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Bailout Update
BAILOUT UPDATE....The New York Times reports that both Democratic and Republican leaders have reached "general agreement" on a bailout bill:
One plan under consideration would release $250 billion immediately, with another $100 billion available at the discretion of the president.
[Lawmakers] also said that there would be limits on pay packages for executives whose firms seek assistance from the government and a mechanism for the government to be given an equity stake in some firms so that taxpayers have a chance to profit if the companies prosper in the months and years ahead.
The Wall Street Journal says mortgage relief is still up in the air:
Still unresolved is whether or not to include changes to bankruptcy law that would give judges the right to change the terms of mortgages. Democratic Sen. Dick Durbin of Illinois made a plea for it to be included, even though many lawmakers and the White House are hotly opposed.
There still aren't many details, and I guess the main question now is whether McCain and Obama will sign on. McCain, of course, has a pretty big incentive to continue playing politics since this all happened before he could dramatically swoop in and take credit for some bold leadership, and in any case agreeing to it would allow tomorrow's debate to go forward. So I imagine he'll find something to object to. Obama's motives are a little murkier, so it's harder to guess what he'll do. Homeowner protection was one of his five core demands for the bill, however, so it seems unlikely he'll sign on unless there's at least something along those lines in the bill.
Beyond that, who knows? McCain is so unbalanced these days that there's really no telling what's going to happen next. In the meantime, I'm going to go eat lunch.
In the meantime, I'm going to go eat lunch.
But Kevin, you'll miss McCain's next desperate, cynical, gimmicky, political stunt, er, I mean bold, resolute, man-of-action move.
How is this different than the media shepherding its audience in the period before the Iraq War?
There isn't an agreement here if there's not agreement on all the details. And there clearly isn't.
Will members be able to amend the bill?
It should be amended that no money shall be spend buying assets mortgaged with fraudulent applications.
If an institution owns bad paper (never was a valid loan) then the institution has to use the private sector remedies to fix the situation.
Unless, the financial sector wants to explicitly say there is so much fraud that the private sector mechanisms can't address the problem of fraudulent loans....
OT, but if you haven't seen Palin's elaboration on how AK's proximity to Russia qualifies as foreign-policy experience, you must see it. It is unreal, and mind-numbing in its stupidity.
Video and transcript here.
The Administration will hold something back, McCain will ask for it publicly, Bush will accept it.
$350B sounds like half of $700B.
It's awesome that they used an arbitrary divisor with an arbitrary number to come up with another arbitrary number.
I mean, when you're talking about solving a financial crisis and after 3 days all you've got is:
X/2 = Y
you're really fucked.
Can someone please give me a credible policy reason to oppose mortgage reform in Bankruptcy? I'm not talking about reduction of the debt, but making an ARM a fixed or a 20 year a 40 year, or whatever. Limit it to owner-occupied houses and actual bankruptcies and its fine.
X/2 = Y reminds me of a test question I once had, which was something on the order of:
Consider 2 coworkers, each has an 'altruism' function given by the equation 'blah'. Now consider that worker w1 makes more than w2. They're respective wages are given by the respective formulas 'blah'. Now consider that formula 'blah' includes the altruism function. (Write down function) Now consider that management wanted to improve the aggregate performance of both workers. (Find the formula that maximizes w1 productivity, w2 productivity, and w1 + w2 aggregate productivity.)
Anyway I think I blanked and ended up with X/2 = Y.
Kevin Drum >"...McCain is so unbalanced these days that there's really no telling what's going to happen next. In the meantime, I'm going to go eat lunch."
Careful Kevin or McLameo will go on a hunger strike to get his way.
"It is hard to believe that a man is telling the truth when you know that you would lie if you were in his place." - H. L. Mencken
Dems are idiots. Why give $100B to the President to 'spend at his own discretion'.
I am not voting for anyone.
Hi,
Oh, frabulous day! Now we have a bailout agreement. Of course we don't know how much it will cost in the end, but never mind. If we are lucky, the economy will even be saved from the promised meltdown.
But I have just this one little niggling unanswered concern. Where is the money actually going to come from?
Are we going to have higher taxes? If so, what kind, for whom, and for how long?
Are we going to cut existing programs? If so, which ones, who loses, and for how long?
Or are we just going to.....wait for it......borrow more money to finance the bad debt? And if so, who will lend it to us at what rate? Then will we all have runaway inflation to pay it back, our will our children pay it back for us?
Why isn't anyone telling us about that part? Won't someone please tell us before the deal is sealed, from where is the money going to come?
Have a nice day!
Antti
I wouldn't trust Bush with $5.
I am not voting for anyone.
OK, but don't complain when President Palin nukes Russia.
As much as I love Obama, the whole idea of protection for homeowners is a bit funny. After all, at the bottom of this mess are millions of homeowners who took on way more debt than they could afford. When you peel back the onion of up to $1 trillion dollars in impaired assets, financial chaos, and Wall Street collapse, you will find roughly 7 million sub-prime borrowers who borrowed $2.5 trillion in mortgage debt between 2005-2007. With the collapse in home prices over the past year, about 15 million US households have mortgages that are under water. At an average balance of, say, $300,000 that's $4.5 trillion in mortgage debt that is worth less than the underlying homes. Now plenty of those borrowers will continue to pay, but millions have stopped or are about to stop paying becuase they took on too much bloody debt! As much as I feel the banks should take a hit for losses on loans made with sloppy or no risk management, the only person who knows how much debt you can support is YOU!
Homeowners were the debt addicts and Wall Street/lenders were the pushers so nobody is blameless here and for the record I will hold my nose and support the bailout. But the idea that homeowners are the "victims" here is ludicrous. I know it's good populist politics and all that, but I think we can all be real about this.
Just to help you digest your lunch, Politico, that trend setter of chattering class wisdom, is calling McCain's "Leadership" gambit: Brilliant. Is this the way the MSM is going to rescue their downed pilot, McCain?
David68: the whole idea of protection for homeowners is a bit funny
True, but as you go on to point out, no funnier than bailing out Wall St.
the only person who knows how much debt you can support is YOU!
Also true, but a concept that applies to an individual or a couple, not to a systemic meltdown.
Financial types are supposed to know the odds of people defaulting on mortgages, and have decades of empirical data to base it on. They also get paid serious $ to know this.
If my bank is robbed because someone walked in with a gun or blew the safe, I'd blame the perpetrator. If they lost money because they put up a big sign that said "cheap money, few questions asked" and handed it out to anybody who walked in, I'd blame the bank.
Lucy: don't complain when President Palin nukes Russia.
Nuke Russia? I figure Palin and Putin would go moose hunting together. "Hey Vlad, your frozen waste land or mine?"
P.S. I'm thinking about starting a fund to send Bullwinkle some RPG's.
The points about irresponsible and even fraudulent borrowers are well made and well taken. But there are a wide range scenarios comprising bankrupt mortgages. There was some predatory lending, as well as foolish and fraudulent borrowing.
For these reasons, Obama would be wise to insist on giving judges discretionary authority in mortgage bankruptcy cases. If the lenders are partially culpable, then they should take it in the shorts as well as the borrower. Let the judges decide this on a case-by-case basis. That is what judges and courts are for. At a minimum, citizens deserve a modicum of due process in these civil matters.
This even more pronounced in light the recent bankruptcy legislation. Under the current legislation, the lenders are holding all the aces.
The bottom line is that no one going through personal bankruptcy is "getting off".
When my wife an i bought our home 2 years ago, we walked out of the offices of several banks who assured us that we could easily, easily make make payments that we weren't comfortable making. Between those banks and the realtors who kept taking us to see (or sending us pictures of) really nice houses that were "just a little" above our maximum but "such great deals," we had a lot of people who were supposed to be experts in this that were actually guiding us towards making what would have been bad decisions.
What I get out of this is NOT that somehow we were smarter than many other people and that we deserve to keep our home and they don't. it's that it would have been very, very easy for us to m ake that mistake, and there were any number of people willing to help us make that mistake. I'd rather that those people, the ones whose job descriptions include properly advising people on what they can and can't afford, pay the price for this, not the ones who got taken in.
They get the money and the houses? Hell no!
No deal without mortgage relief!
Disclosure: I do not hold a mortgage - I rent (thank god!).
with another $100 billion available at the discretion of the president.
This should be amended to after January 21, 2009
David 68
It is easy to blame the people that don't now what they can afford. They were given the "American Dream" and given very little knowledge on their loans from the persons they trusted.Bankers, agent etc.When they were told their loan would go up, they could not imagine the montly cost to double or triple. The banks,agents, title companies,attorneys are all making money on the foreclosures. Why not reduce the loans to the value of the homes that have dropped in some areas $100,000 plus in 6 months. Many of these people will have have no place to live. They are already in a home that they could afford till the rates went up. Throw them out you have vacant property,ruining neighborhood values, that can only sell for fair market value,the banks have paid out of pocket extra for the foreclosure,care of the property if and when it sells. Refinace the home to the home owner and the taxes are paid and the home stays occupied. What happens 2-3 years from now when these people want to move and cannot sell the house because it is not worth the price they paid. This whole thing starts all over again. Who bails us out then?
Yes, well if you vote for Obama then don't complain when he nukes Iran, or Venezuela, or Russia or god knows which poor unfortunate countries he'll attack. His foreign policy is identical in every respect to Bush's, whether people want to face up to that fact or not. Oh, he mouths a lot of platitudes, but he doesn't have the brains, integrity or courage to stand up and fight. He'll go along with whatever the military-industrial complex wants, just the way he'll go along with this bailout, despite overwhelming opposition to it from his supporters.
Voting either Democratic or Republican at this point is the ultimate act of apathy and irresponsibility, and comes very, very close to constituting a war crime.
So how does any potential bailout bill end up even working? I mean speed is supposedly vitally important. They supposedly (I have my doubts) have reached a tentative agreement between all? parties but the specifics are not yet hammered out.
When is the debate before the vote? Where is the chance to actually study the bill? Where is the chance to take any completed bill back to the congressional districts for input by constituencies? How long do we get to look at whatever it is?
I know that markets are panicked and credit freezes are supposedly imminent but WTF? People have been voicing yea and nay opinions about what at this point is a cloud of smoke.
Personally, I'd like to see the thing and hear the debate before there is a vote. How are we to decide if it's a pile of crap or the best deal possible if we haven't seen it yet?
Anonymous wrote: "His foreign policy is identical in every respect to Bush's, whether people want to face up to that fact or not."
That's bullshit and you know it.
And I say that as a registered Green Party voter and a supporter of Dennis Kucinich. Obama's foreign policy falls far short of what I would like to see, but to say it is "identical in every respect" to Bush's foreign policy is either grotesquely ignorant or a deliberate lie, and in either case it is a statement that deserves only derision.
An Obama "core principle"? Ha! Plenty of room under the bus for that one, too.
"When Congress voted to repeal Depression-era banking regulations nearly a decade ago, skeptics warned that it would touch off a series of events that would lead to financial meltdown."
So let's get these skeptics involved with figuring out how to clean up the mess they warned against.
I don't understand why this "bailout" is top-down and not bottom up. Bottom-up would keep people in their homes albeit paying a lot more for them than what they are currently worth. Horrors! This will reward the poor slobs for making bad decisions! And a top-down bailout will reward the sharks who were paid big bucks to know better, the vultures who are already circling over the "management" and "debt buyout" deals, and the corporate-welfare-bums who can now see that if they goof up really big, they can always get their congressional buddies to swing a couple of hundred billion their way.
"Can someone please give me a credible policy reason to oppose mortgage reform in Bankruptcy? I'm not talking about reduction of the debt, but making an ARM a fixed or a 20 year a 40 year, or whatever. Limit it to owner-occupied houses and actual bankruptcies and its fine."
Posted by: do on 09/25/08
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How many of them are there?
How much time do the courts have?
What you have is a massive transfer of capital from banks (who loaned money for the house to be bought) to people (many times real estate outfits) at vastly inflated house prices and now that the true value is realized somebody's gonna lose money. The home owner is gonna be foreclosed on or walk away earlier. The mortgage is nearly worthless, at least massively less than it's face value. And, people wonder how to evaluate them. Who's going to take the losses?
Who got the money and will somebody be punished for this huge real estate scam?
Courts handle one at a time and there are far too many. How many I don't know. Somebody here probably does. I'm guessing it's close to 700B/150K ==> 4.5M for all bad mortgages and the underwater ones are probably 1/3rd or more of that.
We need to somehow reevaluate them in situ, so business can go on.
Going after the money the way they went after it with the S&L RTC might be hopeless, but there were probably a lot of real estate scam outfits which have sufficient records to show organized efforts. Still, it wouldn't be easy to show how the house prices were jacked up.
The financial sector should really be angry at whomever set up this giant scam and set off the ARM bomb to blow up their assets.
As angry as I am with the American consumer, believe me, I put tons of blame at the feet of the financial system.
The reason the bailout is so large is mostly due to the fact that we have to buy these assets at higher than real value because to buy them at a steep discount would but Wall Street out of business - their equity capital base would be wiped out and they would be insolvent.
This is more than a rescue plan; this is a Wall Steet recapitalization plan and for that the taxpayers should be compensated based on the value the govt is ultimately able to recover after all these mortgages are restructured.
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