How Would You Feel If The Bailout Turned A Profit?

[vote4ronpauleeze]

I posted this in another thread, but thought I'd make it more visible here...

Look at this scenario:

Say a house has a mortgage on it for $200k.
The current value of that house is $170k.
The Treasury can buy the mortgage for 40 cents on the dollar (many have proposed that this would be the ballpark purchase price), so $80k.
Even though it has a high probability for default, there's still a great opportunity to profit.
Say the mortgagor defaults and the house goes through foreclosure where it is bought at 60% of the fair market value. That means the mortgage holder receives proceeds of 60% of $170k or $102k.

That leaves the mortgage holder (in this case the Treasury) a profit of $22k or a return of 27.5% to go back to the taxpayers.

So, really this plan can produce a profit and many have speculated that it will... In short, the banks STILL took the loss as they only got $80k on their initial $200k, but they also received some capital when it was sold and were able to turn around lend it into the capital markets.

 

[FindLiberty]

fail

 

[vote4ronpauleeze]

Wow, that's a pretty profound response there... Are you an economist? Or just a really savvy investor?

 

[smithtg]

oh yeah by the way, once that profit turns back to the treasury it will be spent on one of Obamas "needed" welfare programs

Do you think good ole' uncle sam is going to mail you a check?

thats how i feel!

 

[Paul.Bearer.of.Injustice]

So where's the market for it?
No private sector business thinks it's a worthwhile investment.

 

[Chester Copperpot]

Wow, that's a pretty profound response there... Are you an economist? Or just a really savvy investor?

FAIL.

There is no way the govt will make a profit. It is an impossibility. The inflation caused by this bailout will ensure the outcome.

 

[olehounddog]

It will turn a profit. But it will be to the cronies and friends of the of the administration. When they are able to buy this $700 billion worth of sh%t for pennies on the dollar. Then sell them again for the profit

The biggest ripoff since the 1930's

 

[freelance]

I would know for certain that I had entered an alternate universe--a universe beyond the twilight zone.

 

[Kraig]

I posted this in another thread, but thought I'd make it more visible here...

Look at this scenario:

Say a house has a mortgage on it for $200k.
The current value of that house is $170k.
The Treasury can buy the mortgage for 40 cents on the dollar (many have proposed that this would be the ballpark purchase price), so $80k.
Even though it has a high probability for default, there's still a great opportunity to profit.
Say the mortgagor defaults and the house goes through foreclosure where it is bought at 60% of the fair market value. That means the mortgage holder receives proceeds of 60% of $170k or $102k.

That leaves the mortgage holder (in this case the Treasury) a profit of $22k or a return of 27.5% to go back to the taxpayers.

So, really this plan can produce a profit and many have speculated that it will... In short, the banks STILL took the loss as they only got $80k on their initial $200k, but they also received some capital when it was sold and were able to turn around lend it into the capital markets.

Profit for whom? Unless it's me I'm still not going to care, even if "it works" it's not going to help me or countless other taxpayers that are paying for it.

 

[tmosley]

I would feel quite happy living in such an amazing parallel universe. Unfortunately, the likelihood of making money on this deal is probably on the order of 1 in 10000 or so.

 

[theoakman]

if it turned a profit, then what? The government now owns everything? It sucks either way. They are going to lose a bunch of money and make every American poorer. If they turn a profit, they own everything.

They'll pull the same game Wall St did. Privatize the profits, socialize the losses. If they turn a profit, Paulson, Bernanke, and every Congressman will get a big fat Christmas bonus.

 

[ihsv]

EPIC FAIL

Anyone who thinks the federal government can make a smart business move is chugging moonshine. They can't even fight a war in Iraq properly (let alone Constitutionally) without having BILLIONS of dollars just... disappear into the netherworld.

Secondly, it's not government's job to get involved in such things, regardless of how much money they "could" make. They don't have the constitutional authority to gamble with my money. And on top of that, how come THEY can gamble with my money, when they won't let ME gamble with my money?

Finally, Government doesn't have anything it doesn't take from us, either via taxation or inflation. And you can be darned sure they ain't gonna lower taxes once they win the lottery.

 

[eric_cartman]

if you still don't get it... i guess you never will.

i'm too tired to keep explaining this stuff. i still don't know how people can be smart enough to support ron paul, and be dumb enough to think the government will make a profit on this.

 

[theoakman]

if you still don't get it... i guess you never will.

i'm too tired to keep explaining this stuff. i still don't know how people can be smart enough to support ron paul, and be dumb enough to think the government will make a profit on this.

just because someone supports Ron Paul doesn't mean they are smart.

 

[rp4prez]

I keep thinking about all the mobile homes FEMA bought that rotted away. hm.

 

[wizardwatson]

I keep thinking about all the mobile homes FEMA bought that rotted away. hm.

Hey, that isn't a waste, that's liquidity for the garbage dump market!

My new economic advisor vote4Ronpauleeze says so.

 

[Malakai]

Pure socialism here, government actually taking over private corps.

Fannie and Freddie was bad, but they were socialistic entities to begin with.

We're talking about gov using inflation to buy up private companies. This is end game stuff.

Remember once gov takes over a company, it becomes an enforced monopoly. It will be there forever and private businesses will never be able to compete.
Then, there is no end to where the gov will stop. They will own everything before long as the crash continues.

 

[ThePieSwindler]

Well, it will make a profit (theoretically) if the actual securities are held to the maturity price. Fact is, the counterparty that issued the debt securities will be obligated to return principal. The difference is that the firms currently holding the bad assets are having capital problems that prevent them from holding these securities to maturity, so they have to sell now, but at firesale prices, while the government is under no such pressure (at least.. in the short term). The question really is, how will it then be distributed? Thats where I of course don't trust gov't.

As for inflation, well, the idea is to fight deflation that would ensue from a credit crunch. There might be increased inflation, but only by a few percentage points.

Heres a post by Bryan Caplan critiqueing the bailout, and i agree with him, especially on points 1, 2, and 4. Number 2 might have the biggest long term drawbacks/market distortions.
http://econlog.econlib.org/archives/2008/09/the_case_agains_1.html

Arnold Kling in another post on econlog also talks about how the Fed and Treasury may be underestimating the pricing complexities of mortgage credit risk.

These are the main reasons to be opposed to the bailout, as well as simply the libertarian disdain of government force and power in general. Who the fuck cares if government makes a profit... thats like hoping a nationalized oil industry makes a profit.. i guess its better than a loss, right? But calling people idiots because they say it might make a profit (which plenty of experts and reputable economists have analyzed and forecasted as well, though that doesn't necessarily mean anything) is ridiculous, when its not even the issue to focus on. 'They' really are winning, if we are reduced to eating our own over these kinds of trivial matters.

 

[Chester Copperpot]

I would feel quite happy living in such an amazing parallel universe. Unfortunately, the likelihood of making money on this deal is probably on the order of 1 in 10000 or so.

The odds arent even that good.

With a $700 BILLION bailout for thebanks.. they will be allowed to issue $7 TRILLION in new money from fractional reserve banking...

oh in 10 years or so the govt might get its $700 Billion back.. maybe theyll technically even make aprofit.. but after inflation the money they get back wont even be worth $700 billion.. Big Macs will be $25 a piece...

besides with them having to borrow this money from the fed, figure itll cost the govt $35 BILLION each year in interest ON TOP.. so in 10 years.. another $350 BILLION..

THEY WILL NEVER MAKE ANY PROFIT OFF OF THIS.

 

[Dary]

Well, seeing as how I believe in small government and to me that means a government that has less money to spend, and spends less money, then I wouldn’t be happy about that at all.

Even if they cut me a check, would they first deduct the cost of enforcement, management of the fund, the inflation tax and all of the costs of the bureaucracies and everything else it cost them to turn that profit?

My guess is that I’d have to send them a check first in order to receive my payment.

Kinda like the email scams from Nigeria that you see all the time on the interlinks.