The $700 Billion Bailout Package

Whatever happened to those SEC laws which mandated the CFOs, CEOs, etc. personally sign the balance sheets for their companies ? and laws to make them criminally liable for their content ? Should that not have prevented this Sub-Prime Catasrophe ?

KidStallyn wrote:

This whole bailout is due to institutional trade organizations holding the financial system we have right now hostage. It's extortion. The 778 point drop when the house failed to pass the bill was their DIRECT shot across the bow. They're holding this country HOSTAGE right now, with a $700B ransom at the end. Is going to help Joe Baggadonughts American. Only in them keeping the job they have today. If it doesn't pass, then the financial institutions will pull out their money, tank the stock market, and wreck the lives of MILLIONS.

I agree with much of this. (Not sure where the part about Joe Baggadonoughts came from.) An opinion piece on the front page of yesterday's NY Times said essentially that those of us opposed to the bailout are naive in thinking that the issue is not whether or not we should save the scoundrels; rather, it is that if the bill is not passed, there is a strong possibility that we will be plunged into a deep recession, and maybe even a depression. The piece said that many felt like we did in 1929, government did not intervene effectively, and look what happened.

Sagarin wrote:

BUT, under the current set of extenuating circumstances, we are artificially deflating value in the same manner that the market can often artificially inflate value. If you are looking for one "outside the box" technique to offer some reprieve, this is surely it. The accounting itself is undermining capital ratios, forcing an irrational wave of selling and leading to a self-perpetuating downward spiral, like a run on the bank.

I still have a problem with phrases like "artificially deflating value" and "irrational selling." Sept. 11 didn't artificially deflate the value of the airlines. This "credit crunch" isn't artificially deflating the value of banks. Like the banks suddenly woke up one morning and realized that they and their peers had capital requirements? C'mon.

Putting this aside, I'm still not convinced that this really isn't just a rational reallocation of credit. There's no credit for the U.S. automakers. There's no credit for overextended banks/financials. I do not find this surprising at all. In fact, I found the credit that was extended to these borrowers extremely foolish.

Money is still very cheap outside of these localized areas. Corp. bond yields of healthy firms are still low by historical standards. Even mortgage rates are low. Wall street thinks that this is worse than it is because it is their own lines of credit that are contracting.

I fully understand that credit markets are necessary for a healthy economy. However, I'm not convinced that we should trust the usual suspects to be the sole players in those markets. Like I said, I think it would interesting to see a national bank or even a national IB enter the credit markets...

OldXCguy wrote:

I agree with much of this. (Not sure where the part about Joe Baggadonoughts came from.) An opinion piece on the front page of yesterday's NY Times said essentially that those of us opposed to the bailout are naive in thinking that the issue is not whether or not we should save the scoundrels; rather, it is that if the bill is not passed, there is a strong possibility that we will be plunged into a deep recession, and maybe even a depression. The piece said that many felt like we did in 1929, government did not intervene effectively, and look what happened.

What I meant with regards to the Joe Baggadoughnuts reference was more in line of how this bill would help the average Joe American by allowing them to keep there job. That's it. It's sad that we've actually gotten to this point. And like I said before, it's pure, unadulterated EXTORTION at the hands of the major investments houses of America. I also agree with one of the other posters using the house on fire example because right now, the house is on fire. You can do nothing and die inside....or you can get you and your family out of the house, go to the neighbors and call the fire department, and use your insurance to fix up the damages later. This bill is nothing more then a band aide. It's not a fix all cure all. It allows this country to continue. That's it. The real problems need to be addressed after the bill is passed and signed, when we have the time and money to allow American families to keep bringing home a paycheck every two weeks.

Uh oh, House just passed the thing....

RUN FOR THE EXITS, SELL THE NEWS...and stay flat. We are in for a bumpy ride over the next two months...

Sooner than later there will be no more money for the U.S. Gov't to borrow. We are already maxed out. The warning alarms are going off. Congress has to raise taxes or cut spending by trillions to pay for this bailout or issue War Bonds to pay for the Pentagon's Crusade Against Islam, I Feel Your Pain Bonds to pay for entitlements, Ike Bonds, Katrina Bonds, etc.

Barry Bonds?

Sooner than later wrote:

Sooner than later there will be no more money for the U.S. Gov't to borrow. We are already maxed out. The warning alarms are going off. Congress has to raise taxes or cut spending by trillions to pay for this bailout or issue War Bonds to pay for the Pentagon's Crusade Against Islam, I Feel Your Pain Bonds to pay for entitlements, Ike Bonds, Katrina Bonds, etc.

Nah, they'll just crank up the printing presses and make all the money they need. We can be like pre WWII Germany. Get your wheelbarrow ready. You'll need it if you want to pay cash for a loaf of bread.

EZ10Miler wrote:

"$223M for Alaskan fisherman

...and they secured Don Young's vote in the House. I nominate Alaska's representatives as the slimiest contingent of congressmen(and woman) in government. What an arrogant move to add an Alaskan earmark to the most carefully watched bill in Congress this century, while Ted Stevens is already in court for past criminal activity.

Okay, you can get back on topic now (doom & gloom); I just wanted to get that off my chest.

-note: I acknowledge that the AK reps might not have been the ones to add this, and I haven't checked if Don Young actually changed his vote, I'm just assuming. They are criminals already anyway.

Mr. Obvious wrote:

Barry Bonds?

Similar, just as artificially inflated.

As much as I attempt to avoid watching the talking heads and tout service aka CNBC, I just saw a trader who (besides his worn little insight that the "opposite of progress is Congress") made a rather astute and simple observation, which I very much agree with. And that is that the crux of this entire problem with the market started in the early 90s when the rules, and hence the game, changed with the expansion of the GSEs. Instead of making housing more affordable, they made money a lot cheaper, and these assets still have a long way to go until they unwind -- a massive deleveraging. Obviously, there is quite a bit more to the story, but those are the succinct ROOTS of the dilemma. As we've discussed before, you'd do well to google "pushing on a string."

Sagarin wrote:[/bAnd that is that the crux of this entire problem with the market started in the early 90s when the rules, and hence the game, changed with the expansion of the GSEs. "

It was 1995.

September 30, 1999

Fannie Mae Eases Credit To Aid Mortgage Lending

By STEVEN A. HOLMES

In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.

The action, which will begin as a pilot program involving 24 banks in 15 markets -- including the New York metropolitan region -- will encourage those banks to extend home mortgages to individuals20whose credit is generally not good enough to qualify for conventional loans. Fannie Mae officials say they hope to make it a nationwide program by next spring.

Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.

In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called subprime borrowers. These borrowers whose incomes, credit ratings and savings are not good enough to qualify for conventional loans, can only get loans from finance companies that charge much higher interest rates -- anywhere from three to four percentage points higher than conventional loans.

''Fannie Mae has expanded home ownership for millions of families in the 1990's by reducing down payment requirements,'' said Franklin D. Raines, Fannie Mae's chairman and chief executive officer. ''Yet there remain too many borrowers whose credit is just a notch below what our underwriting has required who have been relegated to paying significantly higher mortgage rates in the so-called subprime market.''

Demographic information on these borrowers is sketchy. But at least one study indicates that 18 percent of the loans in the subprime market went to black borrowers, com

pared to 5 per cent of loans in the conventional loan market.

In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980's.

''From the perspective of many people, including me, this is another thrift industry growing up around us,'' said Peter Wallison a resident fellow at the American Enterprise Institute. ''If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.''

Under Fannie Mae's pilot program, consumers who qualify can secure a mortgage with an interest rate one percentage point above that of a conventional, 30-year fixed rate mortgage of less than $240,000 -- a rate that currently averages about 7.76 per cent. If the borrower makes his or her monthly payments on time for two years, the one percentage point premium is dropped.

Fannie Mae, the nation's biggest underwriter of home mortgages, does not lend money directly to consumers. Instead, it purchases loans that banks make on what is called the secondary market. By expanding the type of loans that it will buy, Fannie Mae is hoping to spur banks to make more loans to people with less-

than-stellar credit ratings.

Fannie Mae officials stress that the new mortgages will be extended to all potential borrowers who can qualify for a mortgage. But they add that the move is intended in part to increase the number of minority and low income home owners who tend to have worse credit ratings than non-Hispanic whites.

Home ownership has, in fact, exploded among minorities during the economic boom of the 1990's. The number of mortgages extended to Hispanic applicants jumped by 87.2 per cent from 1993 to 1998, according to Harvard University's Joint Center for Housing Studies. During that same period the number of African Americans who got mortgages to buy a home increased by 71.9 per cent and the number of Asian Americans by 46.3 per cent.

In contrast, the number of non-Hispanic whites who received loans for homes increased by 31.2 per cent.

Despite these gains, home ownership rates for minorities continue to lag behind non-Hispanic whites, in part because blacks and Hispanics in particular tend to have on average worse credit ratings.

In July, the Department of Housing and Urban Development proposed that by the year 2001, 50 percent of Fannie Mae's and Freddie Mac's portfolio be made up of loans to low and moderate-income borrowers. Last year, 44 percent of the loans Fannie Mae purchased were from these groups.

The change in policy also comes at the same time that HUD is investigatin

g allegations of racial discrimination in the automated underwriting systems used by Fannie Mae and Freddie Mac to determine the credit-worthiness of credit applicants.

Copyright 2008 The New York Times Company

Thanks Carnivore for the thread and to everyone who participated. It has been very informative and entertaining. I'm not sure what I did before LRC, probably internalize a bunch of political angst. Threads like these are very cathartic.So we are now entering into a new age...can't wait for the next thread.

jeb wrote:

Uh oh, House just passed the thing....

RUN FOR THE EXITS, SELL THE NEWS...and stay flat. We are in for a bumpy ride over the next two months...

Hear that giant sucking sound?

That's Wall Street on their knees returning a $700,000,000,000 favor to Congress. US taxpayers just paid for the world's most expensive b*******.

And now the State of California is going broke, and needs a bailout. The bottom of this mess is a long way down, I fear.

I'm going broke...who's gonna bail me out?

turku wrote:

The bottom of this mess is a long way down, I fear.

And that is one of the big questions I have with regard to investing. Invest now or wait until after earnings releases? I have to think a lot of companies are going to have all kinds of charges. A big question is going to be the future outlook.