The federal bailout, brought to you by the "new communists"
Yesterday, New York Representative José Serrano was feeling iffy about the pending federal bailout. In a pointedly worded list of questions on the plan, he asked:
“When President Bush tells us we must pass the bill exactly as he proposed it right away or face a catastrophic event, why do I feel like I’m voting on whether to go into Iraq all over again, and worry that the results will be similarly bad?"
On both sides of the aisle, such bursts of skepticism are becoming a speedbump, even a roadblock, in the rush to rescue Wall Street.
On Politico.com, former Clinton Labor Secretary Robert Reich mused, "Why should Wall Street get bailed out by me when I’m getting screwed?”
An uncanny echo emerged on the right, in Pat Buchanan's commentary on Human Events:
"Is it fair that businessmen who fail in neighborhood stores have to close shop and often sell their homes, while Wall Street titans are spared the consequences of monumental stupidity and greed?"
But Buchanan conceded:
"To save the sheep who might have been wiped out in a general financial panic, we may have to save the pigs."
Yet the heavy cost of saving all that bacon is forcing some ideological rejiggering, both in the White House and among lawmakers trying to distance themselves from the administration's legacy.
Salon.com's Glenn Greenwald finds it odd that conservatives like Ed Morrissey are criticizing the bailout plan as executive overreaching while they've been much quieter about the problem in other arenas, like constitutional rights. In another parallel to the post-9/11 national security debate, he points to Treasury Secretary Henry Paulson's proposal to block judicial review of the Secretary's decisions.
"In the areas of national security and war -- so broadly defined as to include almost everything the President does both abroad and on U.S. soil ... the Bush administration's central strategy has been repeatedly to tell courts that they have no right to review the Leader's decisions. The Military Commissions Act, the Protect America Act, the FISA Amendments Act, the Detainee Treatment Act, and the Patriot Act all provide, to one degree or another, the exact same absolute executive discretion and prohibition on judicial review that the Paulson Plan provides, and in doing so, allows the President to decide which individuals -- including Americans -- are spied on, arrested, detained, rendered, and subjected to all sorts of interrogation methods without any review at all."...While some of the Right's leading lights are undoubtedly conscious of those cynical political calculations, many of them... actually believe what they're saying about how outrageous unlimited executive power and a lack of oversight are and don't realize how any of that fits in with everything they've been doing this decade.
While lawmakers are reluctant to fully unfurl the golden parachute, ordinary Americans seem even less enthusiastic: over 40 percent opposed the sweeping bailout proposal in a new Rasmussen poll. And about the same proportion predicted that the congressional intervention would either do nothing or worsen the economy.
Since the bailout effort seems to be trailing even Bush's presidency in popularity, Jonathan Singer at MyDD says:
"While there may be a political price to be paid if nothing is passed, it's not clear to me that there is much of a political price to be paid if this [plan] is not passed."
Unless, of course, the politicians behind the plan are worried about pleasing a particular constituency that shoveled over $1 billion into their campaign war chests over several years while the crisis bubbled below the surface.
At Balkanization, Jack Balkin predicts that, irony aside, a web of political interests will eventually spur former free-marketeers to cushion the financial sector's fall:
"One would have thought that conservative, free market Republicans, of all people, would have warned us of the dangers of state planning and state control of the economy. Certainly they have spared no opportunity to denounce reform of our health care system as socialism. These accusations seem to be stilled, however, when the issue is bailing out the Republican Party's friends on Wall Street, while enlisting many of these friends in running the new state corporate enterprise, and selling the assets back to the same group later on."It is a bit like the privatization of the old Soviet Bloc. Faced with crisis, the old communists became the new capitalists; they made the most of changed conditions by buying up old state businesses and running them as capitalist oligarchs. In America we see the same logic in reverse: Faced with a crisis of their own making, the old capitalists become the new communists."
Whatever ideological mix ultimately emerges from the crisis, the bailout plan will likely bank on market and bureaucratic forces that drove us into the bog. A turning point, maybe, but not exactly revolution.
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Comments (26)
Big corporate greed knows no limits or ethics. Conservatives barred regulations to big corporations for years in the name of free market, with their favorite motto THE MARKET WILL SELF ADJUST or REGULATIONS WILL ONLY HURT THE MARKET. Now that their free market is heading for a free fall from the insatiable greed, they want a socialist solution so they can keep lining their own pockets with tax payers’ money. Neat tricks for stupid people who keep voting for conservatives, thinking we are not being screwed enough and their experience can really SAVE us.
According to the U.S. Census, there were 111,162,259 households in the United States. Here is an alternative, distribute the 700 billion dollars to American households in checks that cannot be cashed but must be deposited into a bank account that cannot be withdrawn until the end of 2010. This will help give banks the wherewithal that they need to make homeloans and at the end of 2 years Americans will be able to use those funds to pay off the higher income taxes that we will incure as a result of our huge national debt.
Uh, wait a sec. Let me get this straight. The Fed whose boundless cupidity moved it to engineer this fiasco is successfuly attempting to convince the congress and its sworn enemy, the people that they must dig yet deeper so that the superior financial acumen of the queen's representatives (the fed) can be brought to bear in the resolution of all these crises that they have inflicted upon us which of course stands to benefit mightily, again the fed, and its minions who are already leveraging and manipulating the funds blown by the treasury on the existing "bailouts". Have I missed anything here?
These piranhas are assuming that normal sensible people who possess enough simple wisdom to steer clear of the financial casino associated with these moneyed interests have the least interest in picking up their markers when their streak runs out. Unfortunately for the hoarders, many good hearted citizens are becoming informed that these junkies derive immense amusement from the knowlege that their antics are accomplished at the expense and using the resources of the general public. These good hearted citizens have at last been arriving at the intervention and are leaning towards the "tough love" therapy for the junkies. Instead of throwing huge quantities of money at them we think it's time to jail them and confiscate their purloined riches. At least during the depression there were some of the scoundrels who had the good graces to leap off tall buildings in propitiation for their excesses.
http://www.huffingtonpost.com/2008/09/22/dirty-secret-of-the-bailo_n_128294.html
Assuming for a moment that we're being told the truth, and the problem is non-performing mortgages and NOT Credit Default Swaps......
and putting aside the transparent issue that the plan transfers direct control of $700 billion dollars to the president, (via the cabinet position), with absolute authority to use for ANYTHING....
Let's examine the needs and an alternative solution to 'the problems':
PROPOSAL:
Pass legislation to reduce the interest rate on ALL mortgages by 1%, and reset all ARM's to 1% below origination, the time at which they WERE deemed affordable by the originating banks.
1. mortgages are non-performing and foreclosing at an excessive rate. And banks are unable to value them. Most of this is due to the re-setting of ARM's to unaffordable levels.
EFFECT:
A. The vast majority of non-performing loans become 'performing'.
B. The upward spiral of foreclosures stops.
C. Decline in property values stabilizes and begins to rise thereby increasing the value of both performing AND non-perfoming loans.
D.The rise in value reduces the 'reserve requirements' of the banks thereby freeing cash for investment.
2. Banks desperately need an influx of cash.
EFFECT:
B. As 'performing' mortgages they now introduce an IMMEDIATE influx of cash to the entire banking system. (in addition to D: above)
SUBSIDIARY EFFECT:
A. The reduction of an individuals mortgage payment acts EXACTLY like the recently passed 'stimulus' package which created rebates. It does NOT cost the government OR the taxpayer one red cent. It provides this stimulus month after month for YEARS, and immediately increases the potential for 'discretionary spending' thereby injecting cash into, and boosting the economy.
This proposal also eliminate what was stated as the MAJOR problem so many times during the hearing.
No one can determine the value of, or the cost of 'buying' the non-performing loans.
PERFORMING loans have an IMMEDIATELY determinable value.
This proposal also addresses the issue raised as to 'who' should bear responsibility and places the responsibility upon the 'creator' of the problem; rather than the taxpayer. The objection of 'people who couldn't afford mortgages' is eliminated because the mortgage issuer made the determination that 'it was in fact affordable'(acceptable) at the time it was issued, (approved), and this proposal clearly makes it MORE acceptable by the reduction of the interest rate.
This proposal also eliminates the need to address 'executive compensation'. Although it should be noted that in a normally accepted business model, indeed, in most corporate structures, a reduction in compensation, or 'cut expenses' (not only executive), is generally deemed MORE acceptable than a price increase.
This proposal also creates a 'spread the risk' situation applying equally to all participants exactly equal to their participation; thereby not penalizing any financial institution more than another.
While this proposal alone may not completely address the situation; it will clearly REDUCE the $700 billion figure.
It also provides an IMMEDIATE effect as opposed to the statements by both the Secretary of Treasury and Federal Reserve chairman that the proposal before Congress WILL TAKE TIME to implement.
One addition to the 'proposal'.
The reduction in the mortgage payment is treated as a 'taxable' item for incme tax purposes.
The tax generated by this is used to set up an FDIC type insurance program to protect future mortgages, creating an additional benefit to the banks in securitizing mortgages.
We have:
1. corrected the past problem
2. addressed the present problem
3. prevented the future problem
comprehensive enough ?
Tom - not sure what ur credentials are, but sounds like this could be a workable plan......i think i like it thusfar........the folks in charge should be paying attention here and consider how ur points may play out. WAY better than the crap they are considering at this point.
Every alternative that DOES NOT give money to these greedy *#@*$ needs to be explored. If we the tax payer need to put money up, we the taxpayer needs to see some direct benefit from this. Some of the ideas explored above might be worth exploring.
The speed the Bush administration wants to do this in, and the lack of oversight they demand makes me smell a rat. NO to the bailout in its current form. I reject the premise that profits, compensation and bonuses are privatized, but losses are socialized. NO TO THE BAILOUT!
Every alternative that DOES NOT give money to these greedy *#@*$ needs to be explored. If we the tax payer need to put money up, we the taxpayer needs to see some direct benefit from this. Some of the ideas explored above might be worth investigating.
The speed the Bush administration wants to do this in, and the lack of oversight they demand makes me smell a rat. NO to the bailout in its current form. I reject the premise that profits, compensation and bonuses are privatized, but losses are socialized. NO TO THE BAILOUT!
Every alternative that DOES NOT give money to these greedy *#@*$ needs to be explored. If we the tax payer need to put money up, we the taxpayer needs to see some direct benefit from this. Some of the ideas explored above might be worth investigating.
The speed the Bush administration wants to do this in, and the lack of oversight they demand makes me smell a rat. NO to the bailout in its current form. I reject the premise that profits, compensation and bonuses are privatized, but losses are socialized. NO TO THE BAILOUT!
Steve,
Thank you for the compliment.
I have no credentials other than being a 56 yr.old ordinary American with a high school education, with perhaps a little intelligence. (but sometimes, out of the mouth of babes......)
I'd like to think the idea makes some sense to others. I've actually posted it on 4 forums in the hope that it might at least be a shell or a framework for a workable plan and someone in the right position will see it.
I have no pretense that, as written, it's the complete answer. (I left out much to keep it DELIBERATELY simple)
I can say that it addresses virually every objection that I've heard raised; not only from the politicians themselves, but also from ordinary citizens.
I've also sent it as an e-mail to almost half of our Senators. Hopefully I'll get it to all.
It's simply my personal attempt not to accuse or to blame which is easy to do.
It's simply an attempt to solve.
Again, my thanks.
Tom - ur welcome. I'm a CPA (ny).......not that it makes me an expert, but certainly somewhat more knowledgable than most here. I certainly am also not an expert on all the potential implications of yours, or any other, plan. At first glance, your proposal seems to make much more sense than the $700B fix, but it will definitely need to be scrutinized by many, as all points of view need to be considered here. A very large % of all posts here on Newsday, and every other internet media outlet, are filled with everyones' perspective -- which are skewed to their personal p.o.v. (it's a natural thing) -- if each perspective is not carefully considered here, I believe (however rediculous it may sound) we COULD be headed to a major "civil/status" war. Unfortunately, time is of the essence which certainly does not help the situation.
If extreme circumstances eventually become reality, I'll be ready --e.g. if I have it and you want it, you better be able to come and take it from me, and vice versa -- sounds simple and elementary, but if the money goes "poof" in this country, things will flip very quickly.
Scary schtuff.
Having just watched chairman Bernanke testify before the joint commitee, he offered this:
"The stabilization of housing prices is the KEY to recovery"
I believe Bernanke is absolutely correct. But what does he mean by stablization, sustain current value? bring down the value and keep it low? increase value and keep it high? My biggest fear right now (and this is coming from my "perspective") is that if the home value declines too much too quickly, there is a potential for huge implications -- a very large % of the wealth of many people is in the "perceived" value of the home they own and many decisions are largely based on this value. I would think a quick decrease in value would dramatically shift the economic status of not only our country, but also each of us individually (to various degrees). The implications only multiply from there due to the current structure and volume of dollars in the capital markets.
But then again, the whole system is based on "perceived value" which is the reason why this is a fragile situation with a time restriction -- only, does anyone really know how much time is left on it?
I'm guessing 'sustain current value', simply because it's easier to achieve than an increase, and a further 'decline' increases pressure on bank capitalization requirements, which subsequently reduces credit availability.
Although, here's a statement by Donald Kohn, vice chairman of the Fed from sept. 11, 2008:
To restore capital ratios depleted by mortgage losses and to raise those ratios even further in order to reduce leverage to safer levels demanded by counterparties, banks and other lenders need to reduce assets. They do so by tightening terms and standards across a broad array of credit--and we have seen this behavior reflected in our surveys of bank lending officers and in various spreads and other measures of risk perceptions, risk aversion, and reduced supply of credit at benchmark interest rates. In the current circumstances, some of the tightening we have seen has been in anticipation of possible adverse events in the economy and in confidence toward the financial sector. These types of actions not only move up the demand-for-credit curve, but they also bolster profits going forward to cover potential write-offs and to attract new equity capital. Pressures on profits arise not only from write-offs, but also because some sources of earnings, like securitization of mortgages or leveraged loans, are no longer available.
In the steady state, lenders will get greater returns for taking risk than they did two years ago, intermediaries will be less leveraged and better capitalized, and the financial system will be more robust and resilient to shocks. The transition to the new steady state, however, as lenders deleverage and protect themselves against various downside risks, involves some overshooting--making terms and standards tighter than will be necessary over the long run.
This seems to say that it's NECESSARY for banks to tighten credit, (unless I'm misinterpreting it), which would contradict the 'need' for the rescue package.
Two items in the statement jump out to me:
"some of the tightening has been in anticipation of adverse events".... (Credit Default Swaps being called ??)
"some sources of earnings, like securitization of mtgs are no longer available" (again ? CDS's ?) Since this statement was made AFTER the fannie/freddie bailout, he can't be referring to their position in securitizing mortgages.
Perhaps I'm wrong but I'm becoming more convinced that it's the CDS's that is the problem, especially since the collapse of Bear-Sterns was attributed, (in large part) to a $13 trillion dollar exposure to CDS's and AIG had written $78 billion in CDS's.
just a example:
The market cap of GM is $15 billion or so. There are about $1 trillion in credit default swaps bet on the success or failure of GM. It is virtually impossible for this to be hedged because there is not $1 trillion in GM bonds available as collateral.
And that's just one company, but it gives you an idea of what's going on.
My thinking is that the 'takeover' of fannie/freddie, which triggered an 'event' which results in a call for the CDS's to become due, (estimated at $500 billion), has also triggered a need for the banks to hold capital against the settlements, (sometime in Oct.), hence the need for quick action on the 'rescue'.
By the way, the response fom the FED to my proposal, (yes, they acually read it and answered), was that "it falls outside the jurisdiction of the FED.
Of course this only increases my confusion since the FED is calling for a rescue proposal......
It's interesting.... to say the least.
And a prophecy as to what will happen:
Taxpayers/homeowners will receive some 'bones' and it will pass.
I'm guessing 'sustain current value', simply because it's easier to achieve than an increase, and a further 'decline' increases pressure on bank capitalization requirements, which subsequently reduces credit availability.
Although, here's a statement by Donald Kohn, vice chairman of the Fed from sept. 11, 2008:
To restore capital ratios depleted by mortgage losses and to raise those ratios even further in order to reduce leverage to safer levels demanded by counterparties, banks and other lenders need to reduce assets. They do so by tightening terms and standards across a broad array of credit--and we have seen this behavior reflected in our surveys of bank lending officers and in various spreads and other measures of risk perceptions, risk aversion, and reduced supply of credit at benchmark interest rates. In the current circumstances, some of the tightening we have seen has been in anticipation of possible adverse events in the economy and in confidence toward the financial sector. These types of actions not only move up the demand-for-credit curve, but they also bolster profits going forward to cover potential write-offs and to attract new equity capital. Pressures on profits arise not only from write-offs, but also because some sources of earnings, like securitization of mortgages or leveraged loans, are no longer available.
In the steady state, lenders will get greater returns for taking risk than they did two years ago, intermediaries will be less leveraged and better capitalized, and the financial system will be more robust and resilient to shocks. The transition to the new steady state, however, as lenders deleverage and protect themselves against various downside risks, involves some overshooting--making terms and standards tighter than will be necessary over the long run.
This seems to say that it's NECESSARY for banks to tighten credit, (unless I'm misinterpreting it), which would contradict the 'need' for the rescue package.
Two items in the statement jump out to me:
"some of the tightening has been in anticipation of adverse events".... (Credit Default Swaps being called ??)
"some sources of earnings, like securitization of mtgs are no longer available" (again ? CDS's ?) Since this statement was made AFTER the fannie/freddie bailout, he can't be referring to their position in securitizing mortgages.
Perhaps I'm wrong but I'm becoming more convinced that it's the CDS's that is the problem, especially since the collapse of Bear-Sterns was attributed, (in large part) to a $13 trillion dollar exposure to CDS's and AIG had written $78 billion in CDS's.
just a example:
The market cap of GM is $15 billion or so. There are about $1 trillion in credit default swaps bet on the success or failure of GM. It is virtually impossible for this to be hedged because there is not $1 trillion in GM bonds available as collateral.
And that's just one company, but it gives you an idea of what's going on.
My thinking is that the 'takeover' of fannie/freddie, which triggered an 'event' which results in a call for the CDS's to become due, (estimated at $500 billion), has also triggered a need for the banks to hold capital against the settlements, (sometime in Oct.), hence the need for quick action on the 'rescue'.
By the way, the response fom the FED to my proposal, (yes, they acually read it and answered), was that "it falls outside the jurisdiction of the FED.
Of course this only increases my confusion since the FED is calling for a rescue proposal......
It's interesting.... to say the least.
And a prophecy as to what will happen:
Taxpayers/homeowners will receive some 'bones' and it will pass.
Here's an excerpt from a speech by Bernanke from March 4, 2008:
The government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac, likewise could do a great deal to address the current problems in housing and the mortgage market. New capital-raising by the GSEs, together with congressional action to strengthen the supervision of these companies, would allow Fannie and Freddie to expand significantly the number of new mortgages that they securitize. With few alternative mortgage channels available today, such action would be highly beneficial to the economy. I urge the Congress and the GSEs to take the steps necessary to allow more potential homebuyers access to mortgage credit at reasonable terms.
Now, that actually took place on Sept. 7 in the amount of the $200 billion dollar 'rescue' plan. As of yesterday, only $5 billion has actually been used.
If the TRUTH is the mortgage market and NOT Credit Default Swaps, how do we have a crisis when we haven't addressed the SAME crisis with all of the $200 billion ?
Is this a new crisis ? I don't see how when it's described exactly the same as the fannie/freddie crisis.
Fannie/freddie has $200 billion to buy mortgages from the banks.
Doesn't that, (in theory), provide $200 billion in available credit to the banks to either provide new mortgages, or they could sell existing mortgages to fannie/freddie and use the funds to provide whatever credit they wanted; business loans, consumer loans. etc. ?
Why would the US treasury now need $700 billion to buy mortgages from the banks ?
The 'mortgage problem ' got $200 billion, only used $5 billion, but needs $700 billion more, AND NEEDS IT NOW ?
I'm not that familiar with the details of how the credit default swap market works, but i think i'm going to do some reading on it today to understand the whole thing. It sounds like your thought process is logical (logical is all my brain can really understand anyway).
That's what I get out of that article - he is saying it's necessary for banks to tighten credit. Thinking about it further (and I'm always re-considering everything as I continue to soak up new information) the CDS's may be largely to blame, but the mortgage defaults (and decline in home values) sounds like it's the major variable here as there has to be a flow of cash through the credit market for it to operate properly -- when that is seriously interrupted (i.e. default = no cash flow) things come to a hault if it's on a large enough scale to scare investors (back to my "perceived value" argument). The CDS October settlements could be the countdown timer.
The answer you got from the feds is bs and makes me further believe THEY really need this bailout to happen for personal reasons -- don't you think the politicians have more to lose than anyone else here? I'd be willing to bet that the majority of them have significant personal funds in a number of real estate and other investments and THEY will be the biggest losers if things run out their course without a bailout. EVERYONE's actions are almost always rooted in self-interest in some way no matter how hard we try to make it seem like we care about others. Be it my opinion but I believe anyone that does not think THAT is TRUE is bs'ing themselves. And we certainly need to keep that in mind here.
I'm not that familiar with the details of how the credit default swap market works, but i think i'm going to do some reading on it today to understand the whole thing. It sounds like your thought process is logical (logical is all my brain can really understand anyway).
That's what I get out of that article - he is saying it's necessary for banks to tighten credit. Thinking about it further (and I'm always re-considering everything as I continue to soak up new information) the CDS's may be largely to blame, but the mortgage defaults (and decline in home values) sounds like it's the major variable here as there has to be a flow of cash through the credit market for it to operate properly -- when that is seriously interrupted (i.e. default = no cash flow) things come to a hault if it's on a large enough scale to scare investors (back to my "perceived value" argument). The CDS October settlements could be the countdown timer.
The answer you got from the feds is bs and makes me further believe THEY really need this bailout to happen for personal reasons -- don't you think the politicians have more to lose than anyone else here? I'd be willing to bet that the majority of them have significant personal funds in a number of real estate and other investments and THEY will be the biggest losers if things run out their course without a bailout. EVERYONE's actions are almost always rooted in self-interest in some way no matter how hard we try to make it seem like we care about others. Be it my opinion but I believe anyone that does not think THAT is TRUE is bs'ing themselves. And we certainly need to keep that in mind here.
an intersting comment, (idea), from Rep. Doug Lamborn (R) Colorado this morning:
"How about a moratorium on capital gains taxes, which would probably encourage a flood of private investment, (i.e. cash) into the system" a la Warren Buffet. (who, incidentally controls approximately $250 billion in Berkshire cash, add in Microsoft cash and 20 or 30 others including sovereign wealth funds from Canada and the EU and you've got......
Maybe you can explain something to me; why did the Fed put up $30 billion this morning to get back foreign currency ?
an update: (expansion)
Assuming for a moment that we're being told the truth, and the problem is non-performing mortgages and NOT Credit Default Swaps......
and putting aside the transparent issue that the plan transfers direct control of $700 billion dollars to the president, (via the cabinet position), with absolute authority to use for ANYTHING....
Let's examine the needs and an alternative solution to 'the problems':
PROPOSAL:
Enact legislation to reduce the interest rate on ALL mortgages by 1%, and reset all ARM's to either the interest rate at origination or 1% below origination, the time at which they WERE deemed affordable by the originating banks.In addition, ARM's are converted to 30 yr. fixed.
1. mortgages are non-performing and foreclosing at an excessive rate. And banks are unable to value them. Most of this is due to the re-setting of ARM's to unaffordable levels.
EFFECT:
A. The vast majority of non-performing loans become 'performing'.
B. The upward spiral of foreclosures stops.
C. Decline in property values stabilizes and begins to rise thereby INCREASING the value of BOTH performing AND non-perfoming loans.
D.The rise in value reduces the 'reserve requirements' of the banks thereby freeing cash for investment.
E. The average cost of a foreclosure action, as stated in a report by the JOINT ECONOMIC COMMITTEE of congress is $78,000. With over 2 million foreclosures expected for 2008, this proposal could effect a substantial reduction in what is a $156 billion dollar negative event. (the costs to the lenders alone being $100 billion). With that figure expected to more than triple over the next 3 years ( to 6.5 million), according to estimates by Credit Suisse, we're looking at a negative impact on the US economy EXCEEDING the amount of the proposed rescue package BY $500 BILLION dollars, and which is NOT addressed nor REDUCED by the rescue proposal.
2. Banks desperately need an influx of cash.
EFFECT:
A. As 'performing' mortgages they now introduce an IMMEDIATE influx of cash to the entire banking system. (in addition to D above and in conjunction with Z near the bottom)
SUBSIDIARY EFFECT:
A. The reduction of an individuals mortgage payment acts EXACTLY like the recently passed 'stimulus' package which created rebates. It does NOT cost the government OR the taxpayer one red cent. It provides this stimulus month after month for YEARS, and immediately increases the potential for 'discretionary spending' thereby injecting cash into, and boosting the economy.
B.The reduction in the mortgage payment is treated as a 'taxable' item for income tax purposes.
The tax generated by this is used to set up an FDIC type insurance program to protect future mortgages, creating an additional benefit to the banks in securitizing mortgages. (and has the added effect of reducing the use of UNREGULATED credit default swaps)
This proposal also eliminate what was stated as the MAJOR problem so many times during the hearing.
No one can determine the value of, or the cost of 'buying', the non-performing loans.
PERFORMING loans have an IMMEDIATELY determinable value.
This proposal also addresses the issue raised as to 'who' should bear responsibility and places the responsibility upon the 'creator' of the problem; rather than the taxpayer. The objection of 'people who couldn't afford mortgages'* is eliminated because the mortgage issuer made the determination that 'it was in fact affordable'(acceptable) at the time it was issued, (approved), and this proposal clearly makes it MORE acceptable by the reduction of the interest rate. * (although I believe The willingness of lenders to tolerate, and in most cases, encourage, huge increases in loan-to-value ratios added to the demand for housing, especially by people who normally might not have had the savings to enter the market).
This proposal also eliminates, (at least for the moment), the need to address 'executive compensation'. Although it should be noted that in a normally accepted business model, indeed, in most corporate structures, a reduction in compensation, or 'cut expenses' (not only executive), is generally deemed MORE acceptable than a reduction in business.
This proposal also creates a 'spread the risk' situation applying EQUALLY to all participants exactly equal to their participation; thereby not penalizing any financial institution more than another. (and allowing the 'free market' to operate as it was intended)
While this proposal alone may not completely address the situation; it will clearly REDUCE the $700 billion figure. It also provides the time to institute EFFECTIVE regulations.
It also provides an IMMEDIATE effect as opposed to the statements by both the Secretary of Treasury and Federal Reserve chairman that the proposal before Congress WILL TAKE TIME to implement and eliminates the need, (and COST), for hiring an army of experts necessary to manage the rescue package, which is again, something requiring an excessive amount of time, if it's to be done in a competent manner to provide an effective result. (stated numerous times by both Paulson & Bernanke in the hearings)
We have in this proposal:
1. corrected the past problem
2. addressed the present problem
3. prevented the future problem
(Z) And to add a suggestion from Rep. Doug Lamborn (R)Colorado "how about a moratorium on capital gains taxes, which would encourage a 'flood' of private investment. (i.e. cash), into the system 'a la' Warren Buffet. Berkshire Hathaway has about $250 billion cash on hand. If it's truly a 'cash shortage creating credit freeze', as we're being told this would also have an IMMEDIATE and MASSIVE effect.
It doesn't cost anything, it's (a moratorium) on future taxes that don't exist, (and won't under the current situation), and it doesn't require a future tax burden (that will exist) in order to work.
An interesting development:
FDIC seizes WaMU and sells to JP Morgan.
An analysis:
WaMu had $307 billion in assets.
JPM will write down $31 billion resulting in $276 billion in assets.
JPM buys $276 billion in assets for $1.9 billion
JPM does NOT have to assume ANY liability for:
senior debt
unsubordinated debt
preferred stock or
common stock
All lenders TO WaMu get nothing.
All shareholders OF WaMu get nothing.
This exists because the FDIC seized WaMu 'first' making the write off of all debt possible. Quite the 'deal for' JPM.
Sale occurs in a matter of hours. Clearly illustrating a lack of concern for ANY of the debtholders or shareholders and a complete disregard for the possibility of a better deal.
And here's a quote from the FDIC website:
Customers with uninsured deposits receive the insured portion of their account as described above. They will wait longer to receive payment for some or all of their uninsured deposits. The amount of uninsured deposits they may receive, if any, is based on the sale of the failed bank's assets. Depending on the quality and value of these assets, it may take several years to sell the assets.
Conclusion:
And I make the conclusion on the premise that the seizure WAS necessary.
A political ploy to inject further fear into the public and politicians to lend support to passing a 'rescue plan'.
Purely my opinion.....
What happened to Fannie Mae and Freddie Mac started this
huge mess!! First of all, letting private companys control
government organizations is ridiculious!! Now everything has
spiralled out of control. Why should our government use our
hard earned dollars to bail out all of these PRIVATE SECTOR
companies to save our economy?!! Wall street executives
have profited off of middle class americans for far too long!!
Why aren't those companies like Lehman Brothers and AIG cleaning up their own messes??!!
What about the small businesses that are on the brink of
failure? Don't they effect our economy?? and why isn't our
government bailing them out as well??!!
Just want to leave you with one thought when you go to bed tonight:
ALL the representatives in Congress, Democrat & Republican alike have have been saying one interesting thing all week;
"My office has received thousands of phone calls and letters and the American people are 99% Against the bailout"
If the bailout passes my fellow Americans, you are no longer being 'represented'....
YOU ARE BEING "RULED".
Sleep well.
Did someone force all these banks to make these bad loans? Did all the borrowers ever think about how they were going to pay these things? There is greed everywhere, not just on Wall St. Next time you think you really need something, think about it for more than 60 seconds before you sign the contract! If your net worth is less than zero, you might want to defer that needed purchase.
Speaking of communism, have you seen Obama's KGB?
http://texasdarlin.wordpress.com/2008/09/27/is-this-1984-missouri-public-officials-join-obamas-truth-squad/