MarketWatch’s article chronicles the devil in the details for the US Financial Rescue Plan… now stalled. And from what I’ve read… I’d like to stall it considerably even longer.
On one side we have Henry Paulson and Ben Bernanke putting some serious pressure on Congress for swift passage… and warnings not to load it up with controversial amendments.
On the other, we have a bipartisan crew of lawmakers in varying stages of skepticism. For those that are in support of most… indeed, even of the concept of the US Treasury becoming an unregulated real estate investor for the taxpayer… they’re arguing over piddly details.
Rep. Barney Frank, chairman of the House Financial Services Committee, said Monday that the Bush administration and Democrats have agreed to additions to the plan, including creating an independent oversight board and aid for homeowners facing foreclosure.
However, there’s uncertainty over a proposal to allow the government to take an equity position in companies that participate in the U.S. program. Frank, D-Mass., said that the Treasury had agreed, but reports later Monday afternoon said the Treasury hadn’t.
Bernanke and Paulson state they want both healthy and troubled financial institutions to participate in the plan, saying the equity warrants would limit participation.
Paulson also rejected a Democratic proposal that the government get equity warrants in return for the assistance, saying that it would limit participation. Treasury wants both healthy and wobbly financial institutions to participate, he explained.
In his testimony, Bernanke also came across as a strong supporter of the Treasury’s plan to buy bad assets off Wall Street’s books.
With global markets under “extraordinary stress,” there could be “very serious consequences for our financial markets and for our economy,” according to his prepared testimony.“Purchasing impaired assets will create liquidity and promote price discovery in the markets for these assets, while reducing investor uncertainty about the current value and prospects of financial institutions.” Read Bernanke’s statement.
~~~Paulson didn’t come offering an olive branch to the legislators. He said that his mortgage rescue plan must be designed to hit the ground running, a clear signal that he will oppose any changes that he believes would slow down implementation.
The Treasury secretary said that he believes it has solid support from members of both parties. Paulson said that amendments to his package that would also cause controversy must be left out.
Congressional approval of the plan would “avoid a continuing series of financial institution failures and frozen credit markets that threaten American families’ financial well-being, the viability of businesses both small and large, and the very health of our economy,” he said. Read Paulson’s testimony.Paulson opposed a suggestion from Sen. Charles Schumer, D-N.Y., that the $700 billion be given to Treasury in tranches, calling it a “grave mistake.”
Even Chris Dodd isn’t complete sold, calling it “stunning” in it’s lack of detail.
“It would do nothing in my view to let a single family save a home. It would do nothing to stop a CEO from dumping billion dollars of toxic assets on the back of American taxpayers,” said Dodd.
“It is not just our economy at risk but our Constitution as well,” Dodd said, because it would allow Paulson to spend $700 billion “with impunity.”
GOP Richard Shelby stated this plan was not going to be “rubber stamped”… others even more emphatic, calling in (deservedly so, IMHO) “unAmerican”.
Shelby complained that there had been no time to consider alternatives.
And opposition was plainly seen among the backbenchers.Sen. Mike Enzi, R-Wyo., said the plan would cost $2,300 per taxpayer. “This committee would not be doing its job if that were allowed to happen,” Enzi said.At that point, spectators in the audience of the hearing broke out in applause.
Sen. Jim Bunning, R-Ky., called the Paulson plan “financial socialism” and “un-American.”
There is no doubt that such a move… putting so much of the taxpayers’ earnings in the hand of virtually one man… is beyond risky. It is the antithesis of America’s economic foundation.
While Bernanke and Paulson argue it’s necessity, I have to wonder if they’ve thought of the most immediate repercussions… an instant devaluation of the dollar. The mere consideration of this plan has dropped the US dollar to a record low against the Euro since it’s debut in 1999.
The dollar suffered record losses against the euro on Monday as the potential negative consequences of the government’s $700 billion rescue effort weighed heavily on the currency.
The greenback’s weakness helped push equities sharply lower, including a loss of 373 points on the Dow, and sent crude oil prices to its biggest one-day price increase ever.
The dollar was down 2.33% to $1.4802 per euro as of 4:22 p.m. EDT. At its lows, the dollar was down to $1.4435 per euro, the lowest level since late August.
~~~The Treasury’s $700 billion rescue would allow the government to buy and hold toxic assets currently stuck on banks’ balance sheets. The plan is aimed at restoring confidence in the financial system and allowing banks to return to lending to businesses and individuals.
Pushing the nation’s debt level to new heights is among several potentially negative consequences of the massive bailout. Purchasing the illiquid assets from banks could push the government’s debt ceiling up by 6.6%. Even before the Treasury plan emerged, the Congressional Budget Office was already forecasting a budget deficit of $438 billion for the next fiscal year.
~~~The dollar has also been hurt by raised expectations that the Federal Reserve will increase interest rates before the end of the year. The new hopes for a rate cut have been fueled by the latest turmoil in the financial sector, including the bankruptcy of Lehman Brothers (LEH: 0.13, -0.17, -56.66%) and an $85 billion emergency loan to American International Group (AIG: 5.00, +0.28, +5.93%).
An interest rate cut would have negative consequences for the already-weakened greenback. The Fed has slashed interest rates by 3.25 percentage points since a year ago as the economy has slowed.
And we all know what happens with a weak dollar… astronomically high oil prices, which cascades into every arena of the taxpayer’s daily expenses… from transportation to food, from purchasing power to the ability of businesses to stay in business, and keep employees on payroll.
And indeed, late this afternoon comes an AP article saying many believe… with the recent ups and downs of nervous speculators and contracts… it appears poised for another hefty rise amidst concerns over the US financial situation and dollar value.
It was crude’s first down session in five days. Some decline was to be expected after crude soared 16 percent on Monday — the biggest one-day gain ever — partly because of a technical fluke.
Still, oil market watchers say crude is showing early signs that it may be poised for another big climb. They say tightening global supplies, weakness in the dollar and nervousness about the U.S. government’s $700 billion financial rescue plan could soon prompt edgy investors to shift funds out of equities and send a burst of capital back into safe-haven commodities like oil — potentially pushing prices back toward record levels and causing consumers more pain at the pump.
~~~“We could be back on the road toward $150 a barrel,” said Stephen Schork, an analyst and oil trader in Villanova, Pa. “If we can’t get any stability in the dollar and there’s further weakening in the economy, my fear is that it’s deja vu all over again. We’re going to see a lot of money piled back into commodities as an inflation hedge.”
There are a few analysts also saying it could go the other way… like from their lips to the oil gods’ ears, please. But they are basing that on the economic woes resulting in a severe useage drop by US cconsumers. Fact is, how much can we all “curtail” and still go about our daily tasks?
I think many of us are mulling over just what to do. But I’m rapiding coming to the conclusion that whatever we do, this US Financial Rescue Plan is *not* the answer.
Vietnam era Navy wife, indy/conservative, and an official California escapee now residing as a red speck in the sea of Oregon blue.
Shouldn’t the first thing, the very first line item of any bill or fix be to prohibit home loans to unqualified persons? Seems like that would be a good place to start
Already done, bill-tb. To the opposite extreme, in fact. Where before it was easy money, now only the creme de la creme can get a loan or refi thru. They have, in fact, slammed the door on money… which is an over reaction that will also hurt the recovery period.
The big problem is what to do with the existing debt on the banking industry’s books. I say they liquidate their assets at the “fire sale” price (which Bernanke and Paulson don’t want to do, if you read the linked article). They worry about the devaluation of surrounding properties. This is also a valid argument, because it will put a new category of home owners in an upsidedown mortgage.
But adding this huge public debt is just not the answer. This isn’t something they should do over a weekend. It will have ramifications for a very long term.
I’m still scouting… looking for more reasoned minds to enter the fray. And we won’t find them in Congress, unfortunately.
I’m of the mind that tough times create opportunities for responsible investors. I am not convinced that the feds should do anything to bail out these failing companies, at any level. Not the banks, not the auto industry, not the airlines, not any of them. By allowing them to fail on their own, it opens the door for smaller companies to fill the vacuum.
$700 Billion would be better spent by paying off the mortgages of those Americans who made responsible buying and borrowing decisions instead of rewarding bad loans and investments and bad buying and borrowing decisions.
The 700 billion dollar buyout… not a bail out, since they actually take over the securities… is crappy, but has to be done. It should have been done yesterday, but the Republicans in congress are uneasy about throwing money around like that after always promising not to… and the Dems, notably Reid and Pelosi are trying to figure out how to use the situation to force attachments to the bill, and score points off McCain for the election.
I wish the Republicans would stop hemming and hawwing while deciding if they can stomach doing this… but at least they’re acting out of ideological conflict. Throwing money at stuff is what the Democrats are good at…. in this case, the Gov’t would OWN the crappy debt they forced onto banks with housing stimulus regulations. Yet Pelosi wants to attach rules to cripple energy development for a generation, and Reid wants to throw pies at McCain.
So… slight advantage Republicans… at least they’re not just playing politics for politics’ sake.
—————–
And the plan really makes sense to me… although the $700B should be taken from Congressional salaries and budgets for the forseeable future… because it really consists of buying the securities formed from the bad loans that federal regulations forced the banks to make. Or to put it another way, if the government forced you to buy a dump truck… and you were left with no money to eat with because all yours was tied up in the dump truck and its upkeep… this move is equivalent to them coming along and offering to buy back the dump truck.
Wow… that was a stupid analogy. But I hope you get the idea. It’s not a pure bailout, the government will own the debts and could conceivably get all the money back and turn a profit on the $700B….
Eddie, I understand what you’re trying to say. But it is a “bail out” of bad debt from the banking industry. I don’t care if we get the assets… which we will. We are buying the assets from them to “hold to maturity”…. meaning you won’t be seeing any profit until the market recoups, and the over inflated property values become the norm.
Well, realistically we can’t afford to hold say $490bil of assets at the price of $700bil that long. They need to be liquidated. What I’d be asking you to do is buy my $300K valued house at say $390K… and sit on it for awhile. Let you taken on the debt instead of me. Good idea, yes? For me… uh huh. But for you?
But the feds are trying to stave off a fire sale that drops the values of other properties. Well hey… other properties are overvalued too… even if the mortgage isn’t in default. The property values *need* to come down. The ones that would be most affected would be those that purchased between 2004 and 2006. But if they aren’t refinancing, or selling, it’s unlikely they will experience a hiccup. Their places aren’t worth what they paid for now… selling or not.
What the banks and feds can do is sell the properties for what it is worth, and give the banks write offs over time for their losses (or possibly forgive the debt?)
And leave the taxpayers and public debt out of it.
Plus that… I do not want that much power in one person’s hands.
Remember, Barfy [MALE PROSTITUTE FRIENDLY] Frank is a bad guy in all this, blocking past reforms. And now he wants to capitalize (about as close as they get) on the failure that he helped cause in order to make the system even more flawed than before, and to make them even more beholden to him and his cronies.
D@#%* Democraps!!!
“Shouldn’t the first thing, the very first line item of any bill or fix be to prohibit home loans to unqualified persons? Seems like that would be a good place to start” — bill-tb
Oh, poor naive bill-tb, they can’t do that, as that really would fix the problem, and make them all look like the fools they are for having allowed it in the first place (going all the way back to Carter).
Besides, how could they appear “important” unless they had “important” problems to solve? And, don’t forget, every dark cloud has it’s silver lining, so if they can only contrive things just right, they can channel it right into their bank accounts.
D@#%* Democraps!!! (and their RINO enablers)
If the feds had stayed out of it and let banks make lending decisions based on financial policies instead of social policies, we probably wouldn’t even be having this discussion.
SURPRISED BY THE OBVIOUS
by Richard W. Rahn (senior fellow at the Cato Institute and chairman of the Institute for Global Economic Growth)
Are all too many in the global political class doltish, or do they just appear that way? The current financial meltdown has revealed an amazing number of revelations from people who WERE SURPRISED BY THE OBVIOUS.
For years, liberal Democrats in Congress and some Republicans pushed for banks and other institutions to make home loans to unqualified borrowers, and suddenly we find many of these people cannot repay their loans.
The reaction from members of Congress, like the “SURPRISED” SPEAKER NANCY PELOSI , is to demand investigation of “greedy bankers,” while ignoring the fact that it was her left-wing colleagues who created the Community Reinvestment Act (CRA) that required the banks to lend to people who were poor credit risks in the name of “housing rights.” A Chicago “public interest” lawyer named Barack Obama was active in this movement.
A MAJORITY OF MEMBERS OF CONGRESS SEEMED TO BE SURPRISED that Fannie Mae and Freddie Mac became insolvent when many of the subprime mortgages they had been pressured to buy (by members of their oversight committees, such as Barney Frank and Chris Dodd) became nonperforming. Some members of Congress (including John McCain) did try to pass legislation to limit the size of Fannie and Freddie, but it was blocked BY- SURPRISE, SURPRISE– Rep. FRANK AND SENS. DODD, CHARLES SCHUMER, BARACK OBAMA, ET AL, rank and who just happened to have taken major contributions from Freddie and Fannie.
MR. OBAMA WAS PARTICULARY SURPRISED when some charged that his nonsupport of the reform legislation might have had something to do with the fact he was the second-largest recipient of campaign donations from Fannie Mae over the last three years. Oh my, how could we possibly think such a thing?
It only gets worse. MOST MEMBERS OF THE CONGRESS SEEMED SURPRISED voters think the huge campaign contributions many of them received from Fannie and Freddie might have something to do with the now all too apparent lack of congressional oversight of the two mortgage giants.
THE ENDLESSLY SURPRISED MRS. PELOSI ranted against the “privatization of profits and the socialization of costs” in Fannie and Freddie. She must have forgotten that Fannie and Freddie was created and overseen by Congress, and staffed by political appointees (former Fannie CEO Franklin Raines was Bill Clinton’s budget chief), and had an implicit (and now explicit) guarantee from the federal government.
ALAN GREENSPAN SEEMS TO HAVE BEEN SURPRISED to find out that when he kept interest rates below the rate of inflation, banks over-borrowed and were less careful as to how they lent or invested the money. This “surprise” occurred despite the fact many warned of the consequence.
FORMER AND THOROUGHLY DISGRACED NEW-YORK ATTORNEY GENERAL AND GOV. ELIOT SPITZER AND HIS POLITICAL SUPPORTERS SEEMED TO HAVE BEEN SURPRISED to learn the company would run into difficulty when they forced out the very able and highly regarded Hank Greenberg as head of AIG (the world’s largest insurance company) – on bogus charges of criminality (which have now been dismissed by the courts) – and saddled the company with less competent management and unwarranted huge fines. Rather than protect AIG stockholders, the government raped them.
POLITICAL OFFICIALS OUTSIDE THE UNITED STATES ARE ALSO ENDLESSLY SURPRISED. For instance, the Russian prime minister seems to be surprised that the Russian stock market has fallen to half its value in May – just because Vladimir Putin has eroded the legal and property rights of private firms, invaded Georgia, and threatened other countries and outside investors.
BRITISH PRIME MINISTER GORDON BROWN SEEMS SURPRISED that businesses and international business people are fleeing London just because he increased their taxes. He also seems to be surprised the flight has hurt the British economy.
THE FRENCH, GERMAN, ITALIAN AND LEADERS OF OTHER HIGH-TAX STATES SEEM TO BE ENDLESSLY SURPRISED that their citizens will go to great lengths to put their money in less punitive and higher growth economies elsewhere, despite increasing attempts to punish them for looking out for their own self-interest.
PREDICTABLE SURPRISES TO COME: MR. OBAMA, IF ELECTED, WILL BE GREATLY SURPRISED that his increased taxes on capital gains, businesses and higher-income individuals result in less revenue for government because of the downturn in economic activity and job loss that results from his tax increases. Michigan’s DEMOCRATS SEN. CARL LEVIN AND HIS COLLEGUES, including Mr. Obama, who are supporting greater restrictions on U.S. investment abroad and higher taxes on U.S.-based international companies, WILL BE VERY SURPRISED when their actions cause not less but more capital flight from the United States and more businesses to move or be formed outside the United States.
SOME POLITICIANS ARE SURPRISED at the obvious because they are ignorant. However, many more are “surprised” because immediate gratification, whether applause or votes, is more important to them than being responsible, and others are “surprised” because they are just plain corrupt. Being “surprised by the obvious” happens in democratic countries because the media are too fearful, ignorant or biased to ask the tough questions beforehand, and because the population doesn’t understand the second-order effects of political actions.
IN PRIVATE SECTOR, THOSE WITH FIDUCIARY RESPONSABILITIES CAN DE FINED OR EVEN SENT TO JAIL IF THEY ARE SURPRISED BY THE OBVIOUS. GIVEN THE GREAT SUFFERING CAUSED BY THE FISCAL MISMANAGEMENT BY THE POLITICAL CLASS, SHOULD NOT THE PRIVATE SECTOR PENALTIES APPLY TO THEM?
SURPRISED BY THE OBVIOUS
I think it was expected, and nationalizing (socializing) the financial industry is the next step, and probably an expected one. BUT, they can’t tell us that.
Great article you found, Craig. For any of you who wants it, here’s the hotlink to it in the Washington Times.
This is an outstanding financial plan sold and explained very poorly.We were last week within days or hours from a financial meltdown not seen since 1912.The combination of a number of factors, primarily the enormous leverage(debt) that banks are permitted but made deadly by 1/Mark to market rules of accounting introduced about five yrs ago,the emergence of credit default insurance,rating agencies rigidity in downgrading assets, removal of restraints on short sales.This basically permitted a death spiral to emerge, and it did.
Hedge funds and others could buy credit default insurance particularly on banks where their high debt to equity ratios made them amplify stock price movements,and then sell short the stocks.The price of the credit default insurance goes up instantly and at a larger % change than the stock price change.The credit agencies must lower the credit rating of the banks and insurance companies debt paper as the credit insurance costs rise.This causes a number of investors such as pension funds to sell their equity and bonds from the company causing further erosion.The total effect is to destroy Investment banks and insurance companies which then hold fire sales on their assets , dumping huge amounts of inventory (stocks) on the markets.
In all the discussion of the impact on the national debt of the 700 B has anyone noticed that the national balance sheet will be barely impacted at all?It will add almost nothing to the Debt and it will make money almost immediately which will flow to the treadury. we will be buying Mortgages many of which have already been written down. The Fed pays 3% ca. for money and buys mortgages which will yield 7 to 8 %.As far as prices paid as soon as its clear that the Fed will take the most poisonous assets, people will start buying up many of these assets knowing there is a floor, making it less likely that the full 700 billion will be needed.Calling this a bailout biases public opinion to all our detriment.It is an injection of liquidity into the economy where it needs it, which is in fact the charter of the Fed and the Treasury.This is good plan delay will make it more expensive to all. John E Morrissey
6616 Dovre Drive
Edina Mn 55436
Thank you for your input, John. I hope you continue to add your thoughts to the pro side of this deal. The more we all bash it about, the more we all learn.
That said – yes, I understand that the main thrust of this plan is to prevent the fire sale of assets and prevent so called ‘death spirals”. And more importantly, to loosen the rigor mortis fingers on mortgage monies. As I’ve said in a few posts and comments before, the money has to flow. To slam the door shut compounds the problem.
But you, rather like Bernanke and Paulson, want to pitch this as a possible good deal financially.. i.e. you said:
So if this is such a great deal… this buy out of the poisonous assets… why isn’t some private enterprise rushing to get that 3% paper to resell at 7-8%? That’s quite a return, and any serious investor would most definitely jump at the chance. Quite frankly, anything the US govt can do, the private sector can do better. So why government as the answer?
And no.. I never thought we’d need the entire $700 bil, as long as they liquidated some of the notes with resale of the property. Then again, it’s going to go for lower fair market values (and it should… properties are still over valued even today). So how is it any different for the feds to hold a “fire sale” than it would be for the banks to hold the fire sale?
Lastly, I think my main objections to it all is the federal govt becoming a real estate investor for the tax payer. If the public accepts this premise… and we will not really know of all it’s success and/or repercussions for years or perhaps a decade… federal govt taking over businesses will be an easy pill to swallow.. and the first cure on everyone’s mind. And we have then arrived at socialism/Marxism undisguised.
This problem was caused by govt meddling in mortgages and the revamping of the CRA in 1995. By 1997 a flood of risky buyers started hitting the streets. By 2000, combined with the low interest rates, it was a stampede, and the property values were driven up unnaturally high at too quick a rate.
It’s the high prices that have caused the problem.. the inability to foreclose on the property and put a qualified buyer in for the outstanding note. The inability to refi out of ARMs. The entire debt problem is because the notes are higher than the value of the homes. I watched it happen in agony… knowing this would come. And I’m not even an economist.
In short, this was caused by interference by the very government that you now want to entrust with “the cure”. I am not so sold as you. And I am especially not sold if it is presented as a good business deal for the American taxpayer.
Like I said… if it’s such a good deal, why is the govt not providing added incentives for private enterprise doing the buy out?
Q1 why no private white Knight? No private buyer has 700 bil to throw in. Q2.This does not add to the natl debt. We issue bonds @ 3%(700 b il) for which there is a clamoring mkt,( interest rates on Ts are dropping)We buy bundles of mortgages, many of which are in default but the highest number I have heard is the value of the package is 85% plus.We expect to buy them in at around 65%(Merrill sold theirs at 22% of book about three weeks ago.)Even assuming the worst on defaults, we earn the coupon rate on our investment leading to a net annual return of above 10%.If the govt hold the mortgages to maturity they will earn a minimum of 30 billion per year. If they sell them off when the market returns, the ROI is even better.
more on Mata Harleys points You are right on .The Congress created much of this problem and the SEC added their two cents.The low interest rates and large money supply increases did create an incentive for banks to lend money all thru the late nineties, but most of the bad mortgages are the subprime and alt a vintage 05 and 06.
The net result of all that was money was easy to borrow, congress pressured banks to make aggressive loans for housing and housing prices went up to unsustainable levels.This leverage, which is only workable when the guys lending the money aren t in a hurry to get it back.When everyone gets nervous and starts trying to clean up their balance sheets all those with assets bought at high prices and paymenst which can t be met are in trouble.They dump back on the banks who then can t make the loan to the gas station or pizza house.As you say the govt was the forcing function on this leverage, so should they not be the ones to try to solve the problem.
Regardles of who caused it, we were all on the edge of disaster one week ago.Last week, the entire world financing system froze up.You could see it coming every day for the last ten days and on Wed nite I staarted e mailing senators and friends in high places and said we are about to crash something must be done tomorrow, friday at the latest.This was no mirage, go back and check the financial numbers for the week and Lehman and AIG.
At about 1130 am all the worlds markets were tanking A number of them were down30 to 40 % for the week and shut down entirely.At this point some bright guy in London,may his tribe increase,announced a moratorium until January on shorts on financial firms.The Dow went up 200 points in about 20 seconds.Someone at last had noticed that the bus was going over the cliff.The point is this real. We are all in trouble. If you think you deserve 20% unemployment and bread line s again then ignore it. The money is not bailing out wall street firms, ( a side effect at best)it is providing the liquidity which we all need to get mortgages, buy inventory make payrolls hire harvesters. This is what the Fed and the Treasury was created for.( See Alexander Hamilton remarks on the Nat Debt)was created for.We are buying assets and loans from banks in order to put liquidity in the financial system.Thats what Feds and Treasuries everywhere do.
John, where is it written it must be only “private white Knight”? They sold the notes to the secondary market in packages. Notes can be repackaged and sold to many “white Knights”. Why must the government be the sole buyer, and not multiple private enterprises… each looking to capitalize on what you think is a portfolio that may be 20% under value (assuming your top value of 85% of debt, and the buy in at 65%)
I think my point is I agree that we those assets and loan need to be sold for the liquidity for the market. But I disagree that the buyer should be the American taxpayer.
I’m also seeing the nerves frayed around the globe. And what I’m really not liking is the devaluation of the dollar as part of this. And that’s anticipating the government rescue package.
And BTW, thank you for your counterpoints. As I said, this bashing about of the alternatives is helpful.
Let the financial markets collapse. Let’s go into a recession. The country is 20 years too late. If the ecoonmy grows because of trickery, irregardless of the intrinsic problems we have, then no amount of bandaging will get to the root cause. let prices reach an equilibrium. let’s suffer and then recover. this will be no depression
comments accepted and considered.First Sam … the Japanese govt did just that for over ten years… let the markets deflate , and then could not get it moving again.Once confidence is lost banks won t lend people won t borrow. Unemployment out of sight, currency drifting slowly lower.The depressionof 1930-1941 was caused , see MIlton Freedman, by a collapse in liquidity. As banks around the country collapsed , the New Deal passed all kinds of laws preventing csh into hwhere it was needed. Freedman says it better
Next .. why the US govt.?Its their job. its in their job description.Fiat money creation when it is needed and where.Next, no one else has that kind of money.Warren Buffet said this morning in response to that question why the govt, ” if I had that kind of money Id do it in a second.”
Economics is based on what people will probably do in response to economic and other stimulus.It is not a newtonian science, where given the initial states and the changes i can predict the future state.My guess is that as soon as the Fed starts buying these assets there will 1/be people who will see a good deal and try to outbid the Treasury.2/As the prices of these assets go up, due to the bids,the marking to market will start to raise asset values( mortgages) making the entire system more liquid.
It’s their “job”??? I dunno, John. It seems to me you are broading Article I Sect 8 of the US Constitution, guy. They can coin money and regulate value. But they can’t draw cash from the Treasury except by lawful appropropriation (which is why Congress has to pass a law in order to pull this off..).
And for Congress to draw from the Treasury to purchase market assets? This is unprecedented.
I understand that $700 bil is a high figure for any one person. However multiple enterprises and pools of companies most certainly can handle a huge bulk. And, just using your figures i.e., if we’re talking $650 bil for assets that will be transferred to citizens (assuming most are mortgages for dwellings), I don’t see much reason why the majority can’t be sold via private enterprise, with a temporary govt loan on the rest to be paid back by the bank industry when they sell the rest.
We do not need the asset values raised. If you go to my original post, “the perfect storm” on this, you’re going to see some graphs of home prices over the past 33 years. Beginning in 1997 (when rates were still higher) the housing prices started rising with the influx of risky buyers after Clinton’s revamping of compliance for the CRA.
By the year 2000, when the rates dropped and then in the wake of 911, the housing prices soared at an unsustainable rate. This is way out of ratio with income and cost of living, John.
These values are still overpriced (despite the “decline” we’ve had since 2007) by as much as 15-20% in many areas, and less in others. The last thing we need to do is keep these values. Housing prices need to come down to a realistic level. As I pointed out in that post, we would have been able to weather the foreclosures if the homes were worth the note’s value.
But the price of homes was becoming so out of control that there was no way to play with loan rates as a check for inflation because the average person couldn’t afford the housing price tag on current income averages.
This article shows some of the regulatory causes for the problem and explains why more regulation will make the problem worse in the long run.
Really great analysis at:
http://www.emarotta.com/article.php?ID=303
this has been fun but i think the deal is done and our comments won t make much difference to anyone.Every month , and more often if needed the fed injects reserves, cash, into the economy by buying bonds from reserve system banks.They do in fact and have since the 1790 s have the authority to put cash in banks, or take it out by either buying or selling bonds. there is no change in the fed s balance sheet because they exchange an asset for equal value either way.
Had our leaders understood the banking system a little better in 1929 and the thirties, and pushed liquidity into the banking system, as we are going to do this week, instead of pulling it out,we might have avoided the depression, (which would have been instead a recession of a few quarters) with all the horrors it spawned.think about it, no dust bowl,no 25 % unemployment, nosoup kitchens,no Hitler in Germany,and all the other horrors of the 20 th century might have been avoided.The rallying cry, by the way for those who destroyed the financial system was “sound money” and inEngland, Churchills cry(he was the Sec of Treasury) the pound will look the dollar in the face.Stupid policies, stupid slogans.The road to hell etc.
Doug Ramsey
Thanks, that’s in interesting read…
They also say, “Given that socialistic impulses got us into this mess, it isn’t likely that further socialization will help matters in the long run. “
But, from what I’ve read on what the Dems want to do, that’s just the direction they want to head.
As soon as China and the few others resolve to halt propping the dollar up and no longer purchase our treasuries we’ll default in no time. Our debt is unthinkable to pay back (especially with our current financial policies) and China, Japan and the Saudis know this. They also recognize that ditching the dollar would hurt them in a major means, so the grudging support for the dollar. This will end at one spot and we’ll be in vast disorder. We are the hugest debtor country in the Earth!