So is the bailout a good deal?

Great Debates
1

So let’s assume we need to do it. Is it actually even a good deal for us as a long term investment? Here are some of the basics. (You can download the whole plan there too. I’ll make do with the Cliff Notes.)

So the government buys up assets - those most devalued first in reverse auction fashion - and gets warrants in those companies as part of the deal. Then if they end up losing on those assets as they slowly sell them during the next decade the companies (presuming they have recovered enough) make up the difference over some to be defined period. Whether or not the Feds recoup on these assets (a risky speculative investment to be sure) they also have those stock warrants in any company that participates, which by definition are at fire sale prices.

This may not be a bad deal you know.

2

I am convinced that it is not, or else private money would be buying them instead of taxpayers having to be railroaded into buying or guaranteeing them.

The mortgage system evolved over the past hundreds of years, and that is where the assumptions that underlay it are from as well. Like the lifespans of these houses that all of these mortgages are on. The last several generations have witnessed a continuous decline in building quality. Ask someone involved with building the houses that made this bubble, every time I do they finish my sentence for me, telling me that the houses will be lucky to endure their thirty year mortgage. Even most of the larger expensive homes are made with t1-11 siding and low quality structural lumber from small, fast growing tree farm pines. They are the same shape as houses built 100 years ago but they may as well be made of waxed cardboard compared to older building quality and materials. A modest house from 100 years ago would be likely to be built of 2x4’s that were actually 2x4" and have multiple growth rings per inch instead of the other way around, and cedar siding that today has weathered better in a century than a ten or fifteen year old modern particle board siding.

That is not to say that there is not still quality construction being done, there is, it is the exception though.

So I find it hard to believe that people are going to be paying huge mortgages on these McMansions twenty years after the sheen has worn off and they look like what they are: temporary housing.

3

A number like “$700 billion” is too huge for any of us to comprehend, but this should put it in perspective: The 2007 Federal Budget was $2.8 trillion.

Yes, that’s right. The lowball figure for the bailout amounts to one-fourth the 2007 Federal Budget.

By comparison, the Savings & Loan bailout only cost the government $124 billion.

4

If it were a good idea, private money would be buying up these mortgages cheaply to make money later. It is not a good idea. China would be buying up tons of troubled and empty homes if it were a sure thing.

5

That’s not really the point of the bailout. While the problem was initially caused by all the foreclosures, the more pressing issue is the banks inability to lend money. The bailout plan, as I understand it, is designed to allow the banks to get the bad loans off their books, increase their liquidity and go back to their business of lending money to businesses, homeowners and each other.

6

If what you say is true, i.e. the problem is truly liquidity, then this is a good thing. Is there a better way to do it? I don’t know.

7

It is a sign of exceptional intelligence to be able to answer a complex question at once. I take pride in my reply: I don’t know.

I don’t see how this addresses the underlying core problem, which is that we don’t know, and probably can’t even reliably guess, what the value of these houses are, what the “real” mortgage should be. And since these things have been bundled, we don’t know, and cannot guess, what the “real” value of those “securities” are.

Is 700 Godzillabucks a comfortable cushion, ample funding to eat the shit that must be eaten, or is it merely covering the “vig” so Luigi will have to wait until next week to break our legs? We don’t know.

What seems just about inevitable is that property values are going to decline, or fall, or plummet, or crater. This means that all those entities that rely on property taxes - school boards, county government, the minor vexations of governance - are shitting themselves most heartily. Schools? Libraries? Homeless shelters?

Generally, plans put together under conditions of panic, or to avert panic, are inherently weak. Clearly, the first goal of the plan is to avert panic, to move the mood towards “muddle through”, and away from “run screaming through the streets with our hair on fire”. If it succeeds at that, its probably a better thing than no thing. I guess.

And only the .gov can do it, nobody else is dumb enough to buy the lipstick on the pig in a poke. (Unless we were to rely on the solid and enduring patriotism of the investing class, their willingness to sacrifice for the greater good…What? Oh, tequila and bong water, why do you ask?..)

Until these bundled blunders are taken apart, and examined mortgage by mortgage, and the value established, we have no basis for judgment, and that won’t be any time soon.

I don’t know. I can only take comfort in the spectacle of the Pubbies transforming themselves into the People’s Republic Party, sworn enemy of the running dog jackals of the Wall Street fat cats, protector of the proletariat. Who knew?

8

How does it deal with the foreclosure coming down the line. ? There are millions more and they will take down the financial institutions later. The underlying problem is people unable to keep up with mortgages. They are not fixing that. All we do is buy the ones on the books of the looting financial institutions. That cleans them up ,but solves nothing. They will be made well for a short time. But they have more foreclosures coming down the line . They will be picking our pockets in about 700 billion dollars. Not long for those thieves.

9

I think basically what we are looking at here is a orphan plan that NO ONE really likes but everyone holds their nose and votes for it because there are no viable alternatives (that can be reached politically). The Dems and Pubs both have different priorities and things they want to emphasize…and so any bail out plan of this scope and magnitude is going to be a compromise that no one likes.

Is it a good deal? Well…sort of like the choice between getting shot in the head or losing an arm and a leg. Losing the arm and the leg is not exactly an optimal outcome…but getting shot in the head really sucks a lot more.

It’s the time of suckage folks…no good solutions are out there. Only the choice of the lesser of two bad ones.

-XT

10

Simply put…you have no idea what you are talking about. Even the Dems are coming to the realization that this is a serious crisis, not just a move by the evil big business men and Republicans to loot the system.

Seriously…stop participating in these threads already. I think we all get that you think this is all about picking our pockets, blah blah blah…you don’t have to keep repeating this meme ad nauisum. After the 1000th post by you on this topic I think even the casual 'dopers get your stance on this issue by now, ehe?

You are, to make an analogy, like the people who won’t get their kids immune because of the danger (and because it’s all a conspiracy by the drug companies to ‘loot’ money from the dwebs)…safe in your righteous ignorance because others are taking the steps necessary to keep your fantasy world going.

-XT

11

This bailout isn’t going to cost us 700 billion dollars. Depending on how it is run, and depending on how bad the housing market and economy turn out, it could end up costing us anywhere from several hundred billion dollars to turning a profit. The 700 billion dollars of loans we are buying are backed by real assets, i.e. real estate, so it’s practically impossible for it to end up costing 700 billion dollars. The key to the bailout is (1) getting stock in the companies bailed out, and (2) negotiating a fair price for the government. If those two things are done well, then this should have a relatively minor impact on the budget.

12

Sneering is not rebuttal. If you can prove him wrong, do so.

13

To what end? It’s been explained over and over again (by better posters than I) what the issues are. Gonzo has BEEN in those threads. If he (or other…you?) haven’t absorbed the issues by now then he never will…especially in his case since he seems incapable of absorbing ANY new idea or concept.

Thanks, but no thanks. If the fact that both the Dems AND the Pubs are holding their nose to do this thing is not sufficient to dispel the CT about this all being an elaborate method to loot the system then I feel no compunction to add to it…especially since THIS thread is about whether the deal is a good one (with the assumption in the OP being that it IS necessary). Gonzo et al is free to start a raving thread about how this is all a smoke screen to loot the system, blah blah blah.

-XT

14

As usual , in your ignorance ,you presume to speak for all. There are a shitload of highly respected economists that are dead against this bill. Most for the reason I stated. Many on principal. You always buy what they sell and pat yourself on the back for your wisdom.
Three times this year Bernanke and Paulson said that the economy is fundamentally sound. Then one day it all went to hell . The Paulson plan was a horror. He wanted complete control of 1 trillion dollars without oversight from any agency and court ramifications. But there were a lot of economists who said we were tanking and said why. We did not listen to them. We listen to the thief in chief Paulson who has walked with 700 million dollars.
He was writing the bailout plan for months. Meanwhile he was telling us all is well. Then just before this disastrous presidency ends ,he tells us we have to save the country. The timing is just too damn sweet. The power he went for in inexcusable. He was knee deep in this for years and now Paulson is our savior.
We should pass a short term fix and let the next admin get involved. Of course that could be the reason for the rush.
The bill is losing 177 to 187 right now. The votes are being counted.

15

Oh dear.

Strap yourself in. The market is gonna go. Dow down 5% in the last few minutes.

16

It did not pass and the DOW is down over 600 points.

17

It is 205 for and 228 against. They have not closed the vote. Much arm wringing will follow.

18

Now 207 226

19

It’s making depressingly entertaining TV I have to say.

Everything is falling apart from gold.

20

I like the idea of giving local courts more power over foreclosure cases. i.e. a judge could better determine if it’s a regular working citizen who needs help, or some rich investor looking to flip the property. Don’t know if that made it into the legislation, tho.