And how does this prevent the credit markets from seizing up within the short to medium term? Which is the point of the whole thing. By the time this ridiculous "insurance" scheme is sketched out and implemented - which would take at least 6 months to a year or longer (question: what is the point of giving out insurance to insure against events that have largely already happened ), we will see more firms collapse, LIBOR/ted spread will remain sky high, the credit markets will ossify and we will all be royally f-ked. Let's see, Ben Bernanke plan - bunch of dogsh-t wingnut populist congressmen plan - who has a better idea? No-brainer.
So now that you know more about it, do you have an opinion on the idea that aims to fix a problem of a shortage of capital by taking more capital out of the system?
Actually, there is one way for the House GOP plan to work. Banks should buy up the insurance, and then ask all their loan holders to default on their loans, so the bank can get paid by the government. That would solve the short-term liquidity problem. It would cause a bunch of defaulted mortgages and an enormous cost for the government, but whatever.
I've got an even BETTER idea along those lines - how about we design a large government sponsored entity to insure/guarantee home mortgages that at risk of future default. Then we can gradually devolve these mortgages back to the private sector by selling them off. We can call it the Federal National Mortgage Association. Eventually we could privatize the whole thing and be rid of the curse of regulation! EVerybody's a winner!
I wrote in another thread that the key is who is going to go through the paper and value it. you don't have to value it home by home, but zip by zip, town by town. the added problem is all these securities are mixmatched (as designed) and broken apart. they have to explain a valuation method
I think they talked about doing a reverse auction of some sort to help determine valuations. I assume they would bring $x to the table and let people bid on that. Since they are doing this piece by piece, that would work if all mortgages were equal, but I don't know how they plan to divide up different categories of mortgages.
Why can't the Dems get something done here? They have control of both the House and Senate? They've got the votes. Oh yeah, they are too scared they'll be blamed. They want the cover that comes with bi-partisan agreement. Puss!es. Time to sack up and get something done, not worry about what people might think. Or compromise. Good grief the libs are weak. Little weaklings with no backbone. Hard to argue that, really.
because this is serious legislation being passed. not some idiot trying to own somebody on a basketball web site.
even more on the republican plan http://corner.nationalreview.com/post/?q=MmYyNGU3OGMxZjY3MmQ2ZjhkY2Q3YzcwMTFjZmVmZjY= [rquoter]A Paulson-Cantor Plan Is a Win-Win for Taxpayers [Larry Kudlow] The single-biggest mistake in the Paulson bank-rescue-plan marketing effort has been the failure to explain clearly how taxpayers are going to recoup $700 billion used to buy toxic assets at auction in order to unfreeze the banking system. In other words, folks don’t understand how taxpayers will be paid back, and may actually make profits, which will enable the new government debt to be erased after the Treasury bank-rescue is completed. Here’s the key point: Any loan package bought by the Treasury will be 100 percent taxpayer owned. Period. Let’s walk through this hypothetical for a moment. Through a market-driven auction, the Treasury will purchase some dollar amount — say $100 billion — of loans that banks will sell. The Treasury will then buy those loans at the prices that fill the auction, starting with the lowest prices and working up. Now, the Treasury will hold those bonds either to maturity or for a sale in the open market if rising prices in the market make that sale attractive. In other words, suppose the Treasury buys a bond package at 20 cents on the dollar. They hold it for a while, and if market conditions improve, they sell it for 50 cents on the dollar to some buyer (e.g., an investment fund, a private-equity fund, a hedgie). The Treasury will make the sale at the higher price in order to gain a profit for taxpayers. In the meantime, as the Treasury holds the loans, the government will get monthly cash-flows coming in on the mortgages, or on any other loans that it owns. So it is win-win for taxpayers. First, taxpayers get the cash flow generated by the assets. (Something like a 10 percent interest rate.) Second, if the loan is sold for profit, the taxpayers will own that profit. And the new law must of course stipulate that all the cash flows and/or profits go for debt-reduction to protect taxpayers. I don’t think a lot of folks understand this win-win scenario. Let me repeat: The taxpayers own the bonds the Treasury buys; the taxpayers own the cash flows generated by the bonds; the taxpayers own the profits when the bonds are sold; and the taxpayers benefit when the profits and cash flows are used to pay-down government debt. Actually, for taxpayers, it’s a win-win-win-win. Think about this. The troubled assets purchased by the Treasury right now are likely to be very under-priced because of the chaotic and frozen market conditions. But over time, through monthly cash-flow payments or through loan sales, taxpayers will get all their money back and in great likelihood a handsome profit. I have been in conversation with leading House Republicans all day. And they understand these key points. Unfortunately, this understanding did not materialize in their original meeting with Mr. Paulson a few days ago. But now the actual reality is sinking in. Another point: Republican leader Eric Cantor has an excellent idea for a federal bond insurance guarantee for straight mortgage-backed paper, financed by private-sector insurance premiums. That will improve investor confidence in mortgage bonds and will make those bonds highly marketable. Importantly, senior Treasury officials have told me that Mr. Paulson will accept the insurance idea as an option in the final bill, alongside the ability of the Treasury to purchase distressed assets. Sources also tell me that other conditions will be necessary to bring the House GOP along. First, the ACORN slush fund must be removed. Second, the so-called union proxy to run a slate of corporate directors is a big problem. Third, all profits from the Treasury rescue mission must be used to reduce the national debt — 100 percent. Fourth, Republican members are opposed to bankruptcy judges setting mortgage terms and interest rates (Sen. Obama also is opposed). Fifth, the so-called government equity ownership of banks is distasteful because it effectively creates a corporate tax increase on banks at a time when they are struggling. And last, the Treasury secretary’s request for $700 billion is regarded as way too high. Essentially, House Republican leaders want a slimmer, cleaner Paulson plan supplemented by Mr. Cantor’s mortgage-bond insurance program. I think it’s a good package that would be great news for stock and bond markets that are now ailing badly. It would set the stage for a gradual return to normalcy on the part of bank lenders, including loans to small businesses, consumers, and homeowners. It would be a pro-growth package at a time when the economy desperately needs a prosperity tonic. [/rquoter]
here's a lighthead harry restrospective http://www.weeklystandard.com/weblogs/TWSFP/2008/09/does_harry_reid_have_the_tempe_1.asp [rquoter]Harry Reid on Tuesday: "We need the Republican nominee for president to let us know where he stands and what we should do." Reid on Wednesday: “it would not be helpful at this time to have [Barack Obama and John McCain] come back during these negotiations and risk injecting presidential politics into this process or distract important talks about the future of our nation’s economy. … We need leadership; not a campaign photo op.” Reid on Thursday afternoon: With the economic news only getting worse each day, I call on the President, Senator McCain and Congressional Republicans to join us to quickly get this done for American families. Reid on Thursday afternoon Harry Reid says he’s not scheduling any votes in the Senate for Friday. The reason: He says he wants to give John McCain “no excuse” for missing Friday night’s presidential debate. Reid on Thursday night: “I would suggest that anyone in that meeting who tried to understand what John McCain said at that meeting, couldn’t,” Senate Majority Leader Harry Reid of Nevada told reporters Thursday evening. McCain was the last one to speak at the White House meeting, Reid said, and he “didn’t say anything substantive. ... John McCain did nothing to help, he only hurt the process,” Reid said, further chastising McCain for calling for a delay in Friday’s presidential debate in Mississippi. “We should not let this little effort to avoid participating in the debates sidetrack this most important issue,” Reid said.[/rquoter]
He didn't. He said McCain could be helpful in getting Republicans on board. Not to rush in mangle up the negotiations. You shouldn't use McCain campaign talking points as your source for facts.
Bingo, these feel good additions are just to keep it in limbo so they can add their own pork. They cannot spend 700b so quickly as to not get a piece of it.
Is somebody who supports the House Republican Distracto-plan going to tell me how it purports to shore up the credit markets in the near- and medium- term? THus far two National Review Articles have been posted and not a single one has made this clear. Writing some bizarre mortgage insurance plan and hoping it trickles up in the distant future is no solution to the short term credit disaster unfolding. The horse is out of the barn. Fixing the lock is a joke.
