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September 22, 2008

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Verner

Great Summanr from WSJ on how this all happened.

LUN

Verner

Make that summary

Barney Frank

Here's a little off topic, Obama goofing, and at the same time humanitarian jem in case anyone is sick of tranches and CDOs 24/7.

srp

I'm reposting this on the advice of counsel (JM)from an earlier thread. I apologize for the length:

I have a general idea for avoiding future liquidity contagion problems with derivative securities, but I'm not sure it's practical. What I was thinking is that securities could have "crisis" or "system failure" clauses. These would be restrictions on how much lenders (in a broad sense) would be paid conditional on some market-wide, non-manipulable indicator of a crisis (spreads over Treasury, perhaps, or volumes of cash withdrawals from predesignated banks and mutual funds, or...?).

These clauses could be set up to give the lender an option--"If spreads over Treasury go over x points and you call your bond or ask for more collateral or whatever, you only get y% of the face value you are owed." (Perhaps this could be enhanced with an encouragement such as "If spreads go over x points and you DON'T withdraw your liquidity at the crucial moment then you get 1+z times your money when the crisis is past.") These haircut percentages could possibly be made nonlinear in the degree of crisis so that their deterrent effect was highest when the panic was greatest.

The idea is to create a counter-incentive to panic by penalizing withdrawals of liquidity that occur just when liquidity is most needed by the system. And if I see that everyone else is facing the same incentives, my own level of panic that everyone else is pulling their money out is reduced and a virtuous cycle is created.

Another way to look at it is that systemwide liquidity risk cannot truly be hedged or insured, yet current contracts (and valuation methods) don't account for this. Everyone getting their money out at the same time is always going to be impossible no matter how we regulate, as long as we have some version of borrowing short and lending long (and I kind of like modern civilization). If everyone agreed (or were required) to only do business with borrowers who included such "crisis-haircut" clauses in all their securities, perhaps liquidity contagions would be less likely and the system more robust.

I welcome any comments about whether this idea makes sense or how it could be implemented or if we already have such things but they somehow don't work. Note that any crisis indicator must be non-manipulable by an individual entity--otherwise they could use manipulation to avoid paying people whenever they felt like it, and no one would do business on that basis.

Ms

I am from another planet and have these things for you to show I am a friend: A device which produces infinite energy. A human/alien hybrid DNA sequence that will make humans perfect.

Bill's belly's want free money.


TCO

Let them fail. SAY NO TO BAILOUTS.

TCO

Paulson's plan has just caused oil to spike $25 in a day. This is insane. Stop the give away to Goldman.

san

I found CIA agents(VA constituents he needs so bad) for Obama, but they say they're really just a bunch of Peace Corps people.

http://foreignpolicyforobama.com/

Don't worry, be happy........

How do offshore accounts work?

baked alaska

(a) IN GENERAL.—Not later than 7 days after the
11 date on which the Board exercises its authority under the
12 third paragraph of section 13 of the Federal Reserve Act
13 ((12 U.S.C. 343), relating to discounts for individuals,
14 partnerships, and corporations) the Board shall provide to
15 the Committee on Banking, Housing, and Urban Affairs
16 of the Senate and the Committee on Financial Services
17 of the House of Representatives a report which includes—
18 (1) the justification for exercising the authority;
19 and
20 (2) the specific terms of the actions of the
21 Board, including the size and duration of the lend22
ing, the value of any collateral held with respect to
23 such a loan, the recipient of warrants or any other
24 potential equity in exchange for the loan,
and any
25 expected cost to the taxpayer for such exercise.

Dodd proposal reference to warrants

baked alaska

At some point, one hopes Krugman actually reads the bill.

;-)

Charlie (Colorado)

TCO, you may think food riots and a depression are acceptable sacrifices for purity, but the conscious members of the group know you're wrong.

baked alaska

Dear American:

I need to ask you to support an urgent secret business relationship with a transfer of funds of great magnitude.

I am Ministry of the Treasury of the Republic of America. My country has had crisis that has caused the need for large transfer of funds of 800 billion dollars US. If you would assist me in this transfer, it would be most profitable to you.

I am working with Mr. Phil Gram, lobbyist for UBS, who will be my replacement as Ministry of the Treasury in January. As a Senator, you may know him as the leader of the American banking deregulation movement in the 1990s. This transactin is 100% safe.

This is a matter of great urgency. We need a blank check. We need the funds as quickly as possible. We cannot directly transfer these funds in the names of our close friends because we are constantly under surveillance. My family lawyer advised me that I should look for a reliable and trustworthy person who will act as a next of kin so the funds can be transferred.

Please reply with all of your bank account, IRA and college fund account numbers and those of your children and grandchildren to wallstreetbailout@treasury.gov so that we may transfer your commission for this transaction. After I receive that information, I will respond with detailed information about safeguards that will be used to protect the funds.

Yours Faithfully Minister of Treasury Paulson

link

Charlie (Colorado)

I have to admit, it's getting past my intellectual bedtime. My first look at this seems to agree with yours, Tom.

The original scheme semmed to be a way to get the securities off the books, while letting the government assume them discounted for risk.

This scheme seems more like loan sharking.

Charlie (Colorado)

It's still justa cut and paste job, baked, but at least it's funnier than your usual crap.

ben

Guess who thinks John McCain has a pretty good record on reform...

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

Rick Ballard

GMax,

Who gets to value the contingent liability? Does it go down on the books at 100% of the value of the MSB sold or would a prudent investor demand that it be marked to 125%?

I'd kinda like to know so that I can make some calculations concerning potential dilution of ownership interest before I risk any money by purchasing shares.

Maybe someone will sell me some sort of an insurance policy protecting me from the contingent liability - maybe we could call it a credit default swap or something like that? There might even be a big market for such an instrument.

I wish someone would mock up a balance sheet for Senator Dodd and have him show us how this all works.

Ursus

What I would like to see is the Fed buy the debt in exchange for equity shares now, with the Fed getting preferred dividends until the loan has been repaid. This would wipe the books in the short term, keep the firms responsible for the bad deals they had previously made, and encourage them to pay off the loan quickly. The stockholders would take it in the shorts, but if the firm is able to pay off the loan quickly then the pain will be brief.

MarkO

I’m just a simple cowboy, livin’ the dream and missing my sheep. But, in my frequently kicked brain this looks a like Yellowstone did just before the entire thing went en fuego. There was so much work put into keeping a fire from starting, much less burning, that the underbrush and the dead wood finally gave us a conflagration devoutly not to be wished. At the end of the reign of that theory of forest management, someone with a modicum of awareness of the implacability of nature realized that lightening was not the enemy of the Park.

The more artificial this market, the graver the consequences when market lightening strikes. I know, some say shorters are the bane of free markets. That is not remotely true. But, when I short a calf, it stays short.

Anyway, I just wish I had insider information like those who knew in advance that there would be an announcement about MS and the shorters. I could have bought at $11 and sold at $30. If you think any amount of this silly and poorly written regulation will make a difference, you are not a seasoned observer.

Charlie (Colorado)

For the purists who are still saying we should have just let it go to smash, Mega is quite good. She doesn't take it as far as I did with seed loans, but then she's a city girl.

Charlie (Colorado)

That's "Megan."

M. Simon

TCO translated:

Let the system go belly up. $25 to $50 trillion in American losses is nothing compared to having taxpayers on the hook for $.7 trillion.

Charlie (Colorado)

Let the system go belly up. $25 to $50 trillion in American losses is nothing compared to having taxpayers on the hook for $.7 trillion.

The survivors will live and the weak will die.

Waß mich nicht umbringt macht mich Stärker.

baked alaska

Guess who actively sought to boost minority homeownership? John McCain's campaign manager, Rick Davis.

As The New York Times reported today, Davis was president for several years of the Homeownership Alliance, an industry advocacy organization formed mainly by Fannie Mae and Freddie Mac. The Alliance's core mission is to boost the number of mortgages granted.

But take a look at this picture from the alliance's annual report in 2004, unearthed by a reader, showing Davis at a Congressional reception praising minority homeownership (click to enlarge):

pic

"We have an opportunity in the next decade to increase minority homeownership and significantly reduce the minority homeownership gap," Davis is quoted saying here. "The future of the housing market rests heavily on the economic success of minorities. Homeownership is likely to grow faster among minority Americans in the next decade if all the stakeholders in the housing industry work together to make it happen. The Homeownership Alliance is working toward this goal."

story

DrJ

TCO translated:

And here I thought it translated to Totally Confused Onanist. My mistake.

TCO

Fuck the RINOs. I'm taking my base and going home. You guys can burn in Hell.

DrJ

I'm taking my base and going home.

Promise?

Charlie (Colorado)

I'm taking my base and going home.

Yeah, you said that last time.

besides, all ur base r belong 2 us.

Charlie (Colorado)

Baked, I keep telling you, that was a goddamn caribou in that picture. A reindeer.

She shot Rudolph.

Geez.

DrJ

all ur base r belong 2 us

Has anyone here actually played that game? I'm no gamer, but then I don't play with myself like TCO.

TheRadicalModerate

It occurs to me that the Dodd plan quacks an awful lot like an incentive stock option. Just as with an ISO, I'd assume that the dilutive effects of the future liability would have to be booked at the time of the issuance of the warrant. That sounds like a fabulous way to crater the stock at exactly the moment that the treasury steps in to buy the bad debt. This is what is sometimes known as an "unintended consequence."

ben

GALLUP:

"This year, 47% perceive the news media to be too liberal and 13% perceive them to be too conservative, with only 36% seeing media coverage as "about right."

Who are these 13%???? I want to sell them some nice almost dry land in Florida.....

ben

Was Biden having trouble sleeping at night?

"Barack Obama's running mate says a campaign ad that mocked Republican presidential candidate John McCain as an out-of-touch, out-of-date computer illiterate was "terrible" and would not have been done had he known about it. ...

"I thought that was terrible, by the way," Biden said."

Asked why it was done, he said: "I didn't know we did it and if I had anything to do with it, we'd have never done it."

Charlie (Colorado)

Who are these 13%????

They work for Media Matters.

Tom Maguire

From baked alaska:

23 such a loan, the recipient of warrants or any other 24 potential equity in exchange for the loan, and any 25 expected cost to the taxpayer for such exercise.

Believe it or not (I am still shaking my head and trying to figure my next move) I did a text search on the Dodd draft and found that use of the word warrant, after which I revised my sentence which had emphatically declared that the word didn't appear in the bill.

However, that revision didn't end up on the page, so now I am wondering what other revisions got dropped. Troubling.

Anyway, I have made a change to get across my notion that Dodd doesn't use "warrants" in describing this contingent equity make-whole mechanism.

The warrants referred to in this passage could just as well be warrants associated with a troubled asset, depending on the scope of Treasury purchases.

ben

Whoops, the Obamabot Komisariat has had a little talk with Biden. Update:

"[I]n the statement issued by the Obama campaign, Biden said he had never seen the ad and only read press reports of it.

"Having now reviewed the ad, it is even more clear to me that given the disgraceful tenor of Senator McCain's ads and their persistent falsehoods, his campaign is in no position to criticize," Biden said in the statement."

Threadhearder

Tom,

Thanks for the econo-blogging. It's great to get the benefit of your perspective.

Threadhearder

Whoops. Must either spell correctly or fix name.

Next time, perhaps.

perfecor

DATA/ONE how the US went broke. Maybe if we taxed our GDP/GNP like Canada and England, we'd be okay.

We can't afford to give away 100s of billions a year. We need money back.

Mrs. McCain looks like a dunce. She's got a thing for British.

http://www.data.org/about

http://www.one.org/partners/index.html

Biden and Obama are the same.

Publius

Speaking of games, I have this game I'm trying to sell to Parker Bros. It's called Anarchy.

First you play the game, and then you make up the rules. So far, the only people showing any interest are Hank Paulson and Ben Bernanke.

Elliott

Ben, I'm afraid I can't help myself:

Guess who thinks John McCain has a pretty good record on reform... did not know the John McCain he thought he knew.

whencanyoustart

The Colombians found more anti Obama FARC stuff. Maybe they will trade with us now and let us make a few dollars. Pelosi has figured out trade is good because everything else is just giving the money away.

http://news.bbc.co.uk/2/hi/americas/7630663.stm

bgates

Ben, it's the 36% we have to worry about. The 13% wouldn't buy land anyway, they'd insist the government expropriate it in the name of The People.

Re the Biden statement, can you believe those words were committed to paper? "I didn't see the ad before, but now that I have, I'm going to get back on message and say McCain is worse." I'd be embarrassed to use a sentence that read like his statement in a blog comment.

Pen'soil

Blair's on the Comedy channel and says he didn't plan any of this even though America is socialist now. Swears he won't attack Argentina again. Converted to Catholicism. They converted to Judaism.

US mint has new penny out.

Topsecretk9

Clairice

In case you didn't notice J Street has it's own Astroturf Letter to the Editor generator built in


Here is one printed I found

Middle East progress

I have been reading the latest news coming out of Israel with cautious optimism - the ceasefire with Hamas, an offer to begin talks with Lebanon and the ongoing talks with Syria and the Palestinians. It looks like Israel is heading in the right direction in its quest for security and peace.

I have been struck, however, by the absence of public expressions of support for these recent peace efforts, most notably from the pro- Israel community that is normally such a vocal advocate for Israel and its policies.

As an American who believes that the security of Israel, its neighbors and the United States is enhanced by a peaceful Middle East, I strongly support these initiatives and hope the United States will do more to facilitate their success. I hope that those who consider themselves to be friends of Israel will join me in this strong expression of support.

JOSE MARQUEZ,Topeka

LUN

duter

The link is one of those firms agencies hire to get news out.

The Mossad agent going into office set up Olmert for the war.

Rice had a cool propaganda war with the Russians, basically saying they have no balls as they send ships and planes to the Western hemisphere. Maybe we should cut and past that?

TheDiplomatist

It's supposed to say Plame where it says Mossad.

NotSean

Good write up by Tom Maguire. It's important for those who understand this crisis to keep adding information to the discussion. I'm finding good information from both conservatives and liberals here, and glad to see both sides agreeing that we need to stop and take a look before we write a blank check to bail out Wall Street millionaires. Too bad the comments section is still uselessly clogged with the redbaiting nonsense of all these tin foil hat oldies who still think this is 1970. Great article, useless discussion section.

Jane

Great article, useless discussion section.

I guess that explains why you are in it.

Get Lost!

pagar

Good Morning to All!
I thought the comments looked pretty much like normal anymore. A lot of good conservative comments and some useless off-topic leftist
comments.

kim

NotSean sounds as bedeviled as TCO.
========================

Pofarmer

This scheme seems more like loan sharking.

In a crises, you normally go back to the familiar.

SWarren

Stanley Kurtz on CAC in WSJ.

LUN

Steve Diamond comments at his blog.

pagar

OFF Topic
For those who haven't seen it, the long awaited Stanley Kurtz article is published in the WSJ.

"Obama and Ayers
Pushed Radicalism
On Schools"

My guess, it will be totally ignored by the American leftists.

LUN

DebinNC

Kurtz: "Mr. Ayers is the founder of the "small schools" movement (heavily funded by CAC), in which individual schools built around specific political themes push students to "confront issues of inequity, war, and violence." He believes teacher education programs should serve as "sites of resistance" to an oppressive system. (His teacher-training programs were also CAC funded.) The point, says Mr. Ayers in his "Teaching Toward Freedom," is to "teach against oppression," against America's history of evil and racism, thereby forcing social transformation."

Boy, Ayers sounds just like Jeremiah Wright. Anyone who doesn't realize that Obama wholeheartedly agrees with them is willingly blind.

TCO

My bet:

JOMers will dive into minutia like Ayers, not realizing that there are immediate decisions being made by the current administration of much more import, both to the country and party. And that they will refuse to look at facts curiosly and fairly. Just as they did with defending scrawny Libby and fat Rove, who would have had their asses drummed out of a military school for honor code violation.

But then, you all probably never heard (or believed) the part in leadership class where they say truthfulness is the most important characteristic of a military leader.

Pofarmer

Granted, it's a Rueters article. But for supposedly very smart people, these traders did some exceedingly stupid things.

LUN

Wilson's a liar

I know from personal experience that neither Chris Dodd nor any of his staff have any expertise that remotely qualifies them to address this crisis. The likelihood is that Dodd has been handed something by Bank of America, as he was with the mortgage bill last summer. Watch him in the hearing today and you will see how far in over his head he is.

Cecil Turner

But then, you all probably never heard (or believed) the part in leadership class where they say truthfulness is the most important characteristic of a military leader.

Oh, please. Project much? Isn't it strange how your "curious" look at each issue just happens to boil down to "Vote Dem" and mimic the DNC propaganda du jour? Wow, what a coincidence. (I mean, what are the odds . . . right?)

Your arguments as far back as I can remember 'em are political, and mostly of the "call to perfection" form (i.e., "I'll vote Republican when they perfectly embody [pick some conservative principle]"); like all fallacies, they're fundamentally dishonest. And 100% Moby. Get a life.

Jane

What I wish would happen, and I don't know how to start it, is a demand that Dodd, Barney Frank, Pelosi and Reid step down as a result of this bailout. I have no doubt that more than a few people will glob onto it. I just can't figure out how to get it going.

Rick Ballard

"But for supposedly very smart people, these traders did some exceedingly stupid things."

Pofarmer,

A) It wasn't their money.
B) They booked a commission and a profit.

There are lots of decent, honest people on Wall Street. The trick is to figure out who they are and for whom they work. I've been watching rather attentively for over thirty years and you'll never hear me say "There's one!".

I ran up the total loan amount of all the ARMs and ALT A loans on the books in August (according to Fed data). It comes to $1.2 trillion with an average LTV of 83%. A 100% default rate with a 40% of appraised value recovery of capital implies a total loss of $650 billion. Actual losses will be a fraction (my bet is less than 1/3) of that number.

Pofarmer

Rush was calling for this yesterday, and I think he is exactly right. If they were Republicans, you can bet there would be calls for heads to roll. The folks who led us into this really shouldn't be counted on to lead us out.

Pofarmer

Rick got in between me and Jane.

A) It wasn't their money.

Which is why I tend to invest in what I know, which is me.

clarice

Jane start a blog with a petition feature and we'll all do what we can to get the word out about it,

Kurtz really said nothing new to use at the WSJ or NRO today--the records he saw simply confirm what we know--Ayers and Obama were much more closely involved; O wouldn't have been put in charge w/o Ayers say so and their plan was to radicalize the schools w/ things like replacing activism with test scores (not, for their own kids of course--always remember that.)

jean

Seems like Katrina on a bigger scale.Dems ignore all warnings. Then after upheval blame the mess on the Reps.Once again the press is more than happy to help the Dems.

Charlie (Colorado)

Seems like Katrina on a bigger scale.Dems ignore all warnings. Then after upheval blame the mess on the Reps.Once again the press is more than happy to help the Dems.

Remember the Laurel and Hardy movies? Hardy would make some ridiculous screwup, then look at Laurel and say "Look what you made me do."

Jane

Jane start a blog with a petition feature

Given my enormous talents in that realm that would require that I quit my job, go back to school, and apprentice for a decade or so.

With all the talent here, can't one of you geniuses work that up in about 10 minutes?

GMax

Who gets to value the contingent liability? Does it go down on the books at 100% of the value of the MSB sold or would a prudent investor demand that it be marked to 125%?

Very good question but I have a more foundational thought.

Why would any institution not beyond desperate allow the trigger of the gun pointed at their head to be fingered by the government and not them.

Think about it, you would have to believe the government is going to be better and more efficient at doing this than you. And remember this removes much incentive for the govt to maximize their recovery since they can just get it back from all but the grossly insolvent with this equity play. So the govt will be motivated to just push these off the cliff as fast as possible.

I think its poison and will prevent the bill from having any takers. I am sure Paulson will tell them that too.

I understand that the language may end up permit but not require equity and let Treasury decide if circumstances warrant an equity stake.

Rick Ballard

Bernanke Prepared Statement

Paulson Prepared Statement

Bernanke's synopsis is good, the missing element is identification of how much Stinky Stuff is already in the Fed's hands after picking up the FMs plus AIG.

GMax,

I hope everyone reads "And remember this removes much incentive for the govt to maximize their recovery since they can just get it back from all but the grossly insolvent with this equity play." a couple of times. It really is a poison pill.

narciso

See TCO, not sean, nick, baked, et al; they no longer qualify as trolls, there's a whole other level of taxonomy involved; Urukhai Orcs or because of their high pitched screams, nazguls. We here at JOM,
(I know I'm not officially a member, but a visitor in good standing) realize the media presentation of significant events is not 180 degrees out of phase with reality, but frequently 540 degrees. I know that shouldn't be possible, that's a whole other
plane or reality but it is. The witchhunt against Libby, for something Armitage had done despite the fact that he essentially agreed wit Novak and Plame. His cooperation with Powell, who turns out not to be a simple career bureaucrat, but the promoter of consistently counterproductive practices
and dubious business practices; ie his longstanding ties to the Saudi dynasty, his subsequent ventures with Caspian oil interests which dictate an acquiescence with Iranian and even Russian practices. The
non stop efforts to purge Goss's reformers, brought to light most recently by Ishmael Jones, new memoir. The Gitmo detainee's get
out of jail free card, promoted by Kuwaiti and Emirati interests to gullible journalists. The steamroll to abandon US forces in Iraq and now Afghanistan; even as contrary evidence of their success has happened.

Now the focus shifts to the nature of the subprime hurricane, which threatens to do to us; at the least what the 1980s land bubble inflicted on Japan for a span of years. The worst is a return to Mr. Mellon's liquidation of labor, capital, et al; the Great Depression We see Senator McCain, members of the administration, and even old curmudgeon Greenspan, when he wasn't dictating his epitaph; sorry the Edge of Turbulence, saw the Iceberg, but many refused to steer away, among them Dodd and Frank. I say in decreasing importance, because Greenspan's 18 consecutive interest hikes; like his twelve previous prior to the tech crash, would inevitably tip the balance. So the Conneticut Yankee and his Faneuil Square squire, Who have been wrong so many times before, on Central America, crime policies, et, have done it again so using them as authorities seems like promoting Mr.Ismay, the head of the White Star Lines to the head of the British Admiralty.

TCO

Doing the bailouts and then trying to regulate markets from taking risks "so it doesn't happen again" is asinine.

Let those who took a risk and lost, take their medicine. You shouldn't cushion foolishness. You can't prevent it in the future. People will always have the ability to leverage themselves in risky transactions. Let the counterparties take that risk. Not the Treasury.

Extraneus

Couldn't McCain easily make hay right now by demanding the resignations of Dodd and Frank? Between the Fannie/Freddie campaign donations, the sweetheart mortgage, the past opposition to regulatory reform, Dodd in particular is a sitting duck on this. Why not pull the trigger?

Barney Frank

Can't keep up with the comments so sorry if this point was made elsewhere.
Seems to me Krugman and by extension Dodd are missing the point of what Paulson is trying to do. Maybe some of the folks here who know more about this than me can correct me where necessary.
All this talk of how buying the bad debt does not fix their balance sheets is beside the point. He isn't trying to balance the books of every bank in America nor make every insolvent or illiquid bank solvent or illiquid again.

The model of the 'bad bank' is to unfreeze the system. An unfrozen system can absorb some bank failures; a frozen one can't.

Right now no one trusts anyone else and they don't even trust themselves. The bad debt is like unexploded ordinanace on their books. No one can tell who is about to blow up in a matter of days and so they are reluctant to loan to each other for any purpose. And They are afraid to loan to businesses and consumers for the same reason and because it increases their need for capital which they are having a hard time raising as it is.
By taking the bad debt off their books it allows trust to reenter the market as all the unexploded bombs are now safely at the armory and have been replaced by cash or other transparent obligations. Perhaps that doesn't instantly cure their balance sheet but it does give lenders and borrowers confidence that assets being loaned against will not drop to zero so the market thaws and money begins to move again.
In addition it frees up those banks on the edge, mking it easier for them to recapitalize because they aren't threatened with continued downgrades. It also gives them the option, if push comes to shove, to either buy a smaller, more solvent bank to fix their balance sheet or be acquired at something other than the bankruptcy court price. Right now a bank on the edge has two choices liquidate in bankruptcy or through the fed.
Trust is what is missing and can only be restored by the elimination of the bad debt.
It cannot be eliminated on a case by case basis as they were doing. At this point I'm not sure there is any other way of doing it, short of an economic tsunami, as bad and uncertain as the Paulson plan is.

GMax

If Rick is right on his footings of the debt, then this will certainly pile up all the putrid stuff in one pile.

Some institutions will shrink to show a higher capital ratio, others will search out new lines of business and new credits to lend.
Both have a salutary effect. One increases confidence, one adds liquidity. Both are missing.

Now I understand that on top the the previous sale by ML at 22 cents on face value, that there is a very recent sale by Sovereign Bank at 35 cents on the dollar. I have not yet confirmed that with my own eyeballs but the CNBC cats were squawking about it yesterday afternoon.

That tends to reassure me that if vultures who will expect 20 to 30% returns on equity see value at 1/3 of face, that Treasury can get back to shore at 50 or 60 cents per face.

I have a hard time believe any mezzanine pieces are on regulated institution books at much above 50 cents, as both the examiners and the auditors have been pounding on these numbers for some time.

I therefore think the Treasury is not ultimately going to put out much if any of the taxpayers money here once the big pile is liquidated by collections, foreclosure and resale or resale to folks who are not vultures and will accept less than vulture returns.

The alternative is pretty clear, read both Bernanke and Paulson, if you want to be selling apples on the street corner due everything you can to sabotage this plan, there is not another one waiting in the wings.

Barney Frank

Let those who took a risk and lost, take their medicine.

TCO, since you kept the snot nosed profanity and insults out of this post let me respond.

I agree with you in principal, but my concern is that this freeze up is so systemic and global that there is a very serious risk of a great many people who took no risk being crushed under the repurcussions of letting the market takes its course. There are hundreds of millions of people worldwide who have just barely crawled out of eternal poverty in the last decade and may very well be tossed back into it for God knows how long if this is as contagious as it seems it could be. If it had been allowed to run its course intitially perhaps the effects could have been contained but that seems unlikely now.

Doing the bailouts and then trying to regulate markets from taking risks "so it doesn't happen again" is asinine

Agreed. If this is not followed by the complete privatization of Fannie and Freddie and a return by the fed to a sound currency rather than the Greenspanian manipulation of the economy, both of which are the core of the problem nothing will be solved.

Barney Frank

Thanks Gmax. I'm off to read their statements.

Charlie (Colorado)

The model of the 'bad bank' is to unfreeze the system. An unfrozen system can absorb some bank failures; a frozen one can't.

Bingo.

If only your namesake had your sense.

DrJ

Clarice,

Kurtz really said nothing new to use at the WSJ or NRO today.

I agree fully. I view Kurtz's article as "CAC for Beginners," and that he is using this one to raise awareness and to provide a basis for subsequent ones.

Diamond's follow-up is worthwhile too -- he goes to his expected theme (of authoritarianism), and fills out the local scene well. He asks the question, why did Annenberg fund the effort if it was so leftist, and his answer is that it was intended to fight the Chicago bureaucracy and the teachers' unions. That to me is only a slightly better explanation.

My guess is that both are present, and Annenberg funded this approach as one of a basket of approaches to see what worked.

Does anyone know how the Annenberg grants made to other locations worked in practice?

Charlie (Colorado)

Why would any institution not beyond desperate allow the trigger of the gun pointed at their head to be fingered by the government and not them.

That's it exactly.

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