What is Hank Paulson claiming is going to happen?

[vote4ronpauleeze]

When you said "Credit as a tool for small business, according to you, is wrong." you were using a straw man argument, as I did not say that.

I'm saying credit is not a means to create wealth when the money is stolen from another sector.

If I have money and I loan it because I'm a saver and I can't put all my capital to productive use, then yes, it allows others to use it as a means to be productive.

But if I steal that money and loan it out, I'm creating a zero-sum situation AND creating a malinvestment, because the investment of a thief promotes the industry of thievery.

These are not complex arguments.

How is it a malinvestment when you acquire an asset at discount, hold it to maturity, and return a profit? Especially, when that investment creates liquidity to keep business operations going.

Let me ask, what do you think will happen without a bailout or some type of liquidity injection?

 

[moostraks]

How is it a malinvestment when you acquire an asset at discount, hold it to maturity, and return a profit? Especially, when that investment creates liquidity to keep business operations going.

Let me ask, what do you think will happen without a bailout or some type of liquidity injection?

The value of these assets were falsely inflated...They are not worth as much as the bank loaned on them. Do a bit of research as to how you get a property appraised...It is based in large part on demand. The only way these properties will be of any value is if people cease to default(and pay off the loans on an absurdly inflated market value of the properties) and the inflation rate compensates for the value loss currently occuring in the free market for the ones that are defaulted on.

These are not assets they are liabilities. Otherwise the jerks who got us into this mess with the deep pockets would be buying them to hold for maturation themselves....

 

[vote4ronpauleeze]

The value of these assets were falsely inflated...They are not worth as much as the bank loaned on them. Do a bit of research as to how you get a property appraised...It is based in large part on demand. The only way these properties will be of any value is if people cease to default(and pay off the loans on an absurdly inflated market value of the properties) and the inflation rate compensates for the value loss currently occuring in the free market for the ones that are defaulted on.

These are not assets they are liabilities. Otherwise the jerks who got us into this mess with the deep pockets would be buying them to hold for maturation themselves....

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, 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.

 

[Mister Grieves]

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, 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.

Stay far away from Vegas. No offense, but you sound like a prime candidate for this

Throwing "good" money after bad and gambling with money you don't have is never a good idea. Stealing money from people for others to do it is even worse.

By the way, I'm curious, what exactly is it about Dr. Paul that drew you to him? edit: I only ask because it clearly is not his economic policies, and that is one of his biggest draws for me and one of the things he talks the most about.

 

[Knighted]

How is it a malinvestment when you acquire an asset at discount, hold it to maturity, and return a profit? Especially, when that investment creates liquidity to keep business operations going.

Couldn't you argue that the market is pricing these assets fairly efficiently at their perceived worth after one takes into account the possibility of default occurring? The inherent risk, which results in a lower market value for the assets, is now being shuffled into the hands of tax payers while the government pays more than what these assets are worth to the people selling them.

 

[fedup100]

They know the FED will be abolished if they don't get this signed! This is a COUP by the FED to secure their power forever!!

 

[ladyjade3]

We'll absorb some of the bad debt, raise interest rates, and only lend to credit worthy individuals and businesses.

You are correct that it will be bad if we do nothing. Absolutely. Bad debt will be liquidated, credit will be tightened. People will lose jobs. We'll have a lot more Americans going into blue collar jobs rather than white. (read - actually producing value, rather than shuffling TPS reports and... investment banking) But our economy will at least have a chance to get back to equilibrium and solid footing.

If we pump $700 billion into bad investments to paper over and prolong the crash, we'll just have to keep doing it until we kill the dollar. Ever heard of hyperinflation? It will happen here.

What we are left with in this situation is a bad option and a worse option. There is no good option. There is no silver bullet. This is why Ron Paul has been warning against this for 30+ years.

Arguing about whether credit is good or bad for a business is moot at this point.

 

[moostraks]

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, 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.

Wow...just wow...Okay my first question is who is valuing the properties based upon what? The current downward market in many areas? As Paulson put it the holders of the bad debt will tell the government what the liabilty is worth in order to reap as much return as possible. An appraisal? The whole concept of real estate appraisal being science is well off the mark. You will probably find a great deal of these debts will exist in clusters so they will be feeding off each other in comps (further driving down the sales price)especially since the homeowners in good standing won't sell in a depressed market unless it is necessary. Imho, utilizing a comp for an owner occupied home would also be a tad bit disingenuous unless you compensate extremely accurately for the usually deplorable condition of foreclosed properties.

Second off are we going to be depending on HUD or a similar government entity to auction these properties off? Yeah that is going so well right now. Take a look at how many of these homes sit and rot waiting for investers to purchase them. Here in Ohio they swapped marketers for HUD homes. One home had been on the market for almost 2 years when we found it and wanted to purchase. They switched marketers and after 4 months it still was not back on the market, so now that home has sat and waited for 2 and a half years empty, up NORTH?!? Do you know what that is doing to these homes???? We moved on to a home that was bank owned and were in in less than 3 months because the bank wanted that property moved off their books. The government is the master of who cares and I'll do it later.

Due to the ineptness and lack of concern for these houses that many HUD realtors display (which would be my guess as to what type of entity gets the forclosures) there is no rush to unload any of these homes. Most have no pipes in them since they have been vacant so long, roof leaks, broken windows, you name it...So you think you will recoup a profit???? No this is theft of earnings to purchase the worst of toxic debt these banks can unload with a dubious opportunity at recouping much off of resales and prayers being said that more don't default....

 

[MsDoodahs]

Ever heard of hyperinflation? It will happen here.

 

[carlangaslangas]

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, 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.

The problem is the current value is probably $100K and going down
So now, the proceeds are 60% of $100K = $60K at best
Which gives a loss of $20K

And that looks like a much more realistic picture.

 

[jbuttell]

Are you kidding me? I'll address these for you then.
You answered it yourself. It will result in a loss of jobs and the perpetuation of a depressed economy.

I can't believe how uneducated this board is... I'm a huge Ron Paul supporter, but this is one issue that needs to be resolved before we enter a huge economic crisis.

Is this bullshit necessary? Ask a fucking innocent question - trying to become more familiar with the situation and some arrogant prick writes a message like this. What a joke.

 

[Dr.3D]

Actually, the way Ron Paul would probably solve this problem would be to let the people of this country stop paying income taxes and use that money to pay their mortgages. This would in turn keep the banks from failing and allow people to finally put some money into a savings account.

If the government then need a little extra cash from not having collected income taxes, they could have congress authorize a loan from the FED to compensate for the loss of tax money.

Of course this would also involve cutting a lot of the spending the government does on a daily basis and reduce the size of the federal government as well. The money saved by not having our military in bases all around the world would compensate for a great deal of the lost tax revenue.

This would be a heck of a lot more constitutional than giving a huge amount of money to private businesses.

 

[Ann Kobialka]

The treasury will not be buying mortgages with the 700 billion.
There will be ZERO, Zilch NADA return on investment.
The treasury, "Paulson" will be using the 700 billion to buy CDO's and Credit swaps that are leveraged at 30 to 1. These are highly leverage "bets" that a mortgage will not default. There is no underlying asset. It is a paper bet. He wrote the fn things when he was at Goldman Sacks. Where do you think his 500 million personal fortune came from ? These are simply IOU's that no one wants to pay. The total Paulson and his cronnies lost on this bad bet is 1.25 Quadrillion. Let that sink in. 1,250 Trillion. No one can pay it. Thats the bet and they lost. Arrest them all for fraud. Ann
Since 1974 61 billion in residential mortgages have been written. We could pay off everyones mortgages in the country for under 100 billion so why do they need another 700 billion ? riddle me that Ann

 

[Paulitician]

Hank Paulson is warning/threatening deflation.

"If the American people ever allow private banks to control the issuance of their currency, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the people of all their property until their children will wake up homeless on the continent their fathers conquered." --Thomas Jefferson.

If it isn't clear by now, Wall St./big bankers own you and this country.

 

[wd4freedom]

The major threat

If our markest seize up and "credit" slows significantly, then the threat is that foreign central banks sell their dollars. Our economny is owned by foreigners. They buy us because we overspend and give them good returns on credit. If that system stops, then many other things would happen- a complete dollar collapse, USA = third world overnight.

 

[moostraks]

Is this bullshit necessary? Ask a fucking innocent question - trying to become more familiar with the situation and some arrogant prick writes a message like this. What a joke.

No, this was unnecessary. Some folks here seem to think they are more brilliant than they really are and feed their egos by demeaning others. If they can destroy people's confidence in coming here for answers than they have beat the movement from at least one angle. Ignore is a wonderful feature for those who continue to act immature.

 

[vote4ronpauleeze]

The treasury will not be buying mortgages with the 700 billion.
There will be ZERO, Zilch NADA return on investment.
The treasury, "Paulson" will be using the 700 billion to buy CDO's and Credit swaps that are leveraged at 30 to 1. These are highly leverage "bets" that a mortgage will not default. There is no underlying asset. It is a paper bet. He wrote the fn things when he was at Goldman Sacks. Where do you think his 500 million personal fortune came from ? These are simply IOU's that no one wants to pay. The total Paulson and his cronnies lost on this bad bet is 1.25 Quadrillion. Let that sink in. 1,250 Trillion. No one can pay it. Thats the bet and they lost. Arrest them all for fraud. Ann
Since 1974 61 billion in residential mortgages have been written. We could pay off everyones mortgages in the country for under 100 billion so why do they need another 700 billion ? riddle me that Ann

That's not true... The main component of the proposal is the acquisition of MBS, which are collateralized by the underlying asset (the property). Yes, another part of the plan is to provide short term financing for the commercial paper market, but that is ancillary to the MBS component.

Further (and I'm not a fan of this), because the mortgages would be owned by the Treasury, they could restructure the terms of the mortgage to make them more affordable. Once again, I am not a fan of that, because obviously we would be artificially inflating home prices by keeping too many people in homes that shouldn't own them or own that much house anyway.

 

[vote4ronpauleeze]

Is this bullshit necessary? Ask a fucking innocent question - trying to become more familiar with the situation and some arrogant prick writes a message like this. What a joke.

Was it really an innocent question? It sounded more like rhetoric as the poster interjected personal opinion as to why he/she felt that it was okay for certain parts of the economy to crumble. Clearly not a question, it was a statement. Look at the bold.

Original post:

Can someone please clearly explain to me what Bush and Hank Paulson think is going to happen?

So far, I've heard the following:

Homeowners with bad mortages may loose their homes. (poor choices)
Personal/Car loans will be much more difficult to get. (yawn)
Edu loans will be more difficult to get. (yawn)
As a result of limited credit, businesses won't be able to operate efficiently. (this sounds bad, but I don't understand the dynamic here) Resulting in loss of jobs.

Can you please elaborate? Surely I'm missing something. While I don't doubt this is serious - I just haven't had a clear picture painted with regards to what happens if government doesn't intervene. They obviously claim to at least know the situation is dire to start throwing out bailout numbers, so it has to be based on some sort of apocolyptic vision. What is it exactly? Have they really spelled it out?

Because of that, when I weight it against the $700 billion bailout, I understand it to lead to an extreme devaluation of the dollar and a slight postponement to the problem we face now, but potentially even worse in the years to come.

 

[jbuttell]

Was it really an innocent question? It sounded more like rhetoric as the poster interjected personal opinion as to why he/she felt that it was okay for certain parts of the economy to crumble. Clearly not a question, it was a statement. Look at the bold.

Original post:

Yes, it was - because what you've highlighted in bold wasn't an intent to convince anyone of why they happened, but to express my general perception of each piece of propaganda presented by Paulson, Bernanke and Bush.

It looks like the list that I presented was fairly complete based on some of the responses here. I suppose what I'm looking for here is vivid imagery of what the world may be like. Based on THOSE points offered by Bush, I fail to see the direct analogy to a great depression... Not that I don't think its a very real possibility, but that Bush's delivery of the outlook wasn't particularly strong - though, when is it ever?

 

[RonPaulR3VOLUTION]

As to the original question:

New York Times: Congressional leaders were told "that we’re literally maybe days away from a complete meltdown of our financial system, with all the implications here at home and globally."

http://www.nytimes.com/2008/09/20/washington/19cnd-cong.html?_r=1&hp=&pagewanted=print&oref=slogin

As for a solution: I believe there is none. Is anyone (besides the media) claiming we will get out of this without serious economic repercussions? We were pretty thoroughly screwed even without the current mess that's on the table.

To those who think this will blow over: Do you think jobs are coming back any day now? Do you think people will start spending and saving responsibly soon? Do you think the government will suddenly become able to start paying out the 35+ trillion dollars of debt that they will soon be 'required' to do? [1]

This country is coming apart at the seams and it's disturbing to see people fighting over the scraps. Even as this nation sinks, people scream for their handouts.

"We'll pass this bailout as long as you tack on a few hundred million for these other plans!"

What does the above tell you? Or do you think that's not happening right now?

To me, the bailout is the tip of a very large iceberg of decades of bad policies all coming together at once.

We can sit here and list all of the problems for hours. How about listing what is going right? That's the troubling list.

[1] "C-SPAN-2 - Congressional Budget Office Talks to Accountants
This guy's name is Peter Orszag. He just answered a question from a Representative from Tennessee, asking about the bailout's possible impact on our programs like Social Security, Medicare, etc.
The answer was: Well, I don't mean to beat a dead horse here, but that is a far bigger crisis than what we face right now. We will not be able to sustain Social Security."
http://www.tickerforum.org/cgi-ticker/akcs-www?post=62882