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????? THE BUSH BAILOUT ?????

Discussion in 'Off Topic Threads' started by hunter44, Sep 24, 2008.

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  1. hunter44

    hunter44 Well-Known Member

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    Should Congress approve this Bush request for what amounts to approx. $10,000 per household?
     
  2. fearlessfain

    fearlessfain TS Member

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    most of those hoity toity c.e.os. could be replaced for twenty cents on the dollar.
     
  3. Rico46

    Rico46 TS Member

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    How can you have Henry Paulson at Treasury sitting over this bailout? Henry Paulson was the CEO at Goldman Sachs until 2006. It was Paulsons leadership at Goldman that helped create this disaster. Giving Paulson a congressional blank check will be like giving a fox the key to the hen house! You can surely bet all his corporate buddies will be looking for Golden parachutes, at the expense of the American taxpayer. Hopefully, the FBI will continue to investigate, arrest and prosecute inside fraud on these CEO's including Paulson if he was involved.

    Rick Brohmer
     
  4. bigdogtx

    bigdogtx Well-Known Member

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    Rico,

    Please explain, "It was Paulsons leadership at Goldman that helped create this disaster." Exactly which part of the disaster did Paulson or Goldman create?

    Jim
     
  5. TDB III

    TDB III TS Member

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    Hey Ya'll....Although I have virtually no respect (nor trust) for Bush, this is not his bailout. This is a plan put together by Bernanke, Paulson & Cox. Listen to all of the analyst's and Wall Street Guru's and you will learn that this started years ago with the creation of Fannie Mae & Freddie Mac, got worse with the Enron fiasco created by Senator Phil Gramm (R-Texas)& his wife Wendy who was at the time Chairman of the Commodity Futures Trading Commission, and then further exacerbated by the greedy Wall Street Bankers, Hedge Funders, Speculators, Short-Salers, etc.. This is no small party by any means and, unfortunately, you and I are on the hook no matter what. Another case of greed and lack of our elected Representatives acting on our behalf, ex: Phil Gramm.
     
  6. TDB III

    TDB III TS Member

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    bigdogtx....As COO & CEO of Goldman Sachs, Paulson was a prime mover in concocting & distributing the "paper" he now renounces as "clogging" the financial system. He then collected a $700 million payday to leave Goldman Sachs and take over the reins at the Treasury.
     
  7. Rico46

    Rico46 TS Member

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    Exactly TDB! If congress agrees to the bailout Paulson should be out! He helped create this mess by selling worthless paper and calling it mutual funds. I don't want a blank check given to this guy or his buddies on Wallstreet.

    Rick
     
  8. SeldomShoots

    SeldomShoots Active Member

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    Sarge . . . . . WHAT?????????????? How is this the fault of the dems and how does this date back to Carter? You lost me on this one. Paulson is one of many key players in this mess and he was appointed by Bush. Did Bush appoint a Dem? This S-storm as you so eloquently put it is in fact owned by financers, over indulgent consumers, and all of our government that includes the republicans as well as democrats who allowed banking to be de-regulated with no corrections by either party. I am willing to admit when either side is wrong. But you sir, seem to be so one-sided that you can't admit when the republicans screw up. Isn't the republican mantra to have a free economy and less government. Well our government should have been minding the store on this one. I would have a lot more respect for your opinion if you admitted that everybody and I mean everybody screwed up on this one. I believe TDB II is correct on his opinion. John E.
     
  9. ou.3200

    ou.3200 Well-Known Member

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    McCain just suspended his campaign to go back to Washington. Good move. Obama on the defensive again.
     
  10. hunter44

    hunter44 Well-Known Member

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    As of now no one has answered my simple question: Should Congress approve this Bush request for what amounts to approx. $10,000 per household?

    I could care less about who's "fault" it is or playing the old game of "gotcha".
     
  11. Dove Commander

    Dove Commander TS Member

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    Tough question to answer when there are few details available. Personally, I say no, but if we don't our credit system will take a dump. Congress and Senate are both pretty quiet about details. Probably cause they don't understand it either. Dems don't want to pass it and get their fingerprints on a Republican suggested plan. But, if they drag this out, we will all be hurt.
     
  12. Rico46

    Rico46 TS Member

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    Hunter, it's no longer an issue of should we! At this point, either it passes or we could see the failure of the entire financial system in the United States and possibly world-wide. I would speculate it could lead to severe recession and high unemployment.

    I want Henry Paulson at Treasury out! He helped create this mess when he was the CEO at Goldman Sachs. I sure don't want him overseeing the bailout.

    I also think that Wallstreet CEO bonuses be suspended since it's Wallstreet that has driven the financials to this crises. I don't get bonuses for bad business decisions nor should they!

    Rick Brohmer
     
  13. TDB III

    TDB III TS Member

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    Hunter44: Unfortunately Rico46 is right. The bailout is unpalatable to us all but we are stuck with it or we face (according to knowledgeable money guru's) 10-20 years of depression, high unemployment, declining property values, soaring interest rates and "real" economic stagflation. We all need to thank our elected officials for this one. Most are multi-millionaires (at our expense) and will not feel the "problem" like we will.
     
  14. JBrooks

    JBrooks TS Member

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    OK guys here is a short version. Banks can only loan money if their balance sheets say they have the asset to liability ratio to do so. Any 'bad' loan is charged against this asset base regardless as to whether there is collateral to back up the bad loan.

    By example, let's say a bank makes a house loan for $250,000 that goes into foreclosure and the bank eventually ends up owning the house. Let's say that in a down market, the house could still easily fetch $200,000. However, the bank has to subtract the whole $250,000 from its balance sheet until the house sells. This whole process might take several months.

    Multiply this situation a few million times and suddenly, not in reality, but per regulations banks can't make any new loans. Not for houses, cars, education, boats, construction projects, business equipment, accounts receivable financing, raw materials, wheat/corn/soybean seed, fertilizer, etc. etc. etc.

    Suddenly the economy does grind to a halt because no one can make a loan, not because there is no money, just no what is called "liquidity".

    Providing this liquidity is what this bailout is all about though bailout is probably the wrong term, it is more like a massive co-signer/bad loan buyer program.

    Unfortunately, as usual the Dems in control of Congress look at this as an oppportunity for social engineering and the Republicans look at it as an expansion of government into the free market.

    In conclusion, the government better do something, and quick, or you guys are really not going to like what happens next.
     
  15. halfmile

    halfmile Well-Known Member

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    They are trying to shore up a toppling house of cards.

    Once they tipped their hand with the F & F bailout, the rest of the rats suddenly needed cheese.

    Lehman didn't get any and the market went into free fall. so they had to put their finger back in the dike.

    This is why the bailout was announced, if not we would have Dow 8000 today and
    5000 next week, etc.

    They are trying to stop a freight train by putting pennies on the track.'

    Hang on to your undies.

    HM
     
  16. nipper

    nipper TS Member

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    we are climbing in a hole without shoring that will collapse--sorry that has already started too

    bill
     
  17. grunt

    grunt TS Supporters TS Supporters

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    This was posted by JBrooks in another thread. Good read. Now whos to blame?

    Posted by: Blackhedd

    Saturday, September 20, 2008 at 09:18AM

    Let me tell you a story about mortgage-backed securities purchased with borrowed money ("leverage").

    An MBS is basically a package of individual home mortgages pooled together so that it can be priced and analyzed like a bond. (And usually the pool is also divided horizontally into credit-quality tranches too.)

    MBS are a big hit with institutional investors, because their bond-like analytics made it possible to do something they’ve been wanting to do for decades, which is to gain exposure to the US mortgage market. (Compared to almost any other kind of asset, a mortgage has higher credit quality. Most people, when they get squeezed, will pay their taxes and their mortgage and let their other bills slide.)

    And Wall Street firms were thrilled with this piece of financial engineering because the bundling and marketing of MBS generated enormous fee income. And like the drug dealer who uses his own product, Wall Streeters often bought the higher tranches of MBS for their own accounts too. (Bear Stearns and Merrill Lynch were particularly guilty of this.)

    So how do you make a good thing better? You buy it with borrowed money. All over the world these last few years, there’s been a tremendous amount of buying of MBS by banks, Wall Street firms, insurance companies like AIG, hedge funds, even money market funds and small towns in Norway.

    No less than Fannie Mae and Freddie Mac bought acres and acres of this paper.

    And many of these players used funds borrowed from banks and from the overnight money-markets to buy it. If you want one single root cause, one thing to blame for the financial crisis out of all the rest, this is it.

    Here's how it happens...

    Let’s say you can borrow money overnight at five percent. (The numbers in this example are not necessarily representative of any specific point in time. Overnight rates today are far lower than they were during the MBS craze.) And you can use the money to buy an MBS that is expected to pay a yield of 5.75% over its five-year term. And the MBS has a triple-A, investment-grade credit-quality rating.

    Wouldn’t you want to do this trade as large as anyone will let you? Let’s say that you’re a hedge fund with a billion dollars in capital. Let’s say you levered up 30-to-1 (which is not unrealistic). Conceivably you could construct a $30 billion portfolio of MBS off the $1 billion in capital. Your raw annual investment return (without counting a handful of external costs like insurance) would theoretically be 30 times 75 basis points. WOW! That’s far, far, far above the “normal” risk-adjusted investment yield of 8 to 10 percent that institutional investors have targeted as a benchmark for decades.

    Now do you see where the whole problem came from? Ok, what happened next?

    As soon as the housing bubble burst, the values of all the MBS had to be reduced because default rates on the underlying mortgages started rising. You saw an increase in the amount of risk that any given mortgage would default, and that in turn would increase the risk of the MBS that the mortgage had been packaged into.

    You always have to receive a higher yield on a riskier investment. (That’s why Treasury securities, which are risk-free, normally have the lowest interest rates.) But if the MBS has already been cut, packaged, and sold, the income that it generates is fixed permanently. In that case, the MBS will behave just like any other fixed-income security: its value will decline, which effectively raises the yield.

    But what if you bought the MBS at a certain price to obtain a certain interest rate? You now have an unrealized capital loss, because the MBS in your portfolio is worth less than you paid for it.

    Ah, but you say it doesn’t matter. Just hold the darned thing until it matures. It will keep paying the same amount of interest (which doesn’t change). A small number of them will default, and you’ll take those losses in stride.

    Good point. But here’s the problem: what if you borrowed the money to buy the MBS?

    If you borrow money to buy something, the guy you borrowed from wants to make sure you’ll pay him back. And since your ability to pay him back depends on whether the MBS will default, your lender will enforce your capital position at all times. (He’s managing his so-called “counterparty risk.” He wants to be sure you have enough capital to withstand losses without passing them on to him.)

    Simply put, if your leveraged MBS portfolio declines in value by even a small amount, you lender will demand that you add to your capital (“margin call”) in order to protect him. If you don’t, he can and will seize your assets and put you out of business.

    In two sentences, that’s what been happening all over Wall Street for over a year now.

    So there’s a huge amount of MBS paper out there that was purchased for more than it’s worth now. When you’ve lost that much money, you can’t buy anything new. (In the jargon, you don’t have enough balance sheet.) But you’re still stuck holding the distressed assets until they mature.

    Multiply that by thousands of institutions across the country, and you’ll see why we have a credit crisis. Any bank that’s forced to take big losses in an MBS portfolio doesn’t have enough capital to make any new loans. It’s the biggest systemic margin call in history.

    THIS IS WHY THE ECONOMY SLOWED DOWN, BEGINNING LATE IN 2007. And I’d been saying that in this space a whole quarter before it even happened. This is also why economic stimulus plans like the one we got this year from George Bush and will get from Obama if he’s elected President, only make the problem worse, not better. And it’s also why the economy can not recover until the bad paper all runs off.

    This is the root cause of all the failures by one investment bank, commercial bank, hedge fund and insurance company after another. It’s why the world’s “official” investors (foreign central banks and sovereign wealth funds) quietly insisted that the Treasury explicitly guarantee Fannie Mae and Freddie Mac’s securities. It’s why private equity has come to a halt and the stock market has stopped growing.

    And it’s the problem that Hank Paulson and Ben Bernanke have stepped up to solve.

    Now why on earth would you suppose anyone would let people use 30-1 leverage, or even more, to buy risky paper?

    This is another extremely important point for you to grasp: The leveraged purchases were not considered risky at the time. People make investments expecting to make money. They don’t go in expecting to lose money and get bailed out by the taxpayers.

    The combination of securitization and faulty credit-quality ratings made many MBS look like some of the safest investments out there. Because of their perceived safety, which nearly everyone accepted, lenders had no problem giving hedge funds and Wall Street firms the money to buy MBS on 30-1 capital ratios.

    In fact, 30-1 would have seemed conservative, implying as it did a raw default rate of something like 3%. Even today, in the middle of the mortgage maelstrom, default rates haven’t gotten that high. And people with access to really cheap capital can readily buy Treasury bonds (which have no default risk at all) on 100-1 leverage.

    But at high leverage ratios (or conversely, low capital ratios), your lenders will keep you on a much shorter leash. The less capital you have compared to your assets, the less skin you have in the game. The lender perceives his risk to be far higher than yours. So you’ll get a margin call at the first sign of trouble.

    And when the MBS bet turned bad and the margin calls started coming, a lot of bad things happened (which I’ve written about in past posts as they were happening), and we got to the point we’re at now.

    But think about this a bit more carefully. If a hedge fund or structured investment vehicle borrows short-term money in order to buy somewhat longer-term MBS (and make a profit on the interest-rate differential), what exactly is it doing?

    It’s creating credit. That fund has made the money available for someone to get a mortgage and buy a house. If that’s not clear to you, keep thinking about it until it is.

    The only difference between what that fund has done, and what a normal commercial bank does every day, is the source of money. The bank gets the money it uses to make loans from deposits that it takes from the public.

    And depositary institutions are regulated heavily. Among other things, they will generally avoid being leveraged any more than 10-1. The regulation is part of the price they pay for the FDIC deposit-guarantee.

    So a hedge fund that invests in MBS isn’t functionally different from a bank, but it escapes the banking regulations because it doesn’t take deposits from the public. It’s part of a vast “shadow banking system” that creates credit in an unregulated way. So why the hell are they allowed to run 30-1 leverage ratios, even to buy assets considered safe?

    That’s something we will need to change.

    -Francis Cianfrocca"



    --------------------------------------------------------------------------------
    Subject: Why the Financial Meltdown.
     
  18. grnberetcj

    grnberetcj Active Member

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    Here's some food for thought......


    I'm against the $85 BILLION bailout of AIG. Instead, I'm in favor of giving $85,000,000,000 to America in a "We Deserve It" dividend. To make the math simple, let's assume there are 200,000,000 bona fide U.S. citizens, aged 18+.


    Our population is about 301 million counting every man, woman and child. So, 200,000,000 might be a fair stab at adults 18 and up. Now, divide 200 million, 18+ adults into $85 billion - that equals $425,000.00 each! Yes, my plan is to give that $425,000 to every adult as a "We Deserve It" dividend.


    Of course, it would NOT be tax free. So, let's assume a tax rate of 30%. Every person would pay $127,500.00 in taxes. That sends $25.5 billion right back to Uncle Sam! It also means that every adult 18+ has $297,500.00 in their pocket. A husband and wife would have $595,000.00!


    What would you do with $297,500.00 to $595,000.00?


    Pay off your mortgage? - housing crisis solved!


    Repay college loans? - what a great boost to new grads!


    Put away money for college? - it'll really be there!


    Save in a bank? - create money to loan to entrepreneurs!


    Buy a new car? - create jobs!


    Invest in the market? - capital drives growth!


    Pay for your parent's medical insurance? - health care improves!


    Enable Deadbeat Dads to come clean? - or else!


    Remember this is for every adult U.S. citizen, 18 and older (including the folks who lost their jobs at Lehmann Brothers and every other company that is cutting back) and of course, for those serving in our Armed Forces.


    If we're going to re-distribute wealth let's really do it! Instead of trickling out a puny $1,000.00 economic incentive.


    If we're going to do an $85 billion bailout, let's bail out every adult U.S. citizen!!


    As for AIG - liquidate it! Sell off its parts. Let American General go back to being American General! Sell off the real estate! Let the private sector bargain hunters cut it up and clean it up.


    We deserve the money and AIG doesn't. Sure it's a crazy idea, but can you imagine the coast-to-coast block party?!


    How do you spell Economic Boom? W-e D-e-s-e-r-v-e I-t d-i-v-i-d-e-n-d! I trust my fellow adult Americans to know how to use the $85 Billion "We Deserve It" dividend more than I do the geniuses at AIG or in Washington, D.C..


    And remember, The Birk plan only really costs $59.5 billion because $25.5 billion is returned instantly in taxes to Uncle Sam.

    Curt (and I prefer 7-1/2's)
     
  19. Wambofan

    Wambofan TS Member

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    If they think they need to give away some money, I have a good idea they can give me 100k and let the uberrich, greedy spend a lil of their own money to solve their problem. And us the other 6.99 billion to help alleviate some of our country's debt.

    just and idea
    KS
     
  20. jakearoo

    jakearoo Active Member

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    Now someone remind me please, what is the cost to date of the Iraq war? I seem to recall it was in the neighborhood of 800 billion. Dang, now that number sounds familiar. Hmm.
     
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