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One Way or the Other, Uncle Sam Will Bail Out Mortgages
Everyone predicts imminent catastrophe if his plan for the mortgage crisis isn’t followed. Here's the sorry truth.
We’re in the middle of the continuing crisis and there are regular announcements of collapse and catastrophe. I’m going to tell you a secret: you can’t trust anyone’s predictions of collapse and instant bankruptcy. But you can get a lot of insight simply by doing the sums.
The original banking crisis was a real, major crisis — do not doubt it — but it was also a transient effect of the way that we do banking along with the imposition of FAS 157, the “mark-to-market” rule. I wrote extensively about that at the time. But what brought it about was a longer-term issue, the collapse of the “housing bubble” — like all such, an episode where people presumed that an asset would continue growing rapidly and so exposed themselves to risk to get out with a bucket while it was still raining soup. Then, for any number of reasons, the market stopped charging ahead. The economy in general picked up and the Federal Reserve raised interest rates to deal with potential inflation at just about the time people with balloon loans wanted to refinance; of course, payments on adjustable-rate loans went up as well. This meant that home values stopped going up, mortgages got harder to get, the bubble burst, and the snowball was rolling, leading to the banking crisis last year.
Now the value of homes in general has dropped by something like 15-20 percent, and in some really hot areas like Las Vegas it’s dropped 35-40 percent. Those assets have two owners: the banks that hold the mortgages and the people who pay the mortgages. I don’t care how you deal with it, but the fact is that what used to be a value of X is now something around 0.6X in those places. What’s more, if a bank forecloses, it usually costs about half the total to get rid of the house, so the houses, net, are worth about 0.3X to the banks.
Thus, it’s better for the bank to write down the loans to keep them active than have walkaways. Make a new mortgage that writes off the loss in value and, believe it or not, both sides of the mortgage take a hit: the bank writes down the asset, the customer loses their equity such as it is and loses on the other end, because the house won’t be worth as much when the mortgage is paid off.
So, one way or the other, the value will get written down. But if the bank writes it down, though, that makes their balance sheet look worse — it looks like an expense, a write-off. If the write-off is big enough, the bank becomes illiquid or even insolvent.
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Charlie Martin is a Colorado computer scientist and freelance writer. He holds an MS in Computer Science from Duke University, where he spent six years with the National Biomedical Simulation Resource, Duke University Medical Center. Find him at http://chasrmartin.com, and on his blog at http://explorations.chasrmartin.com.
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48 Comments
1. Marc Malone:Or, gee, they can sell some assets. Perhaps banks on a more sound footing can take some of the loans off their hands. Sure, the struggling banks take an overall hit, but their liquidity situation is improved, although their stock value may go down. (As opposed to?) They can also reorganize their management while they’re at it. The banks which were more prudent get to finally get the profit they deserve, by getting some of these assets at a bit of a discount.
How would we do this, though? I have an idea. It’s called… bankruptcy court! Duh! Let. Them. Fail.
Feb 24, 2009 - 12:23 am 2. DavidN:Frankly, I think the whole thing would have been better if we’d simply bought homes for people, and given the houses to them…then no one would be defaulting on loans they never should have taken out in the first place.
Feb 24, 2009 - 1:22 am 3. mishu:How would we do this, though? I have an idea. It’s called… bankruptcy court! Duh! Let. Them. Fail.
Then we have to pay for the depositors’ accounts as already discussed.
Feb 24, 2009 - 4:20 am 4. Chuck Pelto:TO: mishu
RE: That….
“Then we have to pay for the depositors’ accounts as already discussed.” — mishu
…was how it was set up in the first place.
TO: All
RE: The Other Day….
….I watched that video of Andreesen [co-founder of Netscape, an entreprenuer extrodinaire and tech maven] on Charlie Rose. They were talking about emerging tech and how it was affecting the newspaper industry.
Andreesen said something to the effect that all the newspapers are doing now is fending off a year of agony with many years of extreme pain. It would be better to just get through the year of agony.
That seems to be the same mentality at play in this matter.
And, I suspect, that the Democrats are taking advantage of the situation to their own political agenda.
Regards,
Chuck(le)
P.S. Charlie (Colorado) an interesting article.
P.P.S. You going to be at the state capital this Friday?
Feb 24, 2009 - 5:34 am 5. uburoisc:The depositor’s accounts will have to be honored; the banks that are insolvent should go into bankruptcy, if they can make it out OK, great, but they get no more money from the US. The banks that are not insolvent should get a big boost of capital.
Feb 24, 2009 - 6:00 am 6. Scott in CO:I hope that a year of agony that Chuck relates is not the only way to draw attention to the reforms that are needed in the financial system. The derivative instruments concocted from these toxic assets have compounded the problem to unbelievable trouble. Perhaps some of those who bought into these schemes will learn and demand for them will be reduced. What do they teach these people in business school?
Feb 24, 2009 - 6:22 am 7. Chuck Pelto:TO: Scott in CO
RE: A Better Question…
“What do they teach these people in business school?” — Scott in CO
….might be what do they teach children in school about life as an adult and rational thinking?
The answer is NADA [damn think].
Regards,
Chuck(le)
Feb 24, 2009 - 6:33 am 8. always right:[Educated to fail. -- The unofficial motto of the vaunted American public education system.]
IF I ‘have to’ buy out those troubled assets, do I at least get to enjoy the products some time?
Even if, divided by the 92% responsible citizens, the fraction of time probably approaches milliseconds or nanoseconds? No?
What a ‘business plan’, if only I can think up some other scam to pay back for those high-risk idiots.
Feb 24, 2009 - 7:07 am 9. Chuck Pelto:TO: Scott in CO
RE: The Year of Agony
It is not going to be avoided.
The newspaper industry, in their failing efforts to fend it off, are only prolonging the period of pain with more years of pain followed, inevitably, with the year of agony.
The same looks to me to be true with what the cretins in Washington and the big banks in the fiscal bad-mortgage fiasco. Eventually, there will be agony for everyone involved….down to the last honest taxpayer. So, all we are doing is pouring good money after bad. Why not just get the pain over with instead of ‘enjoying’ the prolonged suffering only to face the agony at last several years from now? [Note: Think of the grand-children!]
What I see going on is that the BIG banks are taking advantage of the Democrats to provide for themselves a cushion against the agony….without which they might not survive otherwise.
Once again, it’s politics and big business. But because the Democrats are in control, the useful fools that put them there are not complaining. This despite the fact that they’re going to suffer like the rest of US.
Regards,
Chuck(le)
Feb 24, 2009 - 7:17 am 10. mishu:[The American Republic will endure, until politicians realize they can bribe the people with their own money. -- d’Tocqueville, c. 1830]
Chuck, we do have FDIC already set up but we may have to step up funding for it as the bank failure rate may exceed what the FDIC can currently cover right now. So we will have to increase gov’t spending if we let the banks fail as it is. I’m not pointing this fact out as a defense of having tax payers pay for other people’s mortgages. I agree. It’s a silly idea. What we also can do without any immediate cost is repeal mark to market accounting rules. Check this column out.
http://www.forbes.com/2009/02/23/mark-to-market-opinions-columnists_recovery_stimulus.html
They make a compelling case. The correlation between MTM and economic panic cannot be ignored. Dissenters always throw up Enron and Madoff but they could have as easily been caught without regulatory overkill such as MTM and SOX, another capital killer.
Feb 24, 2009 - 7:47 am 11. Charlie (Colorado):Marc, Mishu has it right: the thing is that selling off their assets won’t make them less insolvent. Bankruptcy doesn’t work the same with a bank as with anyone else either; when FDIC intervenes, that’s effectively how a bank goes bankrupt.
Mishu, thanks. I agreee with you completely: mark-to-market is really the “seed crystal” that set this all off. Along the same lines, Scott, I think the MBS/CDO/CDS thing is more effect than cause; they were needed to let people forced by the government into writing high-risk mortgages at the same rates as lower-risk mortgages (qv the Community Reinvestment Act, as I was writing in October). There’s nothing inherently conplicated about the idea, although figuring out an appropriate premium for a CDS is hairy; the thing is, in the combination of mark-to-market, something that was a non-financial event, the change in credit ratings of the big firms, triggered forces markdowns of trillions of dollars of securities that probably have much greater residual value.
Chuck, you might be interested in my recent piece on newspaper zombies down the hall at Edgelings. I am planning on being at the Friday thing, gods willing.
Feb 24, 2009 - 8:15 am 12. TexEd:Someone on TV recently said that illegal aliens are involved in more than 60% of the potential foreclosures. Is there any truth to that and where is the supporting data?
Feb 24, 2009 - 8:26 am 13. Chuck Pelto:TO: Charlie (Colorado)
RE: Near Recognition Signals
“Chuck, you might be interested in my recent piece on newspaper zombies down the hall at Edgelings. I am planning on being at the Friday thing, gods willing.” — Charlie (Colorado)
I’ll be there, God willing, with a Japanese-esque, banner on a 10-foot pool of PVC pipe. Not sure what the banner will say, just yet. I’m leaning towards “Stop the Jackasses” with an international NO symbol over the Democratic Party logo.
Let’s meet. Maybe you can point out the mental facility you were suggesting I check into.
Regards,
Chuck(le)
Feb 24, 2009 - 8:51 am 14. Chuck Pelto:[If you can't laugh at yourself, you're taking Life too seriously.]
TO: Charlie (Colorado)
RE: Ooops
That should read 10-foot POLE. As I don’t think the Great State of Colorado will allow me to dig a 10-foot pool on the state capital grounds.
MORE COFFEE!!!!!!
Regards,
Chuck(le)
Feb 24, 2009 - 8:55 am 15. Chuck Pelto:[There's too much blood in my caffeine system.]
TO: mishu
RE: The Failures of the Banks
“Chuck, we do have FDIC already set up but we may have to step up funding for it as the bank failure rate may exceed what the FDIC can currently cover right now. So we will have to increase gov’t spending if we let the banks fail as it is.” — mishu
Then let the FDIC fill in where it can and when IT fails, THEN we look at it and develop a plan that will deal with THAT situation.
What is happening NOW is that the Democrat ‘jackasses’ are playing fast and loose with MY money to, I suspect, establish a system of perpetual ‘fiscal crisis’ to promote their own agenda….which I suspect is to make US all ‘welfare slaves’.
Regards,
Chuck(le)
Feb 24, 2009 - 9:33 am 16. David W. Lincoln:[Nobody's money, property or life is safe while the Democrats are in control of Congress.]
There is plenty of blame to go around. So, who
will be mature to assume their part of the blame?
Certainly not those who are interested in pointing fingers, and who try to escape responsibility.
Feb 24, 2009 - 9:33 am 17. Chuck Pelto:P.S. Maybe Newsweek’s cover should have read “We’re all Kulaks, Now”.
Feb 24, 2009 - 9:33 am 18. Bill Perron:The country collapses and no one is prosecuted ? The Axis powers, the crazy muslims, the communist menace, even space aliens couldn’t bring the U.S, down, and yet down, down, down, we go, and no one is prosecuted.
Feb 24, 2009 - 9:40 am 19. Chuck Pelto:TO: David W. Lincoln
RE: Say What?
“Certainly not those who are interested in pointing fingers, and who try to escape responsibility.” — David W. Lincoln
Please explain how I [a mere home-owner/taxpayer] am responsible in this goat-rope.
Regards,
Chuck(le)
Feb 24, 2009 - 9:48 am 20. whyyeseyec:[Latter-Day Kulaks of the US, unite!]
Every house we the taxpayers bail out should be painted shocking pink so we can identify the deadbeats…….
Feb 24, 2009 - 10:30 am 21. Chuck Pelto:TO: whyyeseyec
RE: Aaaacck!!!!!!
“Every house we the taxpayers bail out should be painted shocking pink so we can identify the deadbeats…….” — whyyeseyec
You obviously WANT to DESTROY the neighborhoods.
I live in a neighborhood that was established in the late 19th Century. It’s a mixed neighborhood, where the houses were built over a span of 50 years. Indeed, my house, and a number of others were just declared an historic district. And some of the houses therein, COULD be painted in accordance with (IAW) your dictates.
Personally, I don’t care for that. And I’m sure we can come up with a less permanent approach to dealing with the miscreants.
Regards,
Chuck(le)
Feb 24, 2009 - 10:45 am 22. TL:[Who's got some tar and feathers?]
The author offers no support for the notion that the 8% of mortgages in default will bankrupt the banks to the point where their remaining assets are not enough to cover the cost of FDIC payments to account holders. Not likely. Maybe in the short run there will be a cash squeeze — maybe. But even if there is the tax payer will come out fine, or better, over time as the other 92% of mortgages are paid off. (Screw the shareholders, which includes me, as we made our bets and have to take our lumps.) And if the taxpayers do come up short (and I guess “short” is losing MORE than the few trillion that is being taken from us to avoid this supposed dooms day scenario) then so be it. We’ll take our lumps if that is so, though I doubt it.
And another thing, please stop telling me that my home value will suffer if I don’t chip in for the 8% losers’ mortgages. Maybe so maybe not. My home value has already dropped and maybe it will drop more, maybe. I’ll take my lumps either way. You 8% losers take yours. Quite whining and quit trying to convince me that bailing you out is for my own good. It isn’t. It is for your good you greedy jerks.
Feb 24, 2009 - 12:18 pm 23. Marc Malone:I disagree about the FDIC. It is only there to make up depositor losses. Nothing else. If a bank is going under, then it goes into bankruptcy court, which then determines the outcome. The FDIC just guarantees the deposits. They just aren’t doing it that way, and that’s the problem. The FDIC should never have made good the deposits while allowing the banks to stay in operation without bankruptcy court supervision.
And selling their assets would indeed solve their insolvency problems. Banks fail when their cash on hand is less than the required 15% of deposits. They need to have this reserve by law, and still have the cash beyond that amount to pay their bills. They need to sell their assets to raise the cash. They’ve lent more than they can afford. They’ve overreached.
That’s why the government gave them loans, to restore their cash positions. It’s also PART of the reason for the credit freeze. They’re holding the notes for the cashflow generation, but not lending more because they can’t. They need to liquify some of their assets and shrink operations to deal with the new reality.
They don’t, because they’re trying to hold onto the whole empire. Napoleon refused to leave Spain. He refused to surrender any part of his empire, and so, lost the lot. The banks are making the same mistake. their positions are untenable. They refuse to admit it, and we all suffer.
Let them fail.
Feb 24, 2009 - 12:48 pm 24. Honest Jon:There’s a lot of disappointment coming from many sources in this comments section. As a beneficiary of a subprime mortgage who is facing foreclosure in the next few months unless my financial situation improves, I would like to add a few thoughts.
I wasn’t greedy or foolish in the purchase of my home. I neither wanted nor needed anthing extravagant. Indeed, I bought my home for less than $100,000. I even haggled my hiney off with the seller to get the best price that I could. I did not have the normal 20% down payment that is required for a prime loan. I got a fixed-rate mortgage that was a very good rate. That was in April of 2000. I’ve always paid my monthly bill in full.
Last year, the owner (a billionaire) of the company that I was employed by decided to cheat the system and bribe a state employee. The bribes were to find out the state estimate on the cost of construction projects. There’s a law here that if a bid is more than 107% of the state estimate, then the bid is automatically rejected and another company wins the contract. So, to maximize his profits the owner found out what the maximum bid was and bid just a little under the maximum. Some of these projects were federal. Most of them were $40 million or better. A couple of percent in such instances is a pretty hefty sum. The FBI caught wind of the bribery and the state employee turned state’s evidence and wore a wire, etc.
I got laid off. So did a lot of other hard-working good employees. I had saved some money (I’m naturally frugal) but that is almost all gone.
If or when I lose my home, will it be my fault? The lender’s fault? The Democrats’ and the CRA’s fault? Or the greedy owner of the company that I worked for. (He’s looking at 60 years in federal prison.)
In closing: Some of the malice voiced on this forum is justified. In the case of people trying to “flip” a house-absolutely. In the case of bus drivers buying $800,000 mansions-absolutely. But not in all cases. Some even want to paint all subprimers with a broad brush (a pink one, no less.) All of the wrath is not justified.
regards
Feb 24, 2009 - 3:13 pm 25. Chuck Pelto:TO: Honest Jon
RE: Really?
“I wasn’t greedy or foolish in the purchase of my home.” — Honest Jon
So….
….why should I [or any other tax-payer] subsidize your loan?
Regards,
Chuck(le)
Feb 24, 2009 - 3:32 pm 26. Chuck Pelto:P.S. One ‘justification’ could be you open a bed and breakfast for everyone who is on time with their mortgage payments….FREE! Until your mortgage and repayment to the rest of US is up to date.
Feb 24, 2009 - 3:34 pm 27. Anonymous:I disagree about the FDIC. It is only there to make up depositor losses. Nothing else. If a bank is going under, then it goes into bankruptcy court, which then determines the outcome.
Marc, I don’t think it matters if you agree or not. Whatever you agree to, what really happens when a bank is insolvent is a regulatory agency (eg, the Comptroller of the Currency for a federally chartered bank, the Office of Thrift Supervision for an S&L, or a state regulator for a state bank) closes the bank and places it in receivership; FDIC takes it over, and arranges to sell the assets, often by first creating a new corporation to hold the bank in receivership. For a really good time read this PDF from fdic.gov.
Feb 24, 2009 - 4:01 pm 28. Charlie Martin:TL, you’re running into some quantification issues here. The failure rates won’t bankrupt “the banks” — remember that banks are individual entities. Some of these banks have relatively high default rates, some have low default rates, and some banks have money tied up in what were supposed to be “safe” mortgage-backed securities which no one right now knows how to value — which, in conjunction with the unexpected side effects of mark-to-market rules, have made some institutions artificially insolvent: if you could unwind the MBS, there are real assets underneath them, but the current panicked market is undervaluing those securities.
The net effect is that some banks are really insolvent; some banks are artificially insolvent; and a lot of banks are fine. (Some of those, like Wells-Fargo, are now being lumped with insolvent banks because they were forced to take some TARP money even though they had been much more conservative and had good balance sheets.)
As far as support for the notion that FDIC is underfunded, Google is your friend, give it a try; it’s been widely reported.
Feb 24, 2009 - 4:11 pm 29. Charlie Martin:Dammit, #27 Anonymous is me. Somehow my info disappeared.
Feb 24, 2009 - 4:12 pm 30. Bilgeman:Mr Martin:
“So to a very high degree of certainty, you can figure something is going to be done, and that something is going to involve the government putting money into the mortgage business.”
Undoubtedly
“All we’re doing now is haggling about the price.”
I think we can haggle some more.
I rented in the DC area for 10 long years watching this Ponzi scheme unfold and waiting for someone to shout “April Fool’s!”.
I finally jumped in in January of ‘07, whne the market had just turned south, but the financing was still there.
I’m still steaming along, covering my note, and looking forward to a modest decline in my property taxes to match the modest decline in my heap’s value.
What irks me no end is the amount of naked speculation that was taking place in RE, and the effect that too much idle money chasing unrealistic returns had on home values.
I think we can bail out mortgages on properties where the homeowner actually resides, and that’s all.
If you also happen to be holding a brace of golf course condos in Boca Raton, then you’re on your own, Rockefeller.
PS: (Watch out for that Pelto chap, he’s got an entire telephotographic portrait gallery that he one day will be able to admire when his FOIA request gets through the FBI’s red tape.)
Feb 24, 2009 - 4:31 pm 31. Chuck Pelto:TO: Bilgeman
RE: Too Late
“PS: (Watch out for that Pelto chap, he’s got an entire telephotographic portrait gallery that he one day will be able to admire when his FOIA request gets through the FBI’s red tape.)” — Bilgeman
I suspect anyone with at least two synapses to rub together has figured that one out, already…..
Regards,
Chuck(le)
Feb 24, 2009 - 4:40 pm 32. Chuck Pelto:P.S. You going to be in Denver this Friday, 27 February 2009??????!?
P.P.S. I’ll pay for the first round of A. Fuente Hemingway cigars at the Brown Palace….down the street from the state capital…..
Feb 24, 2009 - 4:43 pm 33. Scott in CO:To Charlie:
No disagreement that Community Reinvestment is a bad idea but the numbers do not add up. If CommRe injected 5 million toxic mortgages at $250K each then $1.5 trillion would cover them. The combined losses will be several times this amount because of the derivatives.
Feb 24, 2009 - 5:37 pm 34. Mike2:24. Honest Jon:
I wish you well and hope things work out for you and you are able to get another job. Good luck.
Feb 24, 2009 - 5:50 pm 35. Bilgeman:————————————
Who is John Galt?
#32: Chuck Pelto:
“P.S. You going to be in Denver this Friday, 27 February 2009??????!?”
Wisht I was, Cunnel.
I was in Waldorf MD, (Murrilyn’s answer to Manassas VA)this afternoon, getting “TWICked”.
I’ll be in Richmond tomorrow.
And in N’Awlins on the 3rd…Mobile on the 4th, and prolly farting about on a boat in the Gulf of Mexico for a month afterwards.
“P.P.S. I’ll pay for the first round of A. Fuente Hemingway cigars at the Brown Palace….down the street from the state capital…..”
I wouldn’t mind seeing the Buckhorn Lounge, if it still exists, where me old Commie-turned-John-Bircher grandpappy gakked it from a heart attack over the keyboard of the piano.
Hey, as long as you’re going to be a-protestin’…don’t forget your Che t-shirt, leather headband, sandals, and ball of opium to smoke afterwards to celebrate “stickin’ it to THE MAN!”.
It’s the look that’s “in”, apparently.
Feb 24, 2009 - 6:05 pm 36. Bilgeman:http://www.summitconsulting.com.au/personal/Images/Laos/opium02.jpg
“Yeah man…it’s my POLITICAL statement!
Feb 24, 2009 - 6:09 pm 37. Charlie (Colorado):Rage against the machine,dude!”
I wouldn’t mind seeing the Buckhorn Lounge, if it still exists, where me old Commie-turned-John-Bircher grandpappy gakked it from a heart attack over the keyboard of the piano.
Bilgeman, you’ll be pleased to know the Buckhorn is right where graddaddy left it.
Feb 24, 2009 - 6:22 pm 38. Chuck Pelto:TO: Bilgeman
RE: The Buckhorn
“I wouldn’t mind seeing the Buckhorn Lounge, if it still exists, where me old Commie-turned-John-Bircher grandpappy gakked it from a heart attack over the keyboard of the piano.” — Bilgeman
It STILL exists and the Denver Chapter of Mensa STILL has a SIG that meets there on a monthly basis. Indeed, the Buckhorn ranks so high in Denver that the light rail system as a stop just across the street from it.
I DO remember their find buffalo sausages during happy hour, when the SIG met there. And it would be GREAT to have dinner there with you, should you be able to break free from your other responsibilities.
Regards,
Chuck(le)
Feb 24, 2009 - 8:16 pm 39. Honest Jon:[A hand full of friends is worth more than a wagon full of gold.]
25. Chuck Pelto: “….why should I [or any other tax-payer] subsidize your loan?”
With all due respect, sir, I never asked for your help, your charity, or your sympathy. I only asked a question: Whose fault is it?
I have an answer that is probably not going to be to your liking: If you don’t “subsidize” my loan or other people’s who are in the same situation as me (whether it be because of greedy business owners or reckless CEOs who have already wrecked our economy and caused a great many defaults on mortgages) then the cycle of the government bailing out the banks that hold these mortgages will never stop. Eventually, EVERYBODY is going to be brought down from similar circumstances to mine. Somewhere, somehow, the mortgage crisis has to be attended to.
I’m not asking for charity. I’d prefer death to the humility of charity! If I had been the responsible party for my financial situation, I’d have already given up my home. But I wasn’t. And a whole lot of people like me got caught up in the euphoria of owning their own home. It’s the American dream come to life.
And now, with consideration to the financial crisis that has been leveled on all of us by the greedy rich, my American dream has been destroyed! Mayhaps all of those greedy wealthy folks should have just been a little less greedy. (As an aside, Henry Paulson made $500 million before he became a government official. He could buy 5,000 of my homes. 5,000!) I, now, can’t even afford my own little home.
I hope there’s a rent-a-cave for me in Eastern KY.
34. Mike2: I wish you well and hope things work out for you and you are able to get another job. Good luck.
I appreciate the sentiment. Know anybody hiring? I’ll work for my mortgage payment. (I can grow my own veggies and kill my own meat.)
regards
Feb 25, 2009 - 12:32 am 40. Bill Johnson:The biggest sleight of hand here is to pretend “The point here is the money comes from the government somewhere… All we’re doing now is haggling about the price.”
No. We are also haggling about how to flow the money out of the government so as to do the least harm to the system, both fiscal AND moral. Speculative people and corporations should take their losses. If banks fail, FDIC the investors. The banks SHOULD fail. Just like GM. What was Schumpeter’s phrase? Creative destruction?
But allowing banks to fail, with concomitant losses to shareholders and management, while keeping bank depositors whole?
Morally proper.
And as so many others have pointed out, neither heaven nor hell is sufficient to prop up housing prices – they must correct sooner or later – how much money would we like to waste playing Canute on that beach?
NB: I wish to hell we didn’t have SOX, MTM complicating the problem.
Feb 25, 2009 - 5:09 am 41. Charlie Martin:No. We are also haggling about how to flow the money out of the government so as to do the least harm to the system, both fiscal AND moral. Speculative people and corporations should take their losses. If banks fail, FDIC the investors. The banks SHOULD fail. Just like GM. What was Schumpeter’s phrase? Creative destruction?
Bill, I guess the step that I didn’t make clear is that the banks are failing. Just for one example, Citi’s stock is down to around $2.50 from about $55 at the start of 2007; that means investors who held the stock have lost 95+ percent of their value. If the Fed goes through with the plan to get 40 percent ownership, the stockholders will be diluted to about $1.50; that means they’ve lost 98 percent of the value. Bernanke also made it pretty clear that management will be shaken up. The only difference between this and “failing” is that the renegotiation of their debts will take place without a formal FDIC receivership.
About the only thing more to be done here is for Vikram Pandit to be caned in a public square; Citi can’t fail much more than it has.
Feb 25, 2009 - 11:36 am 42. uburoisc:Honest Jon, sorry about the house, but if you had a solid credit score and a real down payment, you would likely have had a different kind of loan altogether, and you’d still have a chance. Sometimes decent people simply come into a stretch of bad luck (sounds like your case), but that IS NOT what has happened here. What happened is huge numbers of Americans bought houses they could not afford with very little liquidity, a mountain of personal debt, and an entitlement attitude, while the financial institutions went and sold that debt in fraudulent vehicles modelled on idiotic premises, all around the world, and did so while leveraging themselves upwards of 30 to 1. This created a huge financial bubble across all sectors of the INTERNATIONAL economy that has now come to an ignominious end, except in US government spending where it continues at a breathtaking pace.
And spare me the “greedy rich, greedy rich” bullshit. It is lazy, inaccurate and you sound like an idiot when you say things like that. Greedy crosses all levels of society, it just manifests itself at different scales. When you run around saying such stupid things, you encouage the equally stupid mob to run around with pitchforks looking for greedy rich people, and all you actually do is open the door foe a populist demogogue to lead you around by the nose chasing his personal obstacles to power. Once they are gone, you’re all in the fire. There are plenty of people, debtors and lenders who should be facing jail, fines, and disengorgement, but in order to figure out who those people are we are going to have to actually think and investigate, because the people who made this mess are not stupid, have very powerful friends, good lawyers, and lots of cash, and they are not going to make it easy for you. In fact, they are most likely the ones who will be pointing the fingers at “greedy rich” people telling you to go get them.
Feb 26, 2009 - 7:05 am 43. The Historian:FIX THE BANKS FIRST OR NONE OF THIS WORKS
Economic solutions depend upon our bank based financial system, not stimulus or partisan spending.
http://greensrealworld.blogspot.com/2009/02/stimulus-cart-put-before-bank-horse.html
Feb 26, 2009 - 9:39 am 44. Chuck Pelto:TO: Charlie (Colorado) & Bilgeman
RE: [OT] Blahst!
Just took a major hit on the large-format printer.
Not going to be able to make it tomorrow as I am now, officially, OBE.
Regrets,
Chuck
Feb 26, 2009 - 11:58 am 45. Chuck Pelto:[Sometimes I really hate this c---.....]
TO: Charlie (Colorado)
RE: The Rich Are Always With You
I hear this line from a series of people down here. They’re always whining about the developers who want to build things. Things like YMCA campuses with pools, baseball fields, soccer fields, etc., etc., etc., convention centers, major community developments (i.e., Pueblo Springs Ranch).
And looking at their complaints, over the span of years from the perspective of a city commissioner, the one continual theme I see in ALL of their complaints is envy.
Go fig…..
Regards,
Chuck(le)
Feb 26, 2009 - 12:04 pm 46. Chuck Pelto:[A sound heart is the life of the flesh: but envy the rottenness of the bones. -- Proverbs]
Ooops….
….misappropriation to Charlie (Colorado) of something said by uburoisc.
My apologies to both…..
Feb 26, 2009 - 12:05 pm 47. Chuck Pelto:TO: Honest John
RE: Be Advised….
I am fully cognizant of the meaning of that phrase, having used it on superior officers in the role of a officer of the United States Army.
It means, “I have no respect for you whatsoever…..”
Therefore, I’d recommend you just speak your mind instead of couching it in terms that will avoid punishment under the UCMJ. Okay? Or are you under the authority of the UCMJ? Fear not. I am not in a position, having retired, of holding you to it’s authority. So, if you are of a mind to, you can say, “GFY, sir.”
Besides. I’ve been abused by the best…..
RE: Your Mortgage and MY Money
As far as I can determine….
….it is not, repeat NOT, the intention of this government to stop ‘bailing out banks’ or whatever suits their purposes.
Their intention, as far as I can determine is to keep the nation in a perpetual state of fiscal crisis for the sole purpose of driving everyone they can into their welfare rolls.
Why?
Because welfare recipients make for THEIR best voter-base.
We saw this with the demise of the Roman Republic.
We saw it again with the Soviet Union…think the demise of the ‘kulaks’ in the early 1930s.
History repeats itself. And if you don’t understand that you are either poorly educated or a potential member of Densa.
Regards,
Chuck(le)
Feb 26, 2009 - 12:39 pm 48. Bert:[Stop the insane Jackasses! -- CBPelto]
Honest Jon,
As I understand it you have a 30 year fixed mortgage at a reasonable rate, somewhere in the neighborhood of $100,000. I don’t know what taxes are in your neck of the woods but I’m going to guess you need around $1100-1200 per month to stay in the house. Call it $300 a week. You say you haven’t run through your savings yet. And you obviously have a computer and an internet connection and at least 8 hours a day. I imagine you have a digital camera too and if not they can be had cheap. Here’s what I suggest and I’m dead serious. You probably have some sort of hobby, something you know a good bit about. Go on ebay. Look around and you’ll find things related to your hobby. The more you look the more you’ll realize that the prices of those things are often all over the map. When you see them going for cheap buy them. And then resell them at the higher end of the price fluctuation. And if your hobby isn’t the sort that will work in this scenario then get some books on antiques, or pottery, or or militaria, or vintage toys or some such thing that people collect (they collect pretty much everything). Learn about something, learn the prices and do it. It’ll get you by and then some.
Feb 26, 2009 - 9:09 pm