So, those promises of taxpayers making that money back by selling the illiquid assets when they once again become profitable seems to have been shelved for cold cash giveaways to the banks and maybe credit card companies. Really now, who could have predicted that the Bush Administration might piss away $700,000,000,000.00 before January 20? This is another great move by the great minds of Wall Street and all those who worship at their feet. After all, it's worked so well with AIG, why not move forward on a much larger scale? Oh well, good thing I don't know beans about the mysterious world of high finance or I might be worried... or maybe even commit the thought crime of thinking that we didn't have to act NOW! and any "fix" done by this administration would be worse than waiting.
rim, you're one of my favorite posters, so this hurts me as much as it hurts you http://bbs.clutchfans.net/showthread.php?t=157423
You are smart enough to know that nobody said the bailout would make things better immediately, and in fact said that things would get worse, possibly far worse, after it passed anyway. Check what the LIBOR-OIS spread was back in early october and what it is now and tell me what it is now and tell me that there has been no change in the underlying conditions of the credit markets. I have a hard time believing they would have happened had Congress simply said "let's get a committee and figure out what the best idea is in a few months! (incidentally - John McCain's proposed solution for about a day...)
Where is the talk of the cold cash giveaway? The big thing that has been spent so far has been buying preferred shares of these banks. In the long run, that should actually have an even *higher* return than buying the illiquid assets. None of this suggests that waiting would have been the better option - it suggests otherwise. You see how quickly circumstances are changing *with* the bailout - and that's with an improved underlying credit situation (the purpose of the bailout). Imagine how bad things would be otherwise. What we're looking at now would look like child's play in comparison. GM and Ford would be the least of our concerns. Also of note - it was the Democrats in Congress that insisted on providing Treasury the specific authority to buy shares in banks, something that was initially opposed by the Administration.
this is probably a better way of going about it than buying mbs. however there is something not exactly kosher about paulson having unlimited authority essentially to use 700 billion. but that's on the congress.
This shouldn't be a surprise. TARP almost immediately turned into the TARP Capital Purchase program and is being used to buy preferred stock of banks and thrifts. The preferred stock also carries a pretty significant dividend and encourages participating institutions to buy back the investment as soon as possible. So I wouldn't say that this is pissing money away because the government should be eventually receiving back principal plus dividends for however much they decide to allocate to this program.
But everything is still Bush's fault!!! One thing though, not buying those illiquid assets off the market will mean they stay on the books for the banks. I am not sure Banks are ready to do new deals when there are still bad ones on their books, especially when there is no price for the old crappy deals, how do they see themselves selling new (possibly crappy) papers.
That's true, but you could also argue that once the government starts buying the troubled assets, that a price will be formed and the banks will have to write down their loans immediately. I think the plan they are choosing is probably a better one for both parties.
Isn't the mark to market rule suspended for now. I think after a couple weeks of trying to price some of the assets, they just threw up their hands and decided its easier to buy stocks. I still think we need a liquid market for these bonds, how are banks going to issue new deals when there is no market for them. Fewer deals -> Fewer loans.
Aside from the change in plan, I have a problem with the strategy of helping consumer lending. Isn't consumer lending the problem? I understand that the goal is to get purchases up to get the economy up but I just think we've been down this road, it doesn't seem to sustain long term.
Someone can probably confirm this, but I don't think the mark to market rule is suspended. One of the reasons why Goldman and Morgan became BHC was to be able to classify investments as held to maturity and not have to mark them to market.
The only possible goal is to somehow create another credit bubble. Ughhhhhhhhhhhhhhhhhhhhh!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! I feel better.
Nowhere have I said I expected things to get better immediately. You're putting words in my post. You're also smarter than to think I'd fall for the false dichotomy you present. If the choice was doing this and nothing, I'd still pick nothing, but there was also the option of scrapping the administration's plan and doing something worthwhile with that $700,000,000,000.00 that would have increased our economic position long term. But we had to act NOW! because the big brains from Wall Street, the Masters of the Universe, the ones that created this mess but don't really understand it, told us what we needed to do. What people did say (including Obama, I might add ) is that there was a good chance that TARP would make back a good portion of the $700,000,000,000.00. Now, we're going the AIG route, which has been like pissing money down a rathole... we just gave them another $40,000,000,000 yesterday. But we're getting preferred shares! Yay! Preferred shares in banks that still have huge, massive, brobdingnagian amounts of debt. (For the record, I think this is marginally better than buying half of Sacramento and Ft. Lauderdale, but it doesn't change the fact that it comes from a crappy plan, we were lied to about the viability of the plan and how it would be administered, and anyone who trusts this administration at this point ought to be committed.) Not only that, but it sure sounds like we're about to throw some money at the credit card companies, those vile corporations that spent hundreds of thousands of dollars lobbying for the dastardly Bankruptcy Bill, the most execrable piece of legislation in the last 25 years not involving torture or habeus corpus. Oh, and what about the predictions that all the money couldn't be used in just a few months? They've already committed $290,000,000,000.00. Any bets on whether the Bush administration grabs the second $350,000,000,000.00 before they leave office? They'll ask the day Congress is ready to adjourn and under the terms of the law, get access to teh money a few days later because they will not pass a bill saying NO and even if they did, Bush would veto it. Oh, and what of the pronouncements that this was not political? Major, do you care to weigh in on this article... All of that money will be gone by January 20 and we'll never see a dime of it again.
If this is emblematic of our enshrined and daily-glorified capitalism, I'm mystified why anyone would b**** about socialism.
How can you say we will never see a dime of it again? That assumes that every single bank that participated in TARP will go under. If that is the case, we are in a lot more trouble than being down $700 billion. Some will fail, but I seriously doubt that it will be more than 10%.
Thanks DonkeyMagic. As usual, your post is full of meticulously detailed rationale to support your position.
