Monday, September 22, 2008

"The Mother of All Bailouts"

Nope. Housing prices make a whole lot of sense; completely justified. Yup. No housing bubble here.
WASHINGTON (AP) — The Bush administration insisted Sunday that Congress must move quickly to approve what one lawmaker called the "mother of all bailouts" — a $700 billion proposal to buy a mountain of bad mortgage debt in an effort to unfreeze the nation's credit markets.

However, congressional leaders said the administration's spare three-page plan must be expanded to include help for people on Main Street as well as the big Wall Street financial firms who have lost billions of dollars through their bad investment decisions.

The plan the administration has developed with support from the Fed would have the government buy up to $700 billion of the bad loans, taking them off the books of financial firms... Sen. Richard Shelby of Alabama, the top Republican on the Senate Banking Committee, said the government's efforts would be the "mother of all bailouts" that could well cost $1 trillion when the cost of the government takeovers of Fannie, Freddie and AIG were included.

The whole congressional debate [on the bailout] is occurring just weeks before voters go to the polls.
(CBS) Treasury Secretary Henry Paulson defended the Bush administration's proposal to spend up to $700 billion to buy up bad debt of financial institutions struggling with illiquid assets (such as defaulted mortgages), saying not acting would have jeopardized the possibility of anyone getting a loan - and may have jeopardized Americans' savings and retirement funds.
Oh, and while we're at it, let's have the U.S. taxpayer bail out foreign financial institutions and governments too.

Of course, bailing out incompetence, failure, fraud, speculators, and the like (foreign or otherwise) is wrong as wrong can be. But for some reason that last quote from CBS really got to me... the one about how we have to save people's retirement accounts.

Don't get me wrong. Despite what you read on this blog, I don't like the idea of people losing their house and/or their retirement funds any more than the next gal. But come on! People gambled. People have been gambling with their retirement! That's what it means to pay obviously ridiculous prices for houses (and doing so as part of your retirement plan). That's what it means to put you retirement in the stock market (401K, mutual funds, what have you). It's gambling and no one can claim ignorance as people make a point of highlighting the risky nature of the markets even clear way back when the move to 401Ks first started and was viewed with some skepticism. The stock and bond markets (etc.) are inherently risky. It's little different than putting your entire retirement on red 99 (refer to the graphic for this post). Don't put your money into those markets if you cannot afford to lose it. That's rule numero uno in the investing world.

[Begin sarcasm]
But if we are going to bail out risk-takers who lost, then shouldn't we just bite the bullet and remove all risk from the stock market? Let's make it more like the housing market which is rigged to (almost) always go up. Let's say that it is now illegal (not just temporarily stopped) to short the market; no more puts. Let's say that you can only buy a stock as long as you are willing to only pay more than the last price paid for that stock. In fact, let's call it what it is and not call it a "market" anymore... certainly not a free and open one. Let's call it "Social Security 2.0".

I like kleptocracy*. You will like it too (not that you have any choice anymore). And besides, Paulson will make for a good king of America.

*"A kleptocracy (sometimes cleptocracy, occasionally kleptarchy) (root: klepto+kratein = rule by thieves) is a term applied to a government that extends the personal wealth and political power of government officials and the ruling class (collectively, kleptocrats) at the expense of the population.

The effects of a kleptocratic regime or government on a nation are typically adverse in regards to the faring of the state's economy, political affairs and civil rights. Kleptocracy in a government often results in a severe deficit of foreign investment prospect, and drastic weakenings in the market and exportation/importation affairs. As the kleptocracy often embezzles its money from its citizens by misusing funds derived from tax payments, or money laundering schemes, a kleptocractically structured political system can be degrading to the quality of life of the general populace. In addition, the stolen funds that kleptocrats take to their own gain is often removed from funds that were to go towards public improvements, such as the building of hospitals, schools, roads, parks and the like, bringing about yet further adverse effects on the quality of life of the citizens living under a kleptocracy."

[End sarcasm?]

Update: Mish has a convenient way for you to blast emails, all at once, to all senators with a single click of a link. Check it out.


Lisa said...

Watching the markets today, the bailout honeymoon is already over. Markets down. Gold and oil up. Interest rates up also.

We all know it does nothing to change the fundamentals.

I bought more gold and Swiss Francs today, I am betting against the U.S.

marine_explorer said...

I hear the Paulson plan got a dressing down today by the Senate Banking Committee. I admit that I'm a little impressed by some clarity on the hill. Judging from the color commentary I read, there will be some choice excerpts--hopefully video soon?

On another note, did anyone see that Wells Fargo's jumbo 30 yr. fixed morts are now 9.2% in California? If this sets a precedent, it could easily crush what remains of demand--no spring 2009 rebound, lol.

marinite2 said...

Check this out. I couldn't say it better myself:

Matthew said...

Never heard of the term kleptocracy, but it applies in this case Marinite... a financial disaster of the highest order..

Well, WAMU is no longer... who would have thought ? (me, that's for who... ).. we're not done yet folks... there will be others..

No matter what your beliefs are over this whole god awful mess, this is quite an unbelievable time in our country's history... one of the worst really no matter how you look at it... worst in terms of getting away from the roots and values that made this country great.. worst in terms of our faultering standing in the world and faultering economic power... worst in terms of the dominance of our dollar currency and the loss of all the political and international clout that comes with it... worst in terms of leading the world in new energy exploration and technology... worst in terms of learning from and using science to promote biology, health and environmental stewardship...

just the worst..

Think I'll vote for John McCain and see if he can give us more of the same... what a joke...

I long for the day that any politician looks at the real status of his or her country and compares himself or herself to his or her opponent and decides to step down for the good of the country given the other person is better qualified and better capable of leading his or her country...

That's right.. McCain maybe just a politician, but I am convinced McCain knows Obama is much better suited to face the significant challenges the next President will face than he is... however, he wont't do the right thing and bow out and will instead pull this country through another knot hole only to ensure less and less is done during the next administration... he's no hero or maverick, he's just another well connected political hack who screwed around on his wife and would rip your head off if you crossed him.. piss off John McCain and your economic advising buddy Phil Graham (that tripple POS from Texas)..

I see very little good that come from these 2 year Presidential campaigns other than to harden both sides to get nothing substanative done in Washington.. a joke of a system.. our founding fathers would be horrified..

Matthew said...

A few random observations for clarity in this time of finger pointing..

"The Housing Crisis"... Wrong.. The real housing crisis started in 1997 or so and ended in ~ 2006 with prices increasing by 3 fold during that time while everyone cheered and stuck their heads in the sand, especially the people in Washington and Wall Street. That was the only housing crisis I'm aware of.. What we've got now is the unwinding of the real housing crisis...

"Busting of Subprime Bubble or the Subprime Mortgage Problem"..... Wrong... Please... Subprime is but a piece of the problem pie... It's all a problem, especially when the mortgage papper (whatever the flavor or class) was written against an over-hyped asset that wasn't worth half it's value at the peak...

"Frozen Credit Markets"... Wrong...
Frozen "debt markets" is more like it... the RE machine and banks have done a fabulous job training the US consumer into believing debt is income and it all doesn't matter because your house can only appreciate in value... wrong..

"The Bottom of the Housing Market"... Wrong.. If you're referring to price, then we've still got a ways to go and there it will lie until the stench of this passes over a few years... Leslie is right, there won't be a cow bell at the bottom.. it will be very quiet and remain so for a while as everyone in this fraud ridden industry scrambles to find other forms of screwing and defrauding the US consumer.. Frankly, I believe we reached the "bottom of the housing market" when prices peaked around 2006... Yes, that felt like the bottom to me as it was at it's most rotten and stench ridden at that time..

"Inflation and CPI's"... Wrong.. One of the biggest jokes in all of this mess is the role of the Fed and stoking the inflationary fires while real inflation was already well over 10-15%... Frankly, I'd like to see the PPI & esp CPI get tossed as they did nothing to protect our financial markets or US dollar... what a joke.. Fire the fed and have Congress set interest rates based on housing prices / rents and that's it... don't let housing prices increase by more than 1-2% per year or choke it off w/higher and higher interest rates.. make it automatic based on some proven index like Case-Shiller... remove humans from this fraud and greed ridden practice... housing choked off Detroit and GM, not gas prices or SUVs (which is why I'd like to see Wall Street bail out Detroit vice the US tax payer)... housing squeezed out many other businesses once prices stopped rising... put housing back in the bottle where it belongs... it's an asset class that yields too much infuence and can get out of hand quickly if you let it and cause financial ruin if you do.... well, don't let it.. again, I say we remove humans from this fraud ridden and failed practice of setting interest rates and discount rates... squeeze the BS out of housing and speculation out of Wall Street...

marinite2 said...

It looks like the Mother of All Bailouts failed in Congress. It took almost universal opposition to it by the grass roots and still 47% or so of our representatives still supported it. Pretty sad in a way but I am glad it failed. OF course, like the undead it will soon rise from the grave in a new and probably more monstrous form.

Matthew said...

It's both amusing and sad to see Congress nash their teeth and point their fingers over this one... both parties are at fault as are all the key leaders, including (and especially) Barney Frank... Frank is no hero for trying to work out an agreement that has the potential of destroying the US dollar as well as borrow or inflate away our sovereignty... He had his head up his arse for the better part of the last 6-8 or so years as this monster was born and then grew and grew... that nimbwit should be working around the clock to try and resolve... I don't care if he doesn’t sleep for weeks frankly... same with his Republican counterparts and all the dipsh__ at the Fed and Treasury… I've worked 36+ hour days with much, much less on the line than the US dollar, US economy and our national sovereignty... that’s what’s on the line in all of this.. and it’s as if someone just turned on a switch and they discovered it..

If you have not heard this Congresswoman (Rep Kaptur) from Ohio talk, you should.. both pieces below… regardless if you believe the Wall Street and Treasury/Fed pundits on whether or not we’re about to fall off a cliff or not, this Congresswoman should be applauded for standing up and having an opposing point of view.. 3 hearty cheers to her..

sf jack said...

Hey Jeffrey,

Following up on our earlier discussion, I thought you'd appreciate seeing the below article.


The New York Times - October 5, 2008

Pressured to Take More Risk, Fannie Reached Tipping Point


"But by the time Mr. Mudd became Fannie’s chief executive in 2004, his company was under siege. Competitors were snatching lucrative parts of its business. Congress was demanding that Mr. Mudd help steer more loans to low-income borrowers. Lenders were threatening to sell directly to Wall Street unless Fannie bought a bigger chunk of their riskiest loans.

So Mr. Mudd made a fateful choice. Disregarding warnings from his managers that lenders were making too many loans that would never be repaid, he steered Fannie into more treacherous corners of the mortgage market, according to executives.

For a time, that decision proved profitable. In the end, it nearly destroyed the company and threatened to drag down the housing market and the economy."





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