quote:Originally posted by MrSquicky: But they're not looking to pay the lowest they can get for these loans. If they were hard bargaining and seemed to really know what they were doing, many of my objections would be met.
Thats a good point, but that seems to be an issue with the implementation of the plan rather than whether to have a plan in the first place.
i.e. the plan should be successful in reviving the financial sector whether they overpay or not, thats a primary objective. Whether the plan makes money (or loses less money) is gravy, a secondary objective
quote: He doesn't seem to be putting any money into this, nor is anyone else.
I've explained his two reasons in my last two posts. Maybe I'll just quote him directly
quote: BECKY: Are you buying instruments like these in the market?
BUFFETT: Well, I don't want to leverage up. No one wants to leverage up in this thing. So, if I could buy a hundred billion of these kinds of instruments at today's prices, and borrow non-recourse 90 billion, which I can't, but if I could do that, I would do that with the expectation of significant profit.
JOE: But the government can do that. You can't. And that's why the private sector can't, even you, can't save the system.
BUFFETT: I can't come close to it. But they have the ability to borrow. They can borrow much cheaper than I can borrow. They can borrow unlimited. They don't have covenants. They don't have -- I mean, they are in the ideal position. ...
quote: This leads me to believe that it is not an amazing investment opportunity, although I should say that I haven't been able to keep up with this anywhere near as much as I'd like.
This isn't an amazing investment opportunity. (Buffet compares it to declaring war after Pearl Harbour, something you have to do, not something that you should be happy about doing)
Buffet's investment into Goldman Sachs with 10% dividends on preferred shares and additional warrants, thats an amazing deal. But as he notes, he still wouldn't be doing it without an expectation of a bailout.
Posts: 7593 | Registered: Sep 2006
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posted
Yes. The net effect of the deal is an interest payment of effectively 20%, plus a 10% bonus if the loan is paid off early. He's getting a steal, probably even without the bailout.
Also, note that he made a loan. The gov't proposal doesn't look much like a loan.
Posts: 15770 | Registered: Dec 2001
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posted
From what I gathered on the other side of the forum, Empire involves a left wing coup of the US government and then a right wing coup of the US government via election. Oh, and the person elected is Palpatine who was orchestrating the whole thing. Oh, and there are Mechwarriors, Mad Cats by the look of it.
Needless to say, it didn't really seem like my cup of tea. I also don't quite see how it fits so I guess I'll just wait for an elaboration.
quote:Anyways, could you elaborate on how you think violent revolution fits into all this?
There is a growing perception that the rich are benefiting from special rules and exceptions laid down and enforced by the law that are intended to protect them from the consequences of their own mistakes, even as rules are changed to remove these protections from the poor. This is of course cyclical. But we're moving into a new dynastic period, I think, and I think the rich should be very careful about being too open about their oligarchy.
Posts: 37449 | Registered: May 1999
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Oh, well then I'd probably agree with you that the bailout will enhance that perception except for two caveats. First, I think that by the time all is said and done the Democrats will probably be able to get in some of their pet ideas such as subsidizing mortgage payments and avoiding foreclosures on mortgages held by the government. This will somewhat shift the lines of bitterness from rich vs. (middle class + poor) to irresponsible vs. responsible. For example, fingers will be pointed at those that jumped onto subprime loans by those that did not and have to pay higher taxes to compensate. Second, violent revolution is not the only probable way to move through this cycle. Canada has gotten a more equitable system without violence and I suspect that it is possible for America to move through the extremes in a cycle favouring the rich and then the poor without going through violent revolution.
We shall see, I suppose.
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quote:Canada has gotten a more equitable system without violence and I suspect that it is possible for America to move through the extremes in a cycle favouring the rich and then the poor without going through violent revolution.
Canada also broke away from Britain without having to kill a bunch of people.
Posts: 37449 | Registered: May 1999
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posted
Justice and Accountability are always such fun.
Why are conservatives against any move that might help people in bad mortgages?
Because it was those who got the mortgages who made the mistakes, not the rest of the tax payers. They agreed to technical financial advice from someone claiming superior knowledge who showed them an easy way to get what they want, but they did not understand, nor even read the details of the complicated and binding financial commitments they were making. Some were in it for greed. Others were in it because they thought, and were told, that "everyone" was doing it.
Why are we having to bail out the Financial Sector?
Because it was those who got those mortgage bundles who made the mistakes, not the rest of the tax payers. They agreed to technical financial advice from someone claiming superior knowledge who showed them an easy way to get what they want, but they did not understand, nor even read the details of the complicated and binding financial commitments they were making. Some were in it for greed. Others were in it because they thought, and were told, that "everyone" was doing it.
So what does our President suggest? He suggests that Congress create and approve this super-Bailout NOW. There is no time to wait or debate.
It is in the hands of those congressmen, not the rest of the tax payers. They are being asked to agree to technical financial advice from someone claiming superior knowledge who shows them an easy way to get what they want, but they do not all understand, nor even read the details of this complicated and binding financial commitment they are making. Some are in it for greed. Others are in it because they think, and are told, that "everyone" is doing it.
Posts: 1941 | Registered: Feb 2003
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quote:Originally posted by TomDavidson: Canada also broke away from Britain without having to kill a bunch of people.
I have confidence that the Americans of the future can catch up to the Canadians of over a hundred years ago. It will be tough, but be strong, you guys can do it.
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Blayne Bradley
unregistered
posted
quote:Originally posted by TomDavidson:
quote:Canada has gotten a more equitable system without violence and I suspect that it is possible for America to move through the extremes in a cycle favouring the rich and then the poor without going through violent revolution.
Canada also broke away from Britain without having to kill a bunch of people.
incorrect, we killed a bunch of germans.
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I think you'd have to use a generous definition of "funny" for the word to apply in this case.
Posts: 21898 | Registered: Nov 2004
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I wonder what the answer is to this question: What is the cumulative amount of the principle of all the houses with bad mortgage plans, and how many homes is that?
I imagine this would be a bad plan for any number of reasons, but could a single entity purchase all the at-risk homes for the remaining principle and hold a "refinanced" fixed mortgage for those people?
My opinion so far on this whole mess is that while a Bailout might prevent worse catastrophe, I think it is very unlikely that those involved in making decisions will do a good job at it. Money is going to flow into the wrong hands. I also recall hearing on NPR that someone (Paulson? Someone who works for him?) said that they had just picked the 700 billion dollar number because it 'sounded large.' Considering the war in Iraq was supposed to cost something like 100 billion dollars and now is closing in on a trillion... I bet this is going to cost far greater than what anyone is estimating.
Posts: 1261 | Registered: Apr 2004
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posted
There's something I don't quite understand here. Suppose the financial firms collapse. Obviously this is bad for their stockholders and employees and whatnot, but that's not the reason for the bailout. The bailout is because the resulting tightening of credit will make life very difficult for every other firm. Ok, fine, so how's this? Let the government make loans directly to those other firms, cutting out the middleman of the financial firms. The Treasury is the lender of last resort anyway, there's no reason (I know of) that it can't lend directly to commercial firms. Now, admittedly the government is maybe not set up to evaluate the credit-worthiness of small businesses and such, but then again, we have all these people just fired from collapsed banks.
Posts: 10645 | Registered: Jul 2004
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posted
EX CEO of AIG yesterday sold SOME of his AIG stock for 108 million yesterday. Poor Fellow. If he'd a sold a year ago, it would have been a billion.
Well, i guess there is always hope for the other 30 million shares he has of AIG, or the Investment firm he runs that has 35 million shares.
Really? Was his 34 million dollar salary enough? It takes a special kind of Christian man to fly the hindenberg into the statue of liberty. I say give him a billion of the bailout.
Posts: 377 | Registered: Jul 2003
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quote:Millions of us did nothing wrong, according to the accepted wisdom of the age. We saved. We put a large part of our money into the stock market, as we were urged to do. Because the market wasn’t at ridiculously high levels, it seemed prudent to invest in broad indexes, foreign indexes and small- and large-cap indexes. ... The “earnings” part of those price-to-earnings ratios turns out to have been fiction for some financial companies, which normally account for a big part of total corporate earnings. In fact, earnings of giant finance players were often wildly negative...
His proposition to annul credit-default swap contracts makes sense to me, but I am no economics maven. What am I missing? (fugu13, any thoughts? But dumb it down, please. )
quote:[section edited out -- see Dagonee's post below before jumping to the article directly] ... why not simply annul these credit-default swap contracts? With that done, the incomprehensibly large liability of the banks would cease, and we wouldn’t need this staggering bailout. Shouldn’t we consider making the speculators pay some of the price? ... One final little thought bubbles into my mind: Maybe the bailout should not be of the banks at all, but of homeowners themselves. Maybe if we make the government the buyer of last resort of homes, we will stabilize the markets, stabilize the debt associated with the markets and take the gain out of the credit-default swaps for the speculators. Yes, price would be a huge issue, but so it is for Mr. Paulson’s plan for buying debt from banks.
quote:Mr. Paulson demanded that Congress forbid judicial review of his decisions on use of the money in the mortgage bailout. This would amount to an abrogation of the Constitution.
It's simply not true, and it's being repeated everywhere with no one even attempting to do an analysis of it.
There are lots of reasons to oppose or support the review language in the original draft. There's no need to stoop to repeating lies about it.
Posts: 26071 | Registered: Oct 2003
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posted
Dagonee, I recall your raising concern about this previously. I'll edit the reference in my post so as not to be repeating it, and I'll add a request for people to note your post before reading.
---
On a tangentially related note, is this where you think the FBI investigation is headed? Not towards the "Constitutional" issue, but towards [investigating for] fraudulent representation in PE ratios and credit-default swap contracts?
Posts: 14017 | Registered: May 2000
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posted
hey Stein agreed with me on the govt starting with the housing market instead of with the financial institutions...
Posts: 1261 | Registered: Apr 2004
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Yes, I recalled someone here mentioned that, but I didn't remember who it was. Thanks, dabbler!
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(Dagonee, I corrected this reference where I made it elsewhere on the site here, and I linked back to you. Even though that was in jest, I understand that this is a rankling thing.)
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quote:Dagonee, I recall your raising concern about this previously. I'll edit the reference in my post so as not to be repeating it, and I'll add a request for people to note your post before reading.
My post wasn't directed at you, CT, but Stein. There was nothing at all wrong with your post or quoting Stein.
Sorry I didn't make that clear.
quote:On a tangentially related note, is this where you think the FBI investigation is headed? Not towards the "Constitutional" issue, but towards [investigating for] fraudulent representation in PE ratios and credit-default swap contracts?
No idea, but I suspect it's more than that. The SEC would be the one to investigate simple misstatement of earnings.
Posts: 26071 | Registered: Oct 2003
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posted
A last question, then I'm off for a bit -- does interstate email correspondence count as "communication via interstate wire," or something of the like? Or webpages for a financial institution accessed from another state? (my thanks in advance, BTW)
Posts: 14017 | Registered: May 2000
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posted
He's playing a bit fast and loose with the issues surrounding credit default swaps.
First, the size of the market is not measured by the total value of all credit swaps; many (most, I think; statistics are hard to find) banks holding swaps hold positions on both sides, which means that the net payments in the event of a default are small.
Second, credit swaps play an important role in reducing risk in many situations. For instance, when a bank owns bonds for a company, purchasing a credit swap for that company means that the bank will receive some return on its investment even if the company defaults.
Mostly, there doesn't seem to be a very good argument that removing credit swaps would solve the problems. Credit swaps are not what are making it hard for, for instance, money market funds to remain in existence (meaning, have assets with value at least equal to the amount investors have invested in the fund, since that is how a money market fund works).
Basically, mortgages are not as nice an investment as supposed in valuation models, but this was hidden by the general increase of the market at the same time as they were made available with less leverage. Even annulling all credit swaps (and assuming this removes a large amount of overextension), the remaining overextension would probably be somewhere from 500 to 1,500 billion dollars (using very rough estimates based on overvaluations estimated in the link above).
Posts: 15770 | Registered: Dec 2001
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quote:A last question, then I'm off for a bit -- does interstate email correspondence count as "communication via interstate wire," or something of the like? Or webpages for a financial institution accessed from another state? (my thanks in advance, BTW)
Oh, yes. Absolutely.
Your second example raises a good point: the defendant in such a case could be guilty even if he had nothing to do with the communication, as long as it is shown that he knew the communication would occur. More importantly, the communication does not itself have to be fraudulent. It just has to be part of an overall fraudulent scheme.
Posts: 26071 | Registered: Oct 2003
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fugu13, I think I'm going to buy you a tinkertoy set and label one disk "money," one "debt," one stick "a bank," etc., and have you over for dinner. Give me a bit -- I'll need some time before I can chew on it. But to you as well, thanks.
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quote:Originally posted by Dagonee: It's simply not true, and it's being repeated everywhere with no one even attempting to do an analysis of it.
Out of curiosity, was that quote a mischaracterization of the section 8 in the original three page bailout proposal? If so, how do the two relate? (Or if not, what are you referring to?)
Posts: 7593 | Registered: Sep 2006
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quote:Out of curiosity, was that quote a mischaracterization of the section 8 in the original three page bailout proposal? If so, how do the two relate?
Yes, it was a mischaracterization of Section 8. I addressed it a bit on the previous page.
Posts: 26071 | Registered: Oct 2003
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posted
Ah, to be honest that post was a kinda opaque to me. My reading of it now is that section 8 tries to exempt the bailout proposal from the APA but not (and it cannot?) the actual constitution. Is that correct?
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posted
I think the easiest way to view it is that it reduces the amount of judicial review to the constitutionally allowed minimum - a minimum which is not well defined at this point in time.
Posts: 26071 | Registered: Oct 2003
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posted
Personally, the current administration in general and Sec. Paulson and Chairman Bernanke have inspired so little confidence and trust that, should we give them what they ask for, I think that everybody and their Aunt Fanny should be reviewing what they do with it. We should watch them like hawks.
Posts: 11187 | Registered: Sep 2005
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posted
I told my mom (who is much more financially savvy than I am) about a month ago that Wachovia was in line for trouble. She shrugged. I'm glad that her finances are safe according to the article.
Posts: 1261 | Registered: Apr 2004
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posted
The debate in Congress made me realize that there was a big difference between Business Conservatives and Fiscal Conservatives.
The Business Conservatives are promoting the Bail Out. They believe that "What's good for the Corporation is good for the Country." Fiscal Conservatives argue that "What's good for keeping federal expenditures down is good for the country."
Usually these two groups walk hand in hand, promoting lower corporate taxes and less regulation.
Now the Biz-Cons want more money and are playing the Doom card for all its worth
The Fis-Cons are talking the language of Social Conservatives, with words like "hand-out", "responsibility", and "paying for their mistakes".
Moral Hazard is another great term.
Posts: 1941 | Registered: Feb 2003
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posted
Well, the bailout bill seems to have failed. Perhaps we are in for interesting times.
I have a possibly stupid question. Suppose the American financial system fails badly, and credit dries up. Is there anything preventing European/Russian/Chinese banks from taking over and lending to the American businesses that need credit? It seems to me that globalisation may come to our rescue in a way that it couldn't in the 1930s.
Posts: 10645 | Registered: Jul 2004
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posted
I'd like to see some exploration of the government making it easy for new players in the financial sector to come in and buy parts of the old firms at fire sale prices, maybe with some sort of stock switching options. I think this might be a better solution than propping up the old firms that screwed us into this mess.
Posts: 10177 | Registered: Apr 2001
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posted
Somewhat in the vein, I'm not sure I understand the sale of WaMu and Wachovia. I've got a very sketching understanding of what went on here. From what I can tell, the government forced them to sell.
The reason for this sale is that they had a lot of bad debt, but it seems to me that this is exactly what the bailout bills were supposed to be addressing. It seems like, in my limited understanding, that the government made it easy for an old firm to buy these companies at fire sale prices and basically forced them to sell at this price.
That'd be what I was talking about, but instead of reducing the number of banks out there and giving fire sale deals to the big, old firms, I'd like to see them helping out smaller banks get started or expand by gobbling up parts of the firms that are being taken over.
Posts: 10177 | Registered: Apr 2001
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posted
WaMu was a takeover by the FDIC, who then sold it. It outright failed.
Wachovia did not fail, but was purchased by Citi in a deal brokered by the gov't. It was in trouble, but not as badly as WaMu.
So, it seems they're managing to keep accounts covered. But the issue isn't accounts being covered, it is the ability to keep making loans (in the case of non-investment banks), and there's no particular reason why one bank's failure and acquisition by another will make the other any more able to issue loans. Quite the opposite, in fact.
Posts: 15770 | Registered: Dec 2001
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posted
I'm not sure if I was clear there. I'm going throw out some semi-connected thoughts to maybe make it clearer.
I'm not expecting large take overs to free up money for loans.
My point with bringing up the bail out is that, if the $700 billion bail out went through before these take overs, would either of them been necessary?
I was under the impression that Wachovia didn't really have a choice in their sale. Is that incorrect?
I'm envisioning, with the government's support, new and/or smaller banks buying up the branches and such at fire sale prices and carrying out bank operations, most especially loaning out money. Definitely a rough idea, but it seems to me it might be a much better use of our money than what is going on and proposed now.
Posts: 10177 | Registered: Apr 2001
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posted
The whining about how Pelosi's speech undermined the vote is annoying. Vote for or against the bill because of its merits. Her speech didn't suddenly add amendments to the bill. Now they're back to bickering about how "partisan politics" caused the failure of the bill. People who let her speech change their vote are more to blame than her. It shows yet again how many of them care less about the actual nuances of the bailout plan and more about posturing.
Posts: 1261 | Registered: Apr 2004
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quote: I'm envisioning, with the government's support, new and/or smaller banks buying up the branches and such at fire sale prices and carrying out bank operations, most especially loaning out money.
I'm not sure how this would work. Right now, if your utility company, for example, wants to make some renovations, they can't charge you for it up front. They go get a short term loan from the bank for many millions of dollars and then pay it back. Big banks have ten or twenty million sitting in the account that they can just loan out. Smaller banks very well might not have that on hand.
And there's several thousand utilities in the US. Plus another 8,000 or so publically traded companies. Plus all the little mom and pop places that might need a loan. Oh, and then there's private citizens who want a new car or a mortgage.
The US engages in a truly rediculous amount of lending. Small banks could handle the personal lending, but I don't know that they'd have the resources to take over business lending.
Posts: 2283 | Registered: Dec 2003
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posted
I'm not sure how much choice Wachovia had, but if they had been in a position as bad as WaMu, they almost certainly would have been seized.
As for intentionally creating a host of small banks, I'm really not seeing what results from this, other than the phenomenal administrative overhead of creating a large number of semi-major banks. Small banks in the US essentially don't engage in the sorts of operations the larger ones do, and trying to create all that institutional capacity would be an astounding effort. Plus, I don't see what makes the current banks particularly incapable of carrying out operations reasonably well if the necessary liquidity is forthcoming that would make us suddenly want to make numerous smaller banks. If the idea is some sort of punishment, all the people working at the smaller banks would pretty much have to be the ones who had worked at the larger ones, so the only ones I see being punished are the shareholders and debtholders of the larger banks, which mostly means anyone with money in the stock market.
Posts: 15770 | Registered: Dec 2001
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posted
I think I used the wrong term there. I didn't really mean small banks. I meant smaller ones.
A significant part of this crisis is the hugeness of the financial firms, as well as how easily they can develop credit lines. We seem to be moving towards a government assisted bank consolidation where we are going to end up with fewer, even larger banks, whihc, it should be noted, participated fully in the screwing of America.
We also seem to be inevitibly moving towards a situation where we're reinforcing the idea that when they again screw us up royally, the government will bail them out and the people in charge will suffer at best minor inconvenience.
I don't see the need to prop up these banks now when we could restore the ability to lend by focusing on encouraging and ensuring the growth of new banks. Is there a good reason why we need to keep them around other than the short term pain that will come with letting them fail?
This does leave the problem of people's investment tied up in the firms that are being let fail as they deserve. I'm not really sure what should/could be done about that.
Posts: 10177 | Registered: Apr 2001
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Give me a bit -- I'll need some time before I can chew on it. But to you as well, thanks.
