Does anyone understand the bailout?

[CLite]

Originally posted by: Blackjack200

They're unlikely to sell them for anything under $.65 to $.70 on the dollar, the problem is that a lot of the loans were negative amortizing loans, which means that they were written for more than the property was worth back at the height of the boom. So now you have that property value falling 35% to 40% (analyst estimates) from their high point, and that underlying property is only worth 55% to 60% of what the loan is written for.

An understandable observation, however these banks have already wrote down all of their securites from anywhere of .20 to .80 on the dollar. If they sell the securities to the government for more than they wrote them down to then I agree the government won't make very much, however if the government is stern these companies will sell the securities for what they wrote them down to. Remember by the fairly recent law the companies must write down assests quarterly to their present market value which includes the fact that some of these loan packages are toxic (hence the 20 cents on the dollar). The companies will still want to sell these assests at their wrote down values because it injects signficant liquid assests into their balance sheet rather than the illiquid securities as I said before.

 

[Blackjack200]

Originally posted by: CLite

Originally posted by: Blackjack200

They're unlikely to sell them for anything under $.65 to $.70 on the dollar, the problem is that a lot of the loans were negative amortizing loans, which means that they were written for more than the property was worth back at the height of the boom. So now you have that property value falling 35% to 40% (analyst estimates) from their high point, and that underlying property is only worth 55% to 60% of what the loan is written for.

An understandable observation, however these banks have already wrote down all of their securites from anywhere of .20 to .80 on the dollar. If they sell the securities to the government for more than they wrote them down to then I agree the government won't make very much, however if the government is stern these companies will sell the securities for what they wrote them down to. Remember by the fairly recent law the companies must write down assests quarterly to their present market value which includes the fact that some of these loan packages are toxic (hence the 20 cents on the dollar). The companies will still want to sell these assests at their wrote down values because it injects signficant liquid assests into their balance sheet rather than the illiquid securities as I said before.

Banks don't mark to market, they mark to book. They are carrying these assets at 100%. The investment banks had to mark to market, that's why they went bankrupt or merged first. The reason the regular banks are struggling now is because the loans are non performing, not because of writedowns. WaMu's assets were only written down when the company was liquidated and sold to JPMorgan.

When you reference $.20 on the dollar I assume you are referring to Merrill Lynch's sale of CDOs to Lone Star Funds. Those were not mortgages, they were complex derivatives that might be entirely worthless.

 

[boredhokie]

Originally posted by: CLite

Originally posted by: boredhokie


Do you work in Financial Services? You really have no idea what you're talking about when you say that there are enough prime loans to cover the subprimes - if this were true then we wouldn't be in the mess we're in now.
.......
Your logic is faulty and makes a lot of fallacious conclusions - I hope you aren't engineering anything that people rely on.

First of all I have always had very satisfied clients regarding my engineering consulting. I am very well versed in engineering fundamentals and find your insults laughable. If you wish to discuss engineering, code compliance, and reliablity of existing structures/design of new structures please start a new thread I'd be perfectly happy to engage in a discussion with you. It's one thing to disagree with my outlook on how the U.S. government could benefit from what I see as an opportunity. You could insult my belief in economics and I would counter your argument. However you seem to take my beliefs personally and take it beyond economics, ok, your a moron.

The foreclosure rate on subprime loans, not prime loans, is only 2.43% currently. Getting securities packages for 20 cents on the dollar (depending on the region) will be a net profit, even if foreclosure rates increase. My logic is not faulty, assuming the purchase of the securities uses sound fundamentalls there is an opportunity for profit and people with the ability the float the capital will make profits.

Originally posted by: Skoorb
You are really telling me that in the entire planet with annual GDP among all countries in the tens of trillions nobody can come up with $700B except the US gov for what we are supposed to believe is actually going to give a positive ROI? I am not buying it.

Please look up home saving and loans. please look up the chrystler loan, please look up the mexico emergency loan. All of these loans by the government have produced ROI. Just because GWB is a moron doesn't mean the government always does wrong. Do some research, there are opportunities where the government has benefited from loans. People are sheep, consumer confidence is king, in situations where one is shitty and the other is baaaa'''iiiinngg, the government can float capital and make out like a bandit it's happened before bud.

Look I don't give 2 shits about wallstreet, my only involvement is I dick around on Etrade looking for good buys because I believe the media and wallstreet in general are sheep and follow trends too religiously. I truly believe the government can make a good profit here over the next 3-6 years by wisely investing the 700$ billion. The wise investment has been done in the past succesfully. To deny that in the past the government has made profit via loans/takeovers is simply ignorant and shows your lack of knowledge regarding history.

My point was you're making logical leaps without first understanding the root cause of the problem. Your (not you're) justifications are plain inaccurate and smack of engineering logic - which is completely different from the magical bullshit that compromises modern financial markets.

 

[Slew Foot]

"Senate Majority leader Harry Reid, D-Nev., said Saturday that the goal was to come up with a final agreement before the Asian markets open Sunday night."

Hmmm, did foreigners who hold US Tbills (i.e. debt) force the US into making this deal so their stock markets wouldnt collapse?

 

[Squisher]

I guess they've come up with a deal

 

[Mardeth]

Originally posted by: CLite

The foreclosure rate on subprime loans, not prime loans, is only 2.43% currently. Getting securities packages for 20 cents on the dollar (depending on the region) will be a net profit, even if foreclosure rates increase. My logic is not faulty, assuming the purchase of the securities uses sound fundamentalls there is an opportunity for profit and people with the ability the float the capital will make profits.


Please look up home saving and loans. please look up the chrystler loan, please look up the mexico emergency loan. All of these loans by the government have produced ROI. Just because GWB is a moron doesn't mean the government always does wrong. Do some research, there are opportunities where the government has benefited from loans. People are sheep, consumer confidence is king, in situations where one is shitty and the other is baaaa'''iiiinngg, the government can float capital and make out like a bandit it's happened before bud.

All pretty irrelevant. Your comparing loans with this bailout? Look up the RTC, pretty much the same thing they are planning to do now. They got 60% back from their initial investment.

Im going to guess they will be getting 50-70% back and if you take inflation into consideration it will be alot less.

You have to also remember that this bank will also cost to keep running. I dont know how it works if someone foreclosures does the bank have to sell the house themselves or what? Anyway their costs will also be in the billions in the decade or so they will active.

 

[shira]

Originally posted by: fleshconsumed

Originally posted by: CLite
. . .
The government can do the same thing with 700$ billion and make so much money that we could start making a stab at our horrific deficit.

This is all assuming those obligations are going to be bought at 10-15 cents on a dollar, which is probably not true. The going price is probably going to be much higher, otherwise there wouldn't be any sense in doing it.

Correct. Paulson testified before the Senate Banking Committee that the intent of the proposed plan was to pay the estimated "hold-to-maturity" price, which he expects will be significantly higher than the "fire-sale" price institutions are forced to accept because of the current illiquidity in the market.

The whole point of the bail-out plan is to enable financial institutions to realize close to the true (= hold-to-maturity) value of their assets, which would hopefully "re-liquefy" the market and prevent further collapses of major players.

Edit: The "alchemy" in the proposed plan is: How will the government determine the "true" value of these exceedingly complex financial instruments? If Wall Street can't do it, what makes anyone think the government can?