Oh that's absolutely a compoent of this - I know I didn't really make it clear, but that's what this: (this doesn't account for time value of money, which will erode some of the returns, but it's a general sense of the way it works) was referring to. There will be a time value of money aspect that gets lost due to inflation/interest. If the government borrows $700B and gets paid $700B over 5 or 10 years, there is definitely money lost there.
LOL, yeah if AIG, Lehman, Bear, and other derivatives traders had access to you and your spreadsheet this whole mess never would have happened!
They just ignored the risk. Look at JPMorganChase (my former employer) they did not get involved in it nearly as deep. You have no idea what you are talking about or my experience.
you're right, I don't know what your experience is - my experience, which mirrors that of everybody else is that valuing level 3 assets is a giant clutsterf-k and is very difficult to do with any degree of accuracy. COuld you hold on a sec? I'm going to IB Lloyd Blankfein and let him know that there's a new sheriff in town in terms of valuing credit derivatives & other swaps and such - CaseyH and his mighty laptop!
These derivatives have an underlying value based on the low since they are mostly sub-prime mortgage and are linked to real estate. If you are talking about a 2nd level (and up) derivative's of these loans when you say "level 3 assets" it is possible to assign a risk to them also once they are purchased. I love how you say this is your job yet you also say you don't know WTF your doing. Once we see exactly what the .gov buys it will be know what their exposure might be.
If I had to guess, I think this is the most likely scenario. By some estimates, the holding period for all of the bad loans could well exceed 5 to 10 years.
I didn't say it was my job. The exposure will be the purchase price. The issue is what they can get for what they are buying - the answer is probably tnot much, due in no small part to the difficulty in valuing level 3 assets and such (with you being the obvious exception)
I am far from a financial expert, but I know enough about history and politics to know this deal sucks. Here's Krugman... And I am surprised nobody picked up on this part of the proposal... I am not prepared to give any administration that kind of authority and especially this one with only a few months to go. This is freaking madness. More from Greenwald, who writes well... (And I should ad that the first part of his post, which I left out, does a much better job than I of lacing this in perspective with other administration attempts to highlight grave emergency and push the Congress to do something in a panic.) We need to slow down and think this through.
Krugman's analysis is complete trash, as usual. He's an economist, not a banking expert, so he should not be looked to as some kind of authority on what's going on here. This paragraph, in particular, shows the weakness of his argument: Of course it's a plan to convince creditors that everything is ok. That's the whole f'ing point of the bridge loan provided to AIG. That loan will prevent a massive financial chaos of all of AIG's positions getting unwound and bankrupting each company downstream that has exposure to them. Now that would be a true global financial collapse. Lehman was allowed to go bankrupt because the bankruptcy rules were enough to limit/contain their impact on others without creating a worldwide meltdown. AIG's impact would have been much bigger, hence the bridge loan. Krugman's line about it being doubtful that this whole mess is a "liquidity problem" is complete trash. Paul, this is most definitely a liquidity problem. That's the WHOLE PROBLEM here, Paul, liquidity. Bear, Lehman, AIG - all of their problems stem from not being able to get the required LIQUIDITY needed to post collateral on their sub-prime exposure. This is worst Paul Krugman article I've ever read, and that's saying something. He's as partisan as they come. Pathetic.
For those of you against the bailout, what is your proposed solution what was going to happen Thurs/Fri? http://www.nypost.com/seven/09212008/business/almost_armageddon_130110.htm ALMOST ARMAGEDDON MARKETS WERE 500 TRADES FROM A MELTDOWN The market was 500 trades away from Armageddon on Thursday, traders inside two large custodial banks tell The Post. Had the Treasury and Fed not quickly stepped into the fray that morning with a quick $105 billion injection of liquidity, the Dow could have collapsed to the 8,300-level - a 22 percent decline! - while the clang of the opening bell was still echoing around the cavernous exchange floor. According to traders, who spoke on the condition of anonymity, money market funds were inundated with $500 billion in sell orders prior to the opening. The total money-market capitalization was roughly $4 trillion that morning. The panicked selling was directly linked to the seizing up of the credit markets - including a $52 billion constriction in commercial paper - and the rumors of additional money market funds "breaking the buck," or dropping below $1 net asset value. The Fed's dramatic $105 billion liquidity injection on Thursday (pre-market) was just enough to keep key institutional accounts from following through on the sell orders and starting a stampede of cash that could have brought large tracts of the US economy to a halt. While many depositors treat money market accounts as fancy savings accounts, they are different. Banks buy a variety of short-term debt, including commercial paper, with the assets. It is an important distinction because banks use the $1.7 trillion commercial-paper market to fund their credit card operations and car finance companies use it to move autos. Without commercial paper, "factories would have to shut down, people would lose their jobs and there would be an effect on the real economy," Paul Schott Stevens, of the Investment Company Institute, told the Wall Street Journal. Cracks started to show in money market accounts late Tuesday when shares in one fund, the Reserve Primary Fund - which touted itself as super safe - fell below the golden $1 a share level. It had purchased what it thought was safe Lehman bonds, never dreaming they could default - which they did 24 hours earlier when the 158-year-old investment bank filed Chapter 11. By Wednesday, banks sensed a run on their accounts. They started stockpiling cash in anticipation of withdrawals. Banks, which usually keep an average of $2 billion in excess reserves earmarked for withdrawals, pumped that up to an astounding $90 billion by Wednesday, Lou Crandall, chief economist at Wrighton ICAP, told The Journal. And for good reason. By the close of business on Wednesday, $144.5 billion - a record - had been withdrawn. How much money was taken out of money market funds the prior week? Roughly $7.1 billion, according to AMG Data Services. By Thursday, that level, fed by the incredible volume of sell orders pouring in from institutional investors like pension funds and sovereign funds, had grown to $100 billion. It was still not enough to stem the tidal wave. The banks knew something drastic had to be done. So did Paulson. The injection of capital into the market was followed up by calls from Treasury Secretary Hank Paulson to major money market players like Bank of New York Mellon and State Street in Boston informing them that federal money was in the market and they should tell their clients the Feds would be back with a plan to stem the constriction in the credit market. Paulson knew the $105 billion injection was not a real solution. A broader, more radical answer was needed. Hours after Paulson made his round of calls to calm the industry, word leaked out that an added $1 trillion bailout of banks was being readied. Investors cheered. At about 3 p.m., news of the plans was filtering up and down Wall Street, fueling a 700-point advance in the Dow Jones industrial average through 4 p.m. Friday. By that time, Paulson had announced the plan. It included insurance on money market accounts, a move that started in quiet Thursday morning, when the former Goldman Sachs executive saved the country from a paralyzing meltdown.
I'm not necessarily against it, I just dont think the government is going to make any money on it. If the government pays too much, it will lose money. If it pays actual market value, then these banks are going to have to write off billions (maybe a whole trillion?) more, throwing us back into a credit freeze. So really, I question whether this will solve the problem at all. The banks can already write off the assets, what difference does it make for the government to take them on?
I've said I'm in favor of doing something, and I'll be the first to admit that I don't know enough to propose a solution. I do, however, know enough to question whether the proposed solution is the best one. I think there have to be other options besides letting the Bush administration spend $700,000,000,000 or more with no oversight. And if this is above politics and such a good deal for America, why are the lobbyists already at work? And really, I don't understand the fascination with liquidity. Simply having more money is not going to make housing prices go where they were and if it does anything close to that we'll have another crisis soon. Housing prices across this country were unsustainable and for the health of the country and need to come way, way down even now. This plan gets you and me to pay for that decline while the wealth the speculative bubble created gets off free and clear. From where I sit, this is absurdly anti-American... not to mention the height of folly in letting the Bush Administration spend $700,000,000,000 without oversight. Prove to me that it can be done in keeping with our democratic heritage, that there are safeguards in place, that the American taxpayer will not get totally fleeced, and that it will work as advertised and I will reconsider.
Not against it, simply skeptical that any losses will be recouped and that it will be a trillion dollar charge to taxpayers.
Bright students being pushed to Wall Street has little to do with it imho. There are still tons of smart engineers out there. Innovation doesnt exist in a vacuum. The smaller the manufacturing base, the less the need for innovation. Tech companies have ben outsourcing increasingly complex manufacturing to asia, to reduce cost, while innovation stays in the US. Except it doesnt work that way. Japan used to be a glorified manufacturing house. The not only produce everything now, their electronics R&D is unbeatable in several areas. Same story in video, telecom, display... I keep thinking Wall Street is a bad model for tech companies. The need to show quarterly profits or die has forced US tech CEOs into so many bonehead decisions. I'll end my rant now... lol
The bottom line here is that profits are private while losses are socialized. If we are going to socialize the losses, we should socialize some of the insane profits they were making a couple of years ago, or some of the profits going forward. Otherwise the financial markets are a giant, legalized ponzi scheme. Right now if you made $50,000,000 over the past decade in comissions and bonuses selling what are now worthless morgage backed securities, and your firm is in the tank right now... do you think that the bright-eyed boys who are making that transaction wish they could do it over? I'm guessing the answer is emphatically NO. Right now, they are way ahead, and the public is paying to save their asses. They trashed the system but made a whole bunch of personal profit, and Uncle Sam saves them from all the down-side. Right now there is no accountability, a concept that the Republicans are very fond of, I guess until it applies to them. My personal thought is that the best solution would be for the Government to guarantee morgages, like they do school loans or SBA loans. The fundimental core problem - people defaulting on home loans - is still out there. Nothing real has changed in the fundimentals.
Mr. Ron Paul....... <object width="425" height="344"><param name="movie" value="http://www.youtube.com/v/lQsC-F9YRxk&hl=en&fs=1"></param><param name="allowFullScreen" value="true"></param><embed src="http://www.youtube.com/v/lQsC-F9YRxk&hl=en&fs=1" type="application/x-shockwave-flash" allowfullscreen="true" width="425" height="344"></embed></object>
Fake libertarian douchebags... Their only ideology is green and the politics involved is sold/bribed to the highest bidder.
Resetting the Matrix. http://www.bloomberg.com/apps/news?pid=20601085&sid=aAxR.c3LTIzA&refer=europe Paulson Says Several Countries May Adopt Bank Rescue Plans By John Brinsley Sept. 21 (Bloomberg) -- Treasury Secretary Henry Paulson said he's confident several countries will take steps comparable to the $700 billion plan he proposed to buy bad mortgage-related securities to address the global financial crisis. ``We are talking very aggressively with other countries around the world and encouraging them to do similar things, and I believe a number of them will,'' Paulson said on ABC News' ``This Week'' program. Paulson yesterday asked Congress for unfettered authority to buy devalued mortgage-related securities from investment firms in an effort to keep the financial system from coming to a standstill. The proposal would prevent courts from reviewing the Treasury's actions while raising the nation's debt ceiling. German Finance Ministry spokesman Stefan Olbermann said members of the Group of Seven industrial nations are in ``ongoing talks about the situation on financial markets worldwide.'' Finance ministers from the G-7 countries meet in Washington on Oct. 10. Asked about the U.S. plan, Olbermann said, ``We have to see if and to what extent those measures make sense for Germany.'' The U.K. currently has no plans to set up such a fund, a British Treasury official said. Prime Minister Gordon Brown today said ``in relative terms, we've done a huge amount'' by giving banks access to more than 100 billion pounds ($183 billion) under a Bank of England program that allows them to swap bonds hurt by the collapse of the subprime mortgage market. While a French finance ministry spokesman declined to comment on Paulson's latest remarks, Finance Minister Christine Lagarde spoke with U.S. officials during the week and told Europe 1 radio today that the U.S. response had ``allowed us to avoid a systemic crisis.'' Treasury's Plan ``We have obstacles to overcome,'' Lagarde said. The U.S. Treasury late yesterday modified its proposal to allow for purchases from institutions outside of the U.S., a step Paulson today said was needed to mute the impact of the credit crisis in the U.S. ``As you think about this, if a financial institution has business operations in the United States, hires people in the United States, if they are clogged with illiquid assets, they have the same impact on the American people as any other institutions,'' he told ABC News.
Obama: No Blank Check on Bailout By Jeff Zeleny http://thecaucus.blogs.nytimes.com/2008/09/21/obama-no-blank-check-on-bailout/?hp CHARLOTTE, N.C. – Senator Barack Obama said the government plan to stabilize the nation’s financial markets came with “a staggering price tag,” but he told voters here on Sunday that any rescue plan needed to include new regulations of the financial system. “First, there must be no blank check when American taxpayers are on the hook for this much money,” Mr. Obama told supporters at an outdoor rally in downtown Charlotte. “Second, taxpayers shouldn’t be spending a dime to reward C.E.O.s on Wall Street while they’re going out the door.” In his first public remarks about the $700 billion proposal that the Treasury Department and the Federal Reserve presented to Congressional leaders, Mr. Obama offered qualified support for the bailout. Until complete details emerge this week on Capitol Hill, aides said, Mr. Obama would not render a final judgment. But he said any plan had to include protections for taxpayers and assistance for homeowners at risk of losing their property. “This initial outlay of up to $700 billion is sobering,” Mr. Obama said. “In return for their support, the American people must be assured that the deal reflects the basic principles of transparency, fairness, and reform.” Here in Charlotte, with the towering offices of Bank of America and Wachovia in the background, Mr. Obama devoted a significant portion of an afternoon address to the financial crisis as he derided lax government oversight of the mortgage and financial system. He said the Bush administration has “run this economy into the ground.” But Mr. Obama added that the country shouldn’t shoulder the burden alone, declaring: “This is a global crisis and the United States must insist that other nations join us in helping secure the financial markets.” In a weekend interview aboard his campaign plane, Mr. Obama offered guarded praise of how Treasury Secretary Henry M. Paulson Jr. is managing the crisis. The Democratic presidential nominee stopped short of pledging to keep Mr. Paulson in place in an Obama administration, but said the gravity of the turmoil in the nation’s financial markets was so serious that continuity would be important to avert further crisis. “Getting a new person to start juggling those balls is going to be tricky,” Mr. Obama said as he arrived here in North Carolina. “Regardless of who wins the election, the issue of transition to the next administration is going to be very important. And it’s going to have to be executed with a spirit of bipartisanship and cooperation.” While he is critical of how the crisis began, Mr. Obama offered kind words for the instincts and judgment exercised by Mr. Paulson in recent weeks. The two have spoken on the phone nearly every day for the past week about the problem. “He has been put in a situation where there are no great options,” Mr. Obama said. “I think he’s a serious person. I think he is not an ideologue. I think he’s very practical-minded and he wants to solve the problem.” To a large crowd of supporters on Sunday, Mr. Obama delivered a blistering critique of Senator John McCain, whom he accused of leading the push for deregulation during his years in Washington. “We’re now seeing the disastrous consequences of this philosophy all around us,” Mr. Obama said, adding: “He calls himself fundamentally a deregulator, when reckless deregulation and lack of oversight is a big part of the problem.” Tucker Bounds, a spokesman for Mr. McCain, said the Democratic candidate had failed to outline specific proposals to address the calamity on Wall Street that has caused ripples throughout the financial markets around the world. “Barack Obama called for decisive action, while offering absolutely no new ideas, policies or concrete solutions,” Mr. Bounds said in a statement. He added, “John McCain rejected complacency and political calculation in favor of a direct call for updated, effective regulations that will protect Americans’ homes, savings and jobs.”
