A lot of you seem to have significant experience of the financial services industry. So, politics aside, is the bailout necessary? Is it the right/smartest thing to do?

Though I'm not ideologically opposed to the idea of nationalization, it doesn't seem to me that it's necessarily the best answer. The problem is that people are defaulting on their mortgage payments, right? So the bank siezes the house and can't sell it, and the people now have to find somewhere else to live. Doesn't it make more sense to restructure the debt and keep them living in the property, paying what they can?

Or am I missing something?

From what I understand from talking to people who know more about this than I do...

Something needs to be done. The exact plan put forward is not necessarily necessry. But something that costs a lot of taxpayer money (though it could be a loan or to buy stock... though that would lead to nationalization) needs to be done to stabalize the system.

Yes something is wrong!! You're starting a precident! Whoops, I screwed up and now you have to write me a new loan, or maybe i'll just pay what I feel I can. Where do I sign up for that deal?

Would you, a flaming lib, even loan money under those terms?

The problem is that the mortgage pools have no current market value, nobody is willing to bid on them. The actual value is much higher. Not the amount that the mortgages were originally written for but somewhere between 0 and 100. I have heard figures of maybe 65% of original amount. Because the financial institutions that hold these securities are forced to value them every day at market they have been forced to write them off in effect. The resulting losses have wiped out their capital. Now the FDIC and other agencies are requiring them to merge or liquidate since they no longer have the required capital to operate.

The government proposes to come in and become a market maker in the CMO's and such. If they don't pay to much for the securities they actually might make a profit. We need to pay enough so the institutions don't go bust but they also should suffer some losses in the process.

I would buy some of these cmo's if I could just figure out the good ones, only approx 5% of the mortgages are the problem, the other 95% are paying their monthly payments and are good.

Dave - I believe the issue goes beyond just restructuring the debt of homeowners. The banks (investment, commercial, etc.) have so much of these debt securities in their books that have been so marked down that they can no longer lend anymore. In order to lend, they need to replenish their capital, but you don't have enough Warren Buffets to invest or purchase stakes in these companies.

Yes something needs to be done. What I'm not exactly sure. This thread will probably be shut down for it's political nature.

My political views are definitely to the right, but I am opposed to these bailouts. The imbeciles who have caused this are getting golden parachutes and they are not even being held accountable for their unimaginable idiocy.

While I disagree with Senator Charles Schumer on just about everything, I am glad he is being a thorn in the side for an easy out for these fools. I truly believe that those who have caused these financial instability should be sent to prison, not given a golden parachute.

Simple answer, yes.

The problem isn't really with equities, it's with debt. Even investment-grade corporate debt is losing its' market value at an ultra-high rate. The fear of default across the market has spread well beyond mortgages.

The bailout is geared toward instilling confidence in investors, which will be acieved (in theory) by allowing lending institutions to get these illiquid assets off their balance sheets. This should allow lending/refinancing to resume (as much has been frozen). CDS spreads will narrow, and bonds will regain their value. When investors realize their bonds are worth much closer to par value, they should begin to inject cash into equities again, driving the market.

Again, this is the idea...

We could go back to before the financial system/insurance industry came to be.

Though, since I live in an apartment, I don't know where I'd keep my sheeps and cows to barter with people.

The main problem here, that alot of people don't realize, is confidence. It's called a credit crisis because people are scared of other people's credit worthiness so the supply of money no longer flows through out the economy.

The "bailout" is a big publicity stunt to try and show the people that "the government has your back as the last resort: so it's still okay to free up the credit lines and start loaning. Sure your average citizen and kick and shout but the bottom line is, it's trying to get all the banks with money to start loaning again, so that your citizen can start spending again.

These sub prime mortgages are only the catalyst but not the current problem.

So what if the banks have all this crap on their books, as long as they have people willing to do business with them they can survive. It's a big tax write off and they can pull it forward. Problem with bear and lehman is that all of their counterparties decided I don't want to do business with them because they MIGHT go under. No one likes to be stuck with the last straw, but unfortunately it's a chicken and egg problem. They wouldn't go under if people kept doing business with them, but people wont' do business with them because they felt they might go under.

Sandy - This problem was created by more than group of people -- Congress for having a mandate to put people in homes, SEC/regulatory agency for not overseeing these debt securities and lending practices, Wall Street for obvious reasons, and Main Street for purchasing a home that one can't afford or borrowing money to maintain a certain lifestyle.

If I phuck up my company I can't run to the Government for a bail out. If it is a small business or someone without a lot of money then there is no help however if I am a big company that phucks up I can run to the governemnt for help. Doesn't sound right to me.

quote:

Originally posted by dannyk8232:
The problem isn't really with equities, it's with debt. Even investment-grade corporate debt is losing its' market value at an ultra-high rate. The fear of default across the market has spread well beyond mortgages.

Did you see the yield on the Tbills today? I've heard that the 3month tbill touched off negative yield today. How's that for free borrowing???? Another reason why I agree with you that this bailout is simply to instill confidence. Our government can basically borrow money FOR FREE! With these stupidly low rates, I'd be very surprised if the tax payer is even liable for even a fraction of the 800 billion.

seanr7: life is not always fair.

g-man: The government can't just print money without consequence. Inflation would rear its ugly head, but this situation could be uglier.

quote:

Originally posted by DoubleD:
g-man: The government can't just print money without consequence. Inflation would rear its ugly head, but this situation could be uglier.

They're not printing money, they're borrowing it for free. It's like if you went to a car dealership and got a 5 year interest free loan.

quote:

Originally posted by g-man:

quote:

Originally posted by DoubleD:
g-man: The government can't just print money without consequence. Inflation would rear its ugly head, but this situation could be uglier.

They're not printing money, they're borrowing it for free. It's like if you went to a car dealership and got a 5 year interest free loan.

Exactly

quote:

Originally posted by g-man:

quote:

Originally posted by DoubleD:
g-man: The government can't just print money without consequence. Inflation would rear its ugly head, but this situation could be uglier.

They're not printing money, they're borrowing it for free. It's like if you went to a car dealership and got a 5 year interest free loan.

I do agree its free to the government. I guess what I was alluding to is the fact the US already has a spending deficit. Adding another $700B (or whatever that number is) would add to the deficit. So how does one pay for the additional costs without raising taxes or cut spending while your tax revenues remain flat or are declining.

I'm not sure if this has been covered on this thread, or others here, but a large part of the problem is the way that the mortgage backed securities have been sliced and diced until no one can sort out what their default rates might eventually be. Even if it were possible, there is not enough time. No one can give an accurate market value, leaving everything related a blind gamble.

The government is the only entity that has the capability of absorbing this mess without a financial panic. Panic as in bank runs, etc. The FDIC can't possibly absorb the potential liabilities, and large deposits and large brokerage accounts aren't even covered.

So, yes, a bailout is necessary.
No, the one proposed is not the best that could be hammered out.
Yes, everyone has the right to be plenty pissed that it has come to this. Blame falls on corporate greed, people willing to buy homes that they can't afford, financial institutions playing with instruments they didn't fully understand, rating agencies totally dropping the ball, and regulators that are more like external aides to the businesses they are supposed to be regulating. Add a bunch of outright fraud in the mix.

I'd like to see a bailout in which everyone at fault is held accountable, and I'd also like to be 18 again. Which do you think is more likely?

quote:

Originally posted by DoubleD:

quote:

Originally posted by g-man:

They're not printing money, they're borrowing it for free. It's like if you went to a car dealership and got a 5 year interest free loan.

I do agree its free to the government. I guess what I was alluding to is the fact the US already has a spending deficit. Adding another $700B (or whatever that number is) would add to the deficit. So how does one pay for the additional costs without raising taxes or cut spending while your tax revenues remain flat or are declining.

What isn't your problem today.... can be solved tomorrow HEHHEHEHE =)
(and being the US government, it's a nice perk that you can roll your debts)

sides the war in iraq was something like 800? billion dollars over the past 7 years. Pocket change...

Some more notes on the issue.

I've heard people say that the only way that this issue will settle out is if housing prices continue to drop until they are affordable again.
Additional drops in home values will aggravate the current default situation, so let's not hope for a quick resolution in that manner.

Inevitably, inflation is going to be the long term outcome.

A commentator on CNN mentioned that with these bail outs, the USA has now become a more socialist nation than that of China. How about some accountability? Nothing more sickening than to watch these criminals get their bail out instead of a long term prison sentence.

What criminals would that be?

As to those morons on CNN, let me guess Lou Dobbs, that is so stupid as to not even be worth comment.

quote:

Originally posted by pape du neuf:
I'd like to see a bailout in which everyone at fault is held accountable, and I'd also like to be 18 again. Which do you think is more likely?

Neither. There might be a couple of figure heads to be taken down to please the masses but there seems to be too many we don't know factors to figure out exactly who is and how much they are accountable. I would settle for being able to line up all the guilty parties and walk down the line kicking them in their man parts (lady twisters for the ladies). Won't fix anything but at least it would provide instant gratification. The bailout will happen. Just hope that there are enough checks and balances along the way.

As for CNN, that is just wishful thinking. It is what they have wanted us to become for years now.