I'd like to hear some thoughts on the subject. I feel based on the released information it's bad course of action
NEW YORK (AP) -- Wall Street surged higher Thursday, with the Dow Jones industrials up more than 400 points after a report that the federal government is considering creation of a repository for banks' bad debt. CNBC said Treasury Secretary Henry Paulson is considering creation of an entity like the Resolution Trust Corp. that was formed after the failure of savings and loan banks in the 1980s.
Investors were cheered by the notion of a huge federal intervention like the establishment of RTC to acquire the real estate debt that has hobbled financial institutions and led to the intense volatility in the markets this week
And of course the market swings 500 pts on the dow over this news...
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Sounds like the biggest taxpayer funded bailout yet. My basic understanding of this idea is that the Federal Government would buy debt that these banks can't sell in the free market. I.E, the government buys the most toxic junk out there at a premium. The banks are saved, the taxpayer is on the hook, and the dollar probably cliffdives. $4.00 gas will seem like a bargain. The lesson learned for the financial industry is to take big risks, because if it works out you make a fortune, and if not you get bailed out. So we end up having to do this again in a few years.
Last time this happend the taxepayer was on the hook for Billions. This time around we are on the hook for Trillions with a T. So, the lesson is: get as big as you can and take on as much risk as you can, it doesn't matter how much you screw up the taxepayer will be there to bail you out.
I am starting to lose faith in free market system.
Plus, does this mean the housing market will be back to what it was at the 2006 level?
hope69 said:Last time this happend the taxepayer was on the hook for Billions. This time around we are on the hook for Trillions with a T. Total mortgage debt is only about $10 Trillion ... for it to even get up ton $1 Trillion (never mind "Trillions"), 10% of all mortgages would have to be totally worthless. I don't think even 10% of all mortgages are in trouble, never mind being totally worthless. While the mortgage industry is a mess, it's not that big of a mess.
hope69 said:Last time this happend the taxepayer was on the hook for Billions. Last time, we were already on the hook, as all of the institutions had failed. The RTC served to create a market and maximize returns.
We're already on the hook for Freddie and Fannie, and presumably for something from Bear and AIG, so why not just buy the 25% that we don't already own and be done with it?
Personally, I agree that, at best, this idea is half-baked. Out favourite senator from New York floated a slightly different idea that seems, on the surface, to be a bit smarter. A three-quarters-baked idea isn't necessarily better, however.
hope69 said:Last time this happend the taxepayer was on the hook for Billions. This time around we are on the hook for Trillions with a T. So, the lesson is: get as big as you can and take on as much risk as you can, it doesn't matter how much you screw up the taxepayer will be there to bail you out.
I am starting to lose faith in free market system.
Plus, does this mean the housing market will be back to what it was at the 2006 level?
I have lost faith in the politicians that run this country, but not in the free market system.
Is there anyone here who actually worked at an S&L, bank or law firm during the S&L meltdown? Anyone know how the RTC was funded and what the RTC did with the money? Geo123, DavidScubadiver, SIS, ArbolLoco/CrazyTree -- were any of your firms involved?
The only info I've found at the moment comes from:BankDeals:
There have been many worries about the size of the current FDIC deposit insurance fund and the potential impact of large bank failures. This AP article describes what may happen:
If the FDIC doesn't have enough cash to cover the initial costs of a bank failure, one option would be short-term loans from the Treasury. That last happened in 1991-92, during the last part of the savings and loan crisis, when the FDIC borrowed $15.1 billion from the Treasury and repaid it with interest about a year later. (emphasis mine)
time to ban short selling! no wait, lets ban buying long! i mean no wait, lets ban oil going over 75$ a barrel, no wait, lets just ban the stock market all together like russia did for the past 2 days! capitalism and democracy live on! god bless USA! proud to be an american!
ban oil going over $75!!
we can artificially manipulate the country back into a global superpower! DOW to 20,000 and beyond!!!! why stop at 20,000, dow to 200,000 and beyond! BAN selling stock!! once you buy you can never sell!
I just formed a corporation for my poop farm. I put in the articles of incorporation that it has the authority to issue 10,000 shares. When I got home, I talked a friend of mine into buying one for $1000. OK, it was a FAR deal, but that was still the official trade price. So now I go to bed the proud owner of a poop farm with a $10,000,000 market cap.
I don't know much about the last RTC fund, but there's a GLARING difference between the last one and this one..
The last one dealt with assets of banks that went bankrupt. This RTC 2.0 looks to be dealing with banks THAT AREN'T EVEN BANKRUPT?! Un-Fing-believeable! Who determines what's a fair value for the government to pay for these assets? Do the firms have to take the writedowns for the assets they sell, or will they sell the assets at "full price?!" I don't think there was anything wrong with RTC 1.0, as it wasn't a direct bailout of banks. RTC 2.0 is a direct bailout of banks! The crooks are going to dump their s**t on the government (taxpayers (us)).
The problem is the "level 3" off balance sheet (Enronesque) assets. We need to have everyone disclose EVERYTHING they own, and let the chips fall where they may. If we need an RTC to try and help the BANKRUPT banks, so be it.
I'm absolutely disgusted at what this administration is doing. I encourage everyone to call your elected officials tomorrow. I definetly will. This is truly insane. If we get a bailout of banks, this fixes the credit markets, but it STILL doesn't fix the MAIN problem.. Home prices are still too high for many people and many people simply wouldn't qualify for a loan.
Beckles said:hope69 said:Last time this happend the taxepayer was on the hook for Billions. This time around we are on the hook for Trillions with a T. Total mortgage debt is only about $10 Trillion ... for it to even get up ton $1 Trillion (never mind "Trillions"), 10% of all mortgages would have to be totally worthless. I don't think even 10% of all mortgages are in trouble, never mind being totally worthless. While the mortgage industry is a mess, it's not that big of a mess.
The dunce administration is leaving in a few months. Do you really think they care what YOU think??? C'mon... They just take care of their crew, leave, and then Obama has to play clean-up. Too bad the pres and his marry men are exempt from being sued (
This plan is doomed from the start. If the trust offers too little for this toxic waste the banks won't sell and the Dow will plummet. If they offer a fair price the taxpayers are going to be left on the hook.
The free market economy is officially dead. Long live the free market.
You are 100% correct Asharerin. Why would any bank sell there level 3 assets at 10-20-30 cents on the dollar?
Most of the banks just like the government know that most of the MBS bonds will end up paying closer to 80-95 cents on the dollar as more than likely most people will end up paying there mortgages just fine. So the banks would be much better off just holding them to maturity and considering the average maturity for a MBS is 7 years and we are already 1-3 years into most of the option arm MBS which were written in 2004-2007(which are the toxic ones as home owners are upside down and can not refinance currently) means that with in 3-6 years most of them will end up being paid off.
The only reason the Feds wants to take these so called "bad assets" off the banks balance sheet is to free up bank capital so they will start to make new easy loans at lower rates which in effect will accelerate the payoff of those MBS. So banks that are not desperate for cash will be unwilling to sell there assets to government at a huge discount.
In my opinion what would make more sense if the government want to offer easy low cost loans to unqualified buyers would be if the government started to issue mortgages. By doing that in turn would accelerate the redemption of the so called toxic MBS that the banks are holding. Problem is Paulson is not that stupid he understand who ever is the last sucker to lend money to all those unqualified buyers is going to be left holding the bag. The reason the bank originally gave those loans to those unqualified buyers was because they believe home values would continue to go up and those buyers would just keep refinancing into new teaser loans so they ultimately would not end up holding the bag but because the housing market took a down turn that made it impossible for those borrowers to refinance there homes into a new teaser rate and banks got stuck holding those mortgages from unqualified buyers.
I do not think the banks are dumb enough to sell there assets cheap to government and then go and start giving those non qualified buyers new loans to keep the bubble going for a while as this is still fresh in there mind.
Notice how when the government comes out with cooky bailout the higher interest rates go up mortgage because the banks are not going to loose tons of money on there current mortgages and not pass along those losses to new borrowers.
I was able to lock a 5.125% 15 year 0 point mortgage from Citi on Tuesday. Penfed has 5.125% with 0% the same day too. Same mortgage today is up to 5.5% from Penfed and 5.75% from Citi with no points. In 2 days mortgage rates went up 37.5 to 62.5 bps. That is because of AIG bailout and Fed so called RTC solution which is no solution for the banks really as it does not solve the problem with all those borrowers being unable to afford there homes unless they are given teaser rates of 1-3% on there loans.
EvilCapitalist said:Beckles said:hope69 said:Last time this happend the taxepayer was on the hook for Billions. This time around we are on the hook for Trillions with a T. Total mortgage debt is only about $10 Trillion ... for it to even get up ton $1 Trillion (never mind "Trillions"), 10% of all mortgages would have to be totally worthless. I don't think even 10% of all mortgages are in trouble, never mind being totally worthless. While the mortgage industry is a mess, it's not that big of a mess.
You are forgetting that it is leveraged.I don't think so ... if a $100,000 mortgage becomes worthless, it wipes out $100,000 in value somewhere, it doesn't wipe out more than that. Leverage does not affect the principal amount of these credit products.
asharerin said:This plan is doomed from the start. If the trust offers too little for this toxic waste the banks won't sell and the Dow will plummet. If they offer a fair price the taxpayers are going to be left on the hook. I'm not sure that's all that accurate. These instruments have already been heavily written down, but even at their drastically reduced values they're still illiquid. Many institutions will be more than happy to dump them for a fraction of face value for cash, the problem right now is no one is willing to pay cash for them, in particular because everyone is in the same boat and can't take on more of the same risk.
Beckles said:I'm not sure that's all that accurate. These instruments have already been heavily written down, but even at their drastically reduced values they're still illiquid. Many institutions will be more than happy to dump them for a fraction of face value for cash, the problem right now is no one is willing to pay cash for them, in particular because everyone is in the same boat and can't take on more of the same risk.
Bank have to mark to market there assets each month because Sec rule FAS 157. Mark to Market is really BS in most cases. Think of it this way. You have a brokerage account in that brokerage account you have 10k shares of XYZ Stock that you bought last month for $45 per share. Today that stock is valued at $10 per share. If you don't sell the stock today what have you lost? Nothing but if you were a bank you would have to disclose you lost $35k on that investment. And then if next month that same stock is back up to $50 per share you would have to disclose you made $40k on that investment. Well if you don't sell that stock next month and choose to hold it for another month it could go back down too.
Banks have some MBS which currently are still preforming(ie they are paying interest coupon to the bank) but no one is willing to buy them because many of the homes that are guaranteeing those mortgages are now upside down so the collateral is worth less than the loan amount and because of that fact no one is willing to buy them currently because on any homes they foreclose on they will loose money. So because of that fact only people willing to buy those MBS currently are only willing to pay 20-30 cents on the dollar. If the banks do not sell the MBS but keep them till maturity more than likely the bank will loose no more than 10-15% which really means they will still make money after you factor in the interest they collect vs the amount they wrote off against non preforming loans just not as much if all the loans preformed.
That is why I do not think many of the banks will be willing to dump them at fire sale prices as they are much better off just holding them till maturity. The problem the government has with that idea is because they holding them till maturity and they have written them down so much that is basically draining the banks of all there capital so they are unable to make new loans which is hurting the US economy.
Beckles said:EvilCapitalist said:Beckles said:Total mortgage debt is only about $10 Trillion ... for it to even get up ton $1 Trillion (never mind "Trillions"), 10% of all mortgages would have to be totally worthless. I don't think even 10% of all mortgages are in trouble, never mind being totally worthless. While the mortgage industry is a mess, it's not that big of a mess.
You are forgetting that it is leveraged.I don't think so ... if a $100,000 mortgage becomes worthless, it wipes out $100,000 in value somewhere, it doesn't wipe out more than that. Leverage does not affect the principal amount of these credit products.
That's not the issue. The issue is that the cashflow from the mortgage has been repackages via MBS and derriviative instruments. The underlying may mortgage cashflow may change just a bit, but the devastation it would create in the financial instruments based on it is much higher.
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If we get a bailout of banks, this fixes the credit markets, but it STILL doesn't fix the MAIN problem.. Home prices are still too high for many people and many people simply wouldn't qualify for a loan.
