs are.

Done.

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