"Vote Yes" to the bailout?

[Michael Landon]

I e-mailed my address book about calling and e-mailing their Representives and telling them to vote "NO" and I received the following response:

With all luck, this bill will pass - and soon. The numbers ($5,100 per taxpayer) being thrown around are not an ccurate depiction of what is really happening. The $700 billion is in the form of a treasury loans, i.e. taking money that does not yet exist - (eventually selling the properties individually by individual investors - rather than what happens now where mortgages are bunched together and sold to investment banks, fannie and freddie - problem being that to get a 'good mortgage' you take multiple 'bad' mortgages). The same way in which they sell treasury bonds to finance some projects or borrow against the 'national debt' in other times of crisis or need. Once the government is in control of these mortgages, you and I; or more likely very wealthy investors will be able to pick and choose individual/bundles of mortgages we/they would like to purchase. As the situation sits now, banks sell mortgages to other lenders in bunches. Most banks have caught on to the fact that a 2 story shitty house in san francisco is in fact not worth $1.8 million and that these new construction homes built in Florida hurricane zones are not worth $680,000. They also have realized that Bill Clinton was wrong and not everyone should in fact be encouraged to own a home. Sure, we can create programs (from your real taxpayer money by the way) that will give first time home owners 4% up front balloon rates and deferred interest on the back half of a 30 year loan and first-time homebuyer discounts and downpayments - but the reality is they are still only making $30,000yr and after 6-12-18 months they can't make their payments on a $600,000 house even without all of the up front government assistance. So here we sit with all of these banks owning overinflated homes that debt buyers realize simply arent worth what is owed. The sad fact is that their are only 3 solutions 1) is for a huge investor group, either Bill Gates, Warren Buffett and the Sultan of Brunei pooling their finances together and buying all of these mortgages - 2) the 'right and moral solution of' allowing all of the banks who got caught up in bad debt to crumble (in which case anyone of you who has more than $100k in the bank would likely lose that money, the bank would repo your home if you still owe on it and it is worth more than you owe (read the fine print on your mortgage - in most cases they can and have in the past done this) and because all of the investment banks, mutual funds, and money markets invest in banks and property - your 401k's would be worthless too. Or option 3) the only realistic option, we must pass this 'bailout' - which in fact will not affect your taxes - handled properly, the $700 billion would result in future property sales of $1 trillion - allowing us to shave $300 billion off the national debt. Yes, it is unfortunate that these highly paid bank managers, etc. will still get their inflated salaries - but it is a price to pay in an unregulated free market system - which is still the best system. We have options when borrowing money, we freely choose our banks - so we are not innocent. If we borrow from Wells Fargo, we are in bed with any mistakes they make - if this makes you nervous, take out a higher interest rate at a more shrewd borrower, aka your local credit union - verify that they are independent of GMAC, USBank Corp - verify they will not sell your mortgage, etc. So folks, sad to say, we need this 'bail out' now, not in a week, definately not never. To place things in perspective, when the $700 billion 'bailout' failed on Monday, the stock market lost $1 trillion in value - that is real money, your 401k's and money markets, your pension funds are invested there. That is the big picture. Please do call your congressmen and senator and tell them to get this done now and go after the 'bad guys' later.

Any thoughts? Should I even bother debating him?

- ML

 

[thechitowncubs]

Ask him if he can explain the cause of the mess and to cite his statements.

 

[Xchange]

I e-mailed my address book about calling and e-mailing their Representives and telling them to vote "NO" and I received the following response:

With all luck, this bill will pass - and soon. The numbers ($5,100 per taxpayer) being thrown around are not an ccurate depiction of what is really happening. The $700 billion is in the form of a treasury loans, i.e. taking money that does not yet exist - (eventually selling the properties individually by individual investors - rather than what happens now where mortgages are bunched together and sold to investment banks, fannie and freddie - problem being that to get a 'good mortgage' you take multiple 'bad' mortgages). The same way in which they sell treasury bonds to finance some projects or borrow against the 'national debt' in other times of crisis or need. Once the government is in control of these mortgages, you and I; or more likely very wealthy investors will be able to pick and choose individual/bundles of mortgages we/they would like to purchase. As the situation sits now, banks sell mortgages to other lenders in bunches. Most banks have caught on to the fact that a 2 story shitty house in san francisco is in fact not worth $1.8 million and that these new construction homes built in Florida hurricane zones are not worth $680,000. They also have realized that Bill Clinton was wrong and not everyone should in fact be encouraged to own a home. Sure, we can create programs (from your real taxpayer money by the way) that will give first time home owners 4% up front balloon rates and deferred interest on the back half of a 30 year loan and first-time homebuyer discounts and downpayments - but the reality is they are still only making $30,000yr and after 6-12-18 months they can't make their payments on a $600,000 house even without all of the up front government assistance. So here we sit with all of these banks owning overinflated homes that debt buyers realize simply arent worth what is owed. The sad fact is that their are only 3 solutions 1) is for a huge investor group, either Bill Gates, Warren Buffett and the Sultan of Brunei pooling their finances together and buying all of these mortgages - 2) the 'right and moral solution of' allowing all of the banks who got caught up in bad debt to crumble (in which case anyone of you who has more than $100k in the bank would likely lose that money, the bank would repo your home if you still owe on it and it is worth more than you owe (read the fine print on your mortgage - in most cases they can and have in the past done this) and because all of the investment banks, mutual funds, and money markets invest in banks and property - your 401k's would be worthless too. Or option 3) the only realistic option, we must pass this 'bailout' - which in fact will not affect your taxes - handled properly, the $700 billion would result in future property sales of $1 trillion - allowing us to shave $300 billion off the national debt. Yes, it is unfortunate that these highly paid bank managers, etc. will still get their inflated salaries - but it is a price to pay in an unregulated free market system - which is still the best system. We have options when borrowing money, we freely choose our banks - so we are not innocent. If we borrow from Wells Fargo, we are in bed with any mistakes they make - if this makes you nervous, take out a higher interest rate at a more shrewd borrower, aka your local credit union - verify that they are independent of GMAC, USBank Corp - verify they will not sell your mortgage, etc. So folks, sad to say, we need this 'bail out' now, not in a week, definately not never. To place things in perspective, when the $700 billion 'bailout' failed on Monday, the stock market lost $1 trillion in value - that is real money, your 401k's and money markets, your pension funds are invested there. That is the big picture. Please do call your congressmen and senator and tell them to get this done now and go after the 'bad guys' later.

Any thoughts? Should I even bother debating him?

- ML

No...I just recieved a Responce from my Wife's best friends Husband...
He's a worth a couple Million...

He was like...STOP EMAILING ME...

Oh well, I was just lookin out...he has 10 times more $$ than me...
And I didn't want to see him lose it...

 

[ihsv]

Personally, I'd say you'd be wasting your time debating him. You know what's coming, you've tried to warn people. All you can do is prepare for it yourself.

 

[Captain America]

is it our and Ron Pauls fault the world knows we are full of shit here with our econmic system. They might have figured it out, or Ron Paul may have let the cat out of the bag with a hyper dog.

 

[jabrownie]

Issuing bonds to cover the now 800 billion+ that this bill will cost will increase inflation in the future, which has the equivalent effect of a tax increase in the form of an inflation tax (i.e. higher prices for everything).

Yes, many of the homes are not worth the millions paid for them as you pointed out, anyone in the secondary market who purchased the notes or the flow through junk securities based on them was not only making poor decisions, but risky ones as well. This decision to increase profit margins by the banks was foolish, but too late now. What would be equally foolish though, is to use taxpayer money to pay the exact same artificially inflated prices today that the banks paid for them yesterday, especially when everybody knows that those values are erroneous. Yet, amazingly, that is exactly what this bill will allow for. It provides that up to 100% of the price paid for these assets originally, along with the full interest on them, can be what the government pays for them. So, unless the government plans to hold them for 30 years, it will be a poor investment. That's why nobody in the market place wants them. If they were such great investments that a 700 billion dollar investment will shoot up to 1 trillion within any reasonably time period, the market would be all over them....notice they are fleeing away as fast as possible. That should tell you something about who to believe. Either every investor on the planet is an idiot, or the government is trying to sell you a pile of crap and is trying to convince you it will turn to gold. It's simply not the case.

As for FDIC limits, if an individual has several hundred thousand dollars all they have to do is separate it between a couple accounts, either within the same bank, or between banks. That is very simple to do. Once done, your option two calamity description goes out the window.

As for the rest of option two, almost nobody believes this is the financial Armageddon. Even if a handful of banks go bankrupt, the actuality of it is not that bad. The company is divided up, and the good portions continue to live onwards. Simply look at what happened with Lehman afterwards. No, the main worry today involves liquidity and whether small and medium businesses will be able to borrow money to handle the general lag between when they have to pay for things and when their accounts receivable are met. This problem can easily be solved without the bailout or even legislative intervention at all. In fact, it has been met to a point. This past Monday the federal reserve injected 620 billion dollars in short term loans into the banking system. The problem is not the absence of money, the problem is that the banks are sitting on it and stockpiling it. The capital reserve amounts have gone from the tradition 3-4% to over 200%. This will ultimately break, simply because the only way banks make money is by lending, so they will either chose to lend their stockpiles or they will go bust. Right now they are just sitting there, uncertain of what to do b/c nobody knows what the government will do. Instead of only having to take the markets into account when making decisions, the banks and markets have to guess what Paulson and congress will do on any given day. This is actually making things worse. If congress would put their foot down, change the mark to market, and if the fed provided short term cover loans for liquidity, then it could sort itself out without the total collapse. Will it go down and be painful, yes, of course, but this bailout will be far worse.

One simple reason why it will be worse, something which could stand alone is section 128 of the house bailout. If you read that, then read the Financial Services Regulatory Relief Act of 2006. Look at section 202 of the FSRRA and you will see that it cites back to the Federal Reserve Act Section 19(b)(2)(a). What it effectively does is reduce the reserve requirements of banks potentially down to 0. This is how Freddy Mac and Fannie Mae were set up. It makes it so that a bank can get away with keeping no money as a capital reserve. This is very important because it helps to act as a cushion when there are ups and downs in the market. If you remember, the problem with AIG was not that it was insolvent, rather that it couldn't raise enough capital in a fast enough period of time to meet the necessary capital requirements that came about with the downgrade of their credit rating. As a result they had to beg for help from the government or shut down. In the exact same way, if banks in the future have reduced capital on hand, when something bad happens, they won't be able to handle it and will go under. This provision alone increase the likelihood of bank failures in the mid to long term range, for the shortsighted purpose of increasing bank liquidity today at the expense of tomorrow. There are much better alternatives that would be more effective, without the concurrent risks.

In addition to this, there are still serious concerns with oversight i.e. the 5 person 'oversight board' are the exact same people who either have fiscal interests in this or who are being given the power. You are asking people to police themselves, this is a sham. The golden parachute provisions do more to pass on extra expenses to shareholders then to provide any meaningful protection against banker private enrichment as a result of this. The provisions providing for judicial oversight are great, however they don't provide the proper standing necessary to actually sue and survive a 12(b)(6) motion to dismiss. Thus, they might as well not even be in there. There is nothing worth noting for homeowners, the power to allow judges to actually do anything about valuation of mortgages is missing, and instead this bill relies on the HOPE act and other prior governmental programs that do very little to actually help anyone. If you read HOPE, the requirements necessary to qualify only capture a small segment of the American society. Additionally, they require both the lender and the mortgagee to agree before any renegotiations can occur. The new act only speaks about encouraging lenders to enter into negotiations, and under current programs, which again only covers a small handful of people. All of this can and has already been done.

To top all that off, this bill has the potential for many unintended consequences. For example, under current law if you default on a debt, the worst that will happen is a creditor will contact you and maybe put it on your credit report. What happens when the government holds the debt and you default on it. I'm sure you understand that when you fail to pay the government their money elsewhere, they can go after everything, including garnishing your wages, grabbing any and every bank account, taking things normally covered by homestead acts and the like, and possibly even tossing your butt in jail with criminal charges. Which law will apply to collections, and who will do them? The IRS? Another agency? Will the other agency be treated like the IRS by the courts or like a private bank? Who knows. But it's got the potential to be really bad. Add to this another 110 billion in tax breaks and pet projects with no offsets and you've got a recipe for disaster.

I've only touched on a small handful of the problems with this bill. If you sit down and read it, you will find many more. (I've got a list like the energizer bunny, it just keeps on growing) The main problem anybody has mentioned is the liquidity problem. That can be solved in several other ways that don't contain this high cost, and that don't have the potential nightmare scenarios this creates. They also don't involve the complete restructuring of our financial environment and the creation of more dictatorial type agencies. If after those are tried, people still need help with their home mortgages, the government can help out there, separately, easy enough. Though I wouldn't endorse it now, a better alternative to this bill would be to allow judges the ability to renegotiate mortgage principals as a third party mediator with the government helping to chip in for part of the write down. That way the people are helped, the burden on the government is reduced, and the banks have to take some accountability and cost for their actions. As it is now, they can get all the money back that they paid for these lousy high-risk securities at the expense of the rest of us with no penalty whatsoever. That's not right, neither is this plan; it's actually quite horrible.