I think that was McCain's plan. Obama's seems to extend that to everyone. I think its a bad idea either way.

Daimyo: McCain's plan was to allow retirees to keep their stocks for a period of time longer, rather than to be forced to liquidate them in this down turn

Dola:

(ok, ranty-ravey go Foz time)

House GOP objects to spending in $150 billion stimulus package - CNN.com

I understand about the fact that the Republicans don't like the Democrats plans for a 2nd stimulus bill. That's fine. I'm less then totally enthused myself. But if the Democrats plan is like dropping a book on my foot in aggravation. The Republican "plan" is more like sticking my foot in molten lava

Here's the Republican plan (in order of the way I feel about it.)

Directing the government to guarantee inter-bank loans.
This might be a good step, and a way to further unstick the credit markets.


Extending government deposit insurance to business transaction accounts.
Not sure on this, it might be a good way to keep the dominos from toppling. I'm concerned that it's a benefit to the people who GOT us into this mess, but it's a good start.

Suspending capital gains taxes on securities purchased during the next two years.
I reflexively want to say hell no to this, because, quite frankly, there's enough tax dodging amongst the wealthy class as is. But I'm willing to be convinced.

Eliminating capital gains taxes on the sale of homes up to $500,000 for a couple.
I disagree with this, but not strongly. I am not a homeowner, so it's obvious that I'd be biased against it to begin with, but I don't think this is a good idea.

Removing legal barriers to speed up new offshore oil drilling. A law banning offshore drilling expired October 1, but Republican lawmakers say lawsuits could block new offshore rigs and want judges to quickly rule on the cases.'

Fuck no. If anything, we should be going after some of that windfall profit that the oil companies made leading up to the energy crisis. Let them go through normal procedures to get the new areas, after all, it's not like they have millions of acres of land that they already have rights to.. oh wait they do! And what the fuck does giving away MORE areas to the oil companies have to do with unsticking the economy?

Lowering taxes on income that U.S. corporations earn from their overseas subsidiaries

FUCK NO.. all that encourages is more out sourcing and more jobs fleeing the country.

That Republican plan sounds atrocious, can anyone post a link to actual docs for both bills?

Government guarantee on interbank loans may be good, depends on the guarantee. It could be code for, insure we never default on an interbank loan, in which case I'd say the government should make the loan itself and pocket the interest, rather than a third party with no risk.

Government insurance on business transactions sounds highly dangerous, private business is supposed to be all about decreasing transaction costs and inefficiencies... now we want to add insurance overhead to what sort of accounts? Seems unnecessary unless there is some situation I just am not thinking of.

No capital gains tax... why in the world? Corporate welfare like we've never seen, I think with that giant bailout the thought is the well is open for business... we might not have an economy left soon. Besides, everyone should have plenty of losses at the moment right... right, oh wait, unless they're set to make a BUNDLE on this mess, why not tax those lucky ones? Heck, thats me... damn, still I pay my taxes as a peon, I'll pay them as an investor. No need to pad my pocket further Washington!

Houses, oil, overseas taxes... you pretty much hit my mood exactly. Houses might be the only thing I can get behind if it helps boost the house market a couple years down the road once it recovers (likely not to previous levels which were overpriced).


I need to probably go hunt down what they are saying, I'm nervous we are getting a trend of outright raiding of everything out in the public even, ick.

Democrat plan looks like the same old garbage they always do, won't stimulate anything, more of a money injection to keep various programs alive (I won't debate whether those programs should be kept alive, I'm just protesting the word 'stimulus').

Here's the full text of the letter from Boehner to Pelosi:

http://www.politico.com/blogs/thecry...ulus_plan.html

The Honorable Nancy Pelosi

Speaker of the House

H-232, U.S. Capitol

Washington, D.C. 20515



Madame Speaker:

I have been reading with great interest the press reports relaying the Majority’s continued discussion of an additional “stimulus” package. Madame Speaker, I agree wholeheartedly that Congress should take additional measures to get our economy back on track, and we should not wait until January.

Families and small businesses continue to feel squeezed by the impact of the credit crisis. The threat of new taxes stifles any planned job creation. And the cost of energy, while falling somewhat, is still too high and threatens our economy and family budgets. You have been quoted in recent days as saying this Congress must make “harsh” decisions to address these challenges. Yet those same news stories document your plans to spend upwards of $150 billion as “stimulus” – hardly a “harsh” decision. This is instead more of the same: an irresponsible, business-as-usual approach that has earned this Congress the lowest approval ratings ever recorded in the history of modern polling.

Nothing currently being discussed by the Majority as “stimulus” will stabilize the economy long-term. Nothing being discussed will ease the uncompetitive nature of our nation’s tax rates. Nothing being discussed will bring a single dollar of private capital into our markets, which would help stabilize and restore American families’ savings and retirement accounts. And nothing being discussed will help small businesses compete and thrive.

To be sure, Madame Speaker, the challenges we face today are long-term problems and will take a great deal of work by Congress and the next administration. And we must allow time for the recently-enacted market rescue package to begin to work. However, there are immediate steps we can take to begin to turn the corner toward real economic growth, including:

Creating Jobs through an “All of the Above” Energy Plan: While the moratorium on development of nation’s deepwater oil and gas resources expired on October 1st, completing the requirements under existing law to develop these resources will take at least two years. And lawsuits from anti-American energy extremists could delay development even longer. Congress should amend existing law so that leasing for the development of our deep ocean resources can begin in months, not years. Likewise, we should streamline the judicial review process so that any lawsuits can be heard and acted upon quickly. More importantly, Madame Speaker, we should view the expiration of the energy production bans as just the first step toward the energy reforms the American people support. Nearly three months ago, House Republicans introduced the American Energy Act, an “all of the above” plan to lower energy costs by increasing production of American energy, encouraging the use of alternative and renewable fuels, and promoting more efficiency and conservation. These changes – not reinstating the energy production bans, as Majority Leader Hoyer and Natural Resources Committee Chairman Rahall have recently suggested – are expected to create a million good-paying job opportunities and lower the costs of energy for all Americans.

Bringing American Jobs Back Home: Under current law, the nearly 10,000 U.S. companies that have overseas subsidiaries must pay a 35 percent tax (the second highest tax rate in the world) on profits earned overseas when they bring those profits home. This encourages U.S. companies to leave their earnings overseas, meaning less money is available to shore up struggling companies at home, keep Americans employed, and create new American jobs. Congress should immediately change the law to lower the tax rate on profits that companies bring back to the United States. A similar one-time change enacted in 2004 resulted in $312 billion that had been locked away overseas coming home to the United States.

Encouraging Home Purchases: Currently, people can exclude up to $250,000 of capital gains ($500,000 for married filing jointly) on the sale of a home used as a primary residence in at least two of the last five years. Congress should encourage people to purchase properties by allowing a similar exclusion for other homes purchased in the next 18 months and held for at least 5 years.

Providing Capital Gains Tax Relief: Congress should immediately suspend the capital gains rate from 15 percent for individuals and 35 percent for corporations for equities purchased during the next two years. At a time of economic uncertainty, Congress should do everything in its power to encourage investment to help spur growth in equities markets, and providing capital gains tax relief could help take foreclosed properties off the market and raise home values on behalf of American families.

Lowering the Corporate Tax Rate: The American corporate tax rate is the second highest in the industrialized world. To encourage American companies to assist with the financial recovery, American companies should see a benefit for investing in distressed assets. Congress should enact a program where corporations that agree to purchase some amount of distressed assets should benefit with a temporary 10 percentage point cut in their corporate tax rate.

Increasing the FDIC Insurance Limit: The recent economic rescue package increased the FDIC insurance for deposits from $100,000 to $250,000. While this was a necessary step to encourage Americans to keep their money in American banks, Congress should act to insure 100 percent of assets in transaction accounts. Many small and mid-size businesses easily eclipse the new $250,000 threshold to meet payroll.

Guaranteeing Interbank Lending: One of the primary impediments to unlocking the credit markets is that banks do not trust the security of other banks. A federal government guarantee of lending among banks will go a long way in unlocking the credit markets for businesses and individuals.

Suspending of Minimum Withdrawal Rules. Current law requires individuals age 70½ to begin withdrawing from their Individual Retirement Accounts. Congress should immediately enact legislation suspending this requirement to spare investors from being forced to sell their stocks at just the time when the market is hurting the most.

House Republicans represent nearly half of the American people. Our constituents are not looking at the mess in Washington or Wall Street and asking for the federal government to take care of other governments. They are not asking for a one-term accounting fix to Medicaid, or pork-barrel spending masquerading as “stimulus.” They’re asking for reforms that create good jobs, lower energy costs, and allow our employers to compete. They are asking for a real economic growth package that lets them keep more of their own paychecks – and creates new American jobs at the same time.

I look forward to working with you to pass these important reforms.



Sincerely,



/s/



John Boehner

Republican Leader

The GOP plan is absolutely ridiculous. If the equities market is priced "right" then Capital gains loss is already in it. Having a moratorium on it would horribly inflate the equities market so that a major weight would be placed on it when the tax is reinstituted.

The tax on homes over $500K is just a cash grab IMO.

The rest of the stuff Im clearly against as it's obvious who and what its for except for the second home tax exemption. Its a quick way to get some of the overhang of vacation homes which are in many of the cities that had the biggest bubbles, off the market at least a little quicker.

lost the link, sorry.

I would add that more than half of Americans cannot spell depression, nor find their state on a map, nor think that the National Enquirer isn't real news.

WRONG :mad: This would encourage them to actually pay the taxes here as opposed to another country. People, companies and capital naturally flow to where the costs of doing business are the most favorable. This means, in no order of priority, quality of labor/education, tax rates, regulations and local market quality.

For a short term fix, lowering tax rates is the quickest and easiest way to attract business & jobs. Raising taxes simply encourages companies & people to go elsewhere.

There's a lot of Fear, Uncertainty and Doom being spread around. That's not to say that things aren't bad out there (they are), but this is not 1929 all over again.

Oh yeah!

SI

I'm really hoping that neither the Dem plan nor GOP additions to the stimulus plan are passed. Don't pass anything. Geez

SI

Whomever has the idea to change the laws on 401ks/IRAs so that you don't have to take a distribution if you don't want/need to is right on the money, in my opinion. I'd like to see that get passed.

I believe McCain mentioned it first (among the Prez candidates), but I wouldn't be surprised if Obama agrees.

The overseas tax being reduced means that they will move more of their stuff overseas, not less... if not in terms of real jobs, than in the money shuffling transactions they do to avoid taxes.

It is basically a redirection of tax dollars to reduce the overseas tax, it will not increase investment in the U.S... its just free money to corporations.

I think people take an over simplified view of taxation and business growth. It just seems common sense that lower taxes = more businesses to give you jobs, but it is not a 1:1 relationship. A trillion dollar tax cut does not mean a trillion dollars worth of new investment, it certainly does not create a trillion dollars worth of jobs. You also have the counterweight for corporate tax cuts, tax hikes on working stiffs and/or expanding debt (eventually results in an inflation tax). Without reduction in government spending, every tax cut for a rich guy is a tax hike for you, or financed by debt... same goes other way, if Obama chops supposed middle class taxes for everyone, that needs to be made up somewhere... I'm nervous where that is going to fall in that it'll probably end up on small/mid business since both sides will protect the big money players.

It's not exact, I definitely agree. But raising taxes encourages companies (and people) to leave, not stay. See European tax rates for a case study. Or the number of professional athletes who "live" in Florida.

The fix is to cut expenditures, not raise taxes but that's a) not going to happen and b) better suited for the pol thread.

From krdo.com, an article about the foreclosure rates in some local zipcodes


Yep.

In addition Bucc were starting to see more and more foreclosures so i was definitely wrong when I thought we'd seen the bottom this summer. I think the next 6 months are going to be very very tough.

Wouldn't this just move company headquarters and jobs overseas to more tax-friendly countries? Britain is facing this problem. We need spending reforms and tax reforms.

Do you think people/consumers will finally learn then?

Do you think Banks and lenders and appraisers and loan originators and and speculators and builders will? and lack of regulation didnt help:

http://news.yahoo.com/s/ap/20081020/...e_game_housing

It's this kind of thing that has me convinced that the bailout will be a disaster. Not that it's a bad idea in principle, but that our Congress is completely incompetent to execute it in a way where it does anything but harm.

This issue was brought up in this thread (where the sentiment was laughed at), and the government couldn't think of how to combat it?

White House to banks: Start lending now - Yahoo! News

White House to Banks: Start Lending Now

WASHINGTON – An impatient White House prodded banks and other financial companies Tuesday to quit hoarding billions of dollars flowing into their vaults from Washington and start making more loans. Wall Street soared nearly 900 points on bargain-hunting and hopes of a hefty interest rate cut by the Federal Reserve.

The stock market's amazing climb, with its second-largest point gain ever, was a welcome burst of good news for a nation suffering big job losses and seemingly tumbling into a painful recession.

Consumer pessimism reached record levels in October amid rising unemployment, plunging home prices and shrinking retirement and investment accounts. The Conference Board, a private research group, said consumer confidence fell to its lowest point since it began tracking consumer sentiment in 1967.

Hoping to thaw the credit freeze that has chilled the economy, the Bush administration sent banks an unmistakable message to put aside fears and open up loan windows for cash-starved businesses and consumers who have pulled back on spending.

"What we're trying to do is get banks to do what they are supposed to do, which is support the system that we have in America. And banks exist to lend money," White House press secretary Dana Perino said. While there are limits to Washington's power to affect banks' behavior, the White House decided it was time to use its bully pulpit.

"They (regulators) will be watching very closely, and they're working with the banks," Perino said.

Washington has pumped money and confidence-building measures into the system over recent weeks to get lending, the lifeblood of the credit-dependent American economy, flowing freely again and to combat the worst financial crisis since the 1930s. So far, though, it has not worked. While the crucial and much-watched short-term lending rate called the London Interbank Offered Rate, or Libor, has come down, it remains at elevated levels.

On Wednesday, the Federal Reserve is expected to announce a cut in its fed funds rate — and Wall Street is looking for a drop in the key interest rate by half a point to 1 percent.

At the center of the administration's efforts to thaw credit is the $700 billion financial bailout plan approved by Congress and signed by President Bush earlier this month. Under that law's authority, the administration is doling out $250 billion to banks in return for partial ownership.

The Treasury Department, which is overseeing the massive capital injection program along with the rest of the bailout, will pour $125 billion into nine of the country's largest banks, which account for 50 percent of all U.S. deposits. Anthony Ryan, Treasury's acting undersecretary for domestic finance, said the first payments went out Tuesday. An additional $125 billion will start flowing to other banks within days, he said.

"As these banks and institutions are reinforced and supported with taxpayer funds, they must meet their responsibility to lend, and support the American people and the U.S. economy," Ryan told the annual meeting of the Securities Industry and Financial Markets Association. "It is in a strengthened institution's best financial interest to increase lending once it has received government funding."

Rep. Henry Waxman, D-Calif., chairman of the House Oversight Committee, asked the banks getting the $125 billion to detail what they are paying their executives and employees, including bonuses.

"I question the appropriateness of depleting the capital that taxpayers just injected into the bank through the payment of billions of dollars in bonuses, especially after one of the financial industry's worst years on record," Waxman said.

The infusion of federal money is to rebuild banks' battered capital reserves so the institutions would feel comfortable resuming more normal lending practices. But that confidence was undercut somewhat when reports surfaced that bankers might use the money to buy other banks. Indeed, the government approved PNC Financial Services Group Inc. to receive $7.7 billion in return for company stock on Friday and, at the same time, PNC said it was acquiring National City Corp. for $5.58 billion.

There is little federal officials can do about it. There is no language in the bailout bill that specifically obligates banks receiving money to increase their loans. Officials had argued that attaching strings to the capital-infusion program would discourage financial institutions from participating.

"The way that banks make money is by lending money," Perino said. "And so they have every incentive to move forward and start using this money."

Yeah, this is the problem when big government tries to deal with big business. Best intentions and all that.

My firstinclination was to let the market sort itself out. Stocks would have fallen (they did anyway), credit would tighten (it did anyway), unemployment would go up in the short term (it did anyway), house values would drop steeply(they have anyway), but...the "new" economy would have emerged and people (i.e. investors) would remain greedy and decide to put money back in the market as they would know the state of the economy. Right now, they're playing footsie with the stock market, and everybody who isnt "all in" is looking for short term drops and spikes.

Even my second option (which is admittedly self-serving and not my normal thought process) to give a % of credits directly to people selling primary residencies with negative equity, and to buyers of primary residencies. Add liquidity directly to the trouble spot. Problem with this(like the bailout) is that it adds to inflation. But at least it is less prone to government bumbling, and can be predicted mathematically. By the time the government pays out "x" dollars...the cumulative effect of housing price stability will reduce the number of people (and the consequential payout) eligible.

I know it isnt as simple as that...but it also isnt as complex as unravelling MBS nonsense

Agreed with molson on this (as I think I have been most of the thread). One of the big problems I had with the bailout, at least the way it went down, is that it more-or-less relied on the banks agreeing to play ball, completely voluntarily. One could argue that Paulson's connections to all these bank heads would have worked, but clearly that is turning out to not be the case.

A bailout that said "sure, we'll bail you out, but if we do you sign on the dotted line to do x, y, and z and oh, by the way, we're going to take equity in your bank" would have given the Treasury much more leverage to get the financial system moving again, and not allow banks to hoard their taxpayers' money like scared little children.


This combined with the talk about using some of the $700 billion to bail out Chrysler and GM makes it seem to me that the "bailout" is now nothing more than a gigantic taxpayer-funded slush fund for Hank Paulson to rescue anyone who wants to get in line before it's all used up.

Bailout was useless, and now it looks like the government is going to use it as an excuse for more stupid tampering with the economy. Just buying up all their bad bets and telling them to give out loans is not going to do anything, and if the government starts forcing things, the banks will probably just give out something that vaguely looks like a loan (to meet requirements) but is really another crazy finance toy.

I think the net result of this is going to be a worst environment for small business. We're going to end up with giant merged banks that block out any real competition (and inevitably return to trading junk once the remorse wears off)... also we'll be maintaining this crony system where its free market up to the point where you fail and have sufficient political capital, in which case its temporary socialism until everything gets sorted out.

The net result is decay of our economy, incentives are why the free market philosphies work, and yet everyone ignores that basic assumptions are being violated left and right. There is too much easy money in being a robber baron right now to trust the mega-rich, we are going to see the death of the investor class (long-term oriented wealthy, and wealth-growing middle classers who are creating value on their way up because they start with nothing).

The super rich are an extracting class right now, they are not wealth generators (as in they do not need to create jobs or business growth to make their money, they subsist solely on connections, short term speculative moves, and rigged games). I know because I'm basically following their tricks right now to extract as much as I can from the turmoil myself... feels dirty, but that is the only real restraint right now (and I can tell you it doesn't stop me from doing it).

This part I like, yes, it somewhat bails out people who made "bad decisions" to take their mortgages, but I'd rather bailout Joe Average then Joe CEO, who seems to be using the bailout money to buy other banks.

Edit: Forgot to provide the link (Bugmenot or reg required) http://www.nytimes.com/2008/10/30/bu...0homes.html?hp

Senior Bush administration officials are completing a plan that could help up to three million homeowners struggling to pay their mortgages to stay in their homes, three people briefed on the proposal said Wednesday.

The initiative could be the most sweeping government effort directed at mortgage borrowers since the financial crisis began last year. Under the plan, the government would agree to shoulder half of the losses on home loans if mortgage companies agreed to lower borrowers’ monthly payments for at least five years, according to the people briefed on the plan who asked not to be named because details were still being negotiated.

Officials from the Treasury Department and the Federal Deposit Insurance Corporation are working on the proposal and an announcement may come soon. Sheila C. Bair, the chairwoman of the F.D.I.C., has been the leading proponent of the plan and first discussed the idea publicly a week ago.

The plan could cost $40 billion to $50 billion and would be part of the $700 billion financial bailout package that Congress approved earlier this month. The money would go toward covering future losses on loans that are modified according to standards established by the government.

The program is intended to entice more mortgage servicing companies that handle billings and collections to reduce payments for homeowners by lowering interest rates, writing down loan balances or changing other loan terms.

So far, many companies have been reluctant to aggressively reduce payments because they are afraid that borrowers might default again or that investors in mortgage securities might file suit.

I just want to make sure I'm reading this right. Homeowners will get to pay less, while the government (taxpayers) pays for the balances of the current loans?

All the people that have been financialy responsible through all this should have access to 2 of the non-responsible people being bailed out for 2 Saturday afternoons over the next 12 months to do yard work, etc. It's only fair.

I mean seriously, is it too late for be to get in on one of these bad mortgages?

Yeah. Government will shoulder half the losses if the mortgage folks negotiate down the terms of the mortgage (reducing the primary value, lowering the interest, etcetera)

Must be nice.

well, it could be a way out for mortgage providers. What's better, lowering a 450K mortgage to 300K (and getting 75K of it guaranteed back from the Govt?), or foreclosing on it and getting very little in a glutted house market?

I want this to happen. Where do I sign?

I believe McCain, who likes to accuse Obama of "redistributing income" through the tax system, has a similar scheme in mind :)

I think its a fundamentally flawed approach personally as it encourages people to make poor decisions and expect to get bailed out.

A better approach imho would be more similar to what has happened with the banks, have the goverment "buy into" properties in a bad situation and own a share of the house involved.

For instance if you have a $300k mortgage you can't pay - the goverment offers to purchase a 50% equity in your house and pay the mortgage down by 35% lowering your current mortgage payments without giving any additional burden to the house owner (yes theres a disparity between the percentages on purpose I would want this to be something where you aren't rewarded for getting yourself in a hole myself).

When the house is sold the goverment will hopefully recoup its investment (possibly making a profit) and it allows people to stay in their houses in the mean-time while inflating their expendable income and thus hopefully putting some impetus back into the economy.

I've harped on it long enough, but I think we would have been better served with 700 billion dollars worth of something like Marc Vaughn's plan, although I would have the house fully owned by the government. If you make all your mortgage payments, you own the house, or if you get a significant percentage maybe you can refinance to own the house. The key is to prevent the house from being used to create further debt, BECAUSE, the value of the house and the loan may be refinanced by the government to avoid default, and this might represent potential loss on the part of the government.

Banks get NO income from the house except through the government, if they can prove what part of the chopped up derivative package corresponds to the new government package.

Bad sides:
+ Government bureacracy to manage the program, mostly to help banks, collecting from people or setting standard refinance policy 'should' be easy.
+ Some people won't be punished for taking out bad loans
+ Some banks will not be able to prove they deserve part of the proceeds, although its their fault for buying a messy contract in the first place.

Good sides:
+ Less defaults, which means a lot of derivative packages may still remain stable (say 75% of value) if not profitable.
+ Government owns a lot of revenue generating land, it might be a slight net loss, but it sure ain't worthless paper.


If you really want to stop a credit crunch, you need to give some value to the assets being crunched. Even now I think mortgages are still unknown, there is a lot of speculation out there (thought and financial :) ). No one knows how many are going to fall apart quite yet, the estimates I'm seeing are looking pretty grim.

Instead of a fire sale of all these derivatives, if you flatline the value, or even at a loss, say 50%, well you do better than the pennies on the dollar you might see in market for something that could explode from 0 to full value. I think this is why we are seeing the bank buyouts, with the bailout to clean up some pure zero paper, and the chance of a rebound or people paying their mortgages to make some of that paper in the black... this could be the bargain of a century for giant banks.

Just found out this is going to hit home personally -- Ms.path was just told her position was being eliminated in three weeks. There's a possibility she can get another job in the corporation but even if she can it's about a 25% pay cut......

That sucks. Will there be any kind of severance package to give time to find a new job?

People with cash in hand are going to clean up in all of this. My Dad was telling me last night of a friend of his who owns a Condo in Florida. That condo was worth close to 300k a couple years ago, but could be had for about 100k right now. His friend is going to buy a couple more while he is down there this winter, because he has money lying around and can afford to pay the condo fees and upkeep for a few years while the market bounces back. Even if it doesn't make it to 300k anytime soon, you can bet those things are worth more than 100k, and he'll make out like a bandit on them in the next 5-10 years.

Of course, you have to already have money to make a move like that, so the rich will get richer while the rest of us fall behind or tread water. Frustrating.

Ack, sorry to hear that :(

If she can't get the other position in-company she gets 9 weeks pay and an allowance to let her keep medical coverage for that period. Not a ton of hiring going on though. She's really hoping to be able to stay at where she's at now even with a pay cut just because of her benefits (she's got 12 years in with them).

I wouldn't except the type of prices and run-up for a long, long time that we had seen.

It is really sad when a long-term employee gets this kind of treatment. Giving 12 years to a company is a lot more loyalty than most people give. Seems like that should be rewarded. 9 weeks pay is nice, but it may be hard to find a job that quickly.

But 200k is only halfway to 300k (where presumably it had been). And that's just to come close to doubling your money (condo fees/maintenance/real estate obviously eat away a good chunk). I think prices in a lot of places in the US have swung way below their 'real' value.

I approve of addressing the bad mortgages, since they're clearly one of the biggest roots of the overall problem. However I do agree with the others that have posted that this is essentially rewarding bad behavior.

The worst part, though, I think is this:

Under the plan, the government would agree to shoulder half of the losses on home loans if mortgage companies agreed to lower borrowers’ monthly payments for at least five years[/quote]

Because I assume that in five years, they'll still not be able to pay their full mortgage, so we'll be right back where we started. Talk about short-termism!

I approve of Marc's proposal. The government pays down the mortgage to the point where you can pay it. Once you finish paying off your regular mortgage, you then start paying off the government. In effect the government's floated you a no-interest 2nd mortgage. The government still loses money on the deal, sure, due to inflation, but it's not as egregious as just giving the money away.

And I say this as someone who felt we shouldn't just give money away to Wall Street either.

Does he want to buy a home for $180k? It was worth $255k a year and a half ago. :)

Honestly...as a Florida resident who has seen this whole housing boom, the utter corruption & speculative investing, and subsequent crash...I believe this market has yet to hit complete bottom. Time alone is the enemy of house prices, even if there are bailouts coming shortly.

I dont think most people outside of these areas (from conversations I have) realize the real problem with the housing market. It isnt just the ARM mortgages, or deadbeats who cant afford their mortgages. Yes, they have increased, but there has always been a high degree of foreclosures in FLA relative to ther rest of the country. It's the amount of speculative investors who (similar to dot com, oil, etc.) saw an opportunity to drive up a market to the point of bursting, and then pulled out. The housing boom also fed on itself...creating new jobs in real estate, construction, and supporting services like restaurants, shopping, etc. which helped fuel more homebuyers. Rinse and repeat.

Now that the housing bubble has popped...all of these ancillary-housing boom businesses have also popped. So now they lay people off and/or shut down, and now their former employees cant support their mortgages, and now the rest of the market suffers because of the supply/demand thats been created as a result. Couple that with the fact that tourism is down because of the gas prices, and now you can forget about a swift recovery.

Give it 6 months to a year still. This thing is a much bigger problem waiting to show itself when "responsible" people start walking away from their homes because they are ALL under water on their mortgages and the neighbor gets bailed out for "missing" payments...but they dont for "making" payments. So...if you invested you will see some help...if you are incapable of affording a home you'll get some help...but if you were responsible you get to sell your home for less to a 5/1 ARM knucklehead in a few years who will pay you half the amount that you paid for it. Awesome.

You might be right in that the bottom hasn't hit yet, and since my story is 2nd hand speculation from people who live thousands of miles away, it's sort of hard to argue. But my gut tells me that while those condos or homes may have been overvalued 2 years ago, if they have truly dropped to 1/3 of that value then they are undervalued now. And sure, they might be even cheaper in 6 months, but you don't have to hit the exact bottom to be a winner, especially when you can afford to look years down the road before seeing the profit.

I feel your pain on the whole thing, however. It sucks that all the prudent, responsible people are the ones that seem to get hurt in these kinds of messes.

Yeah, I'm definitely skewed towards doom & gloom right now, but really it will only take 1 month of a few sales to spur many more people into buying again. It's just a perfect storm of bad economic factors here at the moment. I'm lucky enough to be able to at least maintain through it, so things could be worse for me.

There are definitely some incredible deals to be had here. I'm seeing 3000 sqft homes for under $200k...just wow. I cant recall the last time homes like that were so cheap. Might have been well before the boom.

I know of a brand new 3000sqft home in St. Augustine to be had for $199000. New neighborhood, some nice upgrades inside.

One thing you have to realize is the losses the builders take this year can be rolled back to the last boom year...so Come next year the builders are going to try to toe some sort of line.

Well, this blew my mind last night on All Things Considered. It's a story by Alex Blumberg, who was one of the two guys who did "The Giant Pool of Money", which was the award-winning episode of This American Life that explained, earlier this year, the financial crisis, at the time at least.

In this ATC segment, he's explaining what happened with Default Credit Swaps. Absolutely unreal. I've bolded the most unreal part.

That's very oversimplified, as is most of the mass media on credit default swaps. While people harp on swaps being unregulated, the legal framework surrounding swaps is actually pretty solid. Most are collaterallized, with collateral moving on a daily or weekly basis. Furthermore, when a credit event (like a bankruptcy) happens, there is a pretty well refined auction process that takes place. There have been about a half dozen auctions in the last two months, with several more scheduled between now and Thanksgiving. This is significantly more activity than we saw in the last two years combined. To this point, auctions have settled without real issues.

This is not to say there aren't real risks with CDS. There are. One of the things that article doesn't even mention, and which is a much bigger issue in the Lehman bankruptcy than the triggering of CDS payments on Lehman itself, is counterparty risk. You trade swaps with broker dealers, so when a credit event happens, you seek payment from your counterparty. Lehman was one of the biggest swap counterparties. So, by filing for bankruptcy, they default on all of their open swap transactions. The hope is that they run a matched book--essentially serving as the house in these trades, matching exposures on each side. But, the real issue in the lack of regulation is that you have no transparency into how well a broker has matched its book. Now, in the Lehman situation, you have tons of people who are owed by Lehman on terminated swaps, and tons of people who owe Lehman. The problem is the ones who owe Lehman aren't going to pay a bankrupt entity without being asked to do so by the bankruptcy court, and Lehman isn't paying those who it owes. At the very least, you have a massive delay in settling up--not as a result of the scary CDS transaction, but because the intermediary in the transaction went belly up.

From the "Very Obvious" Files: Mortgage Plan May Irk Those It Doesn’t Help - NYTimes.com


I love the final part.

Fair enough, and I appreciate the rest of what you wrote, but the bottom-line, to me, is that it seems that a lot of the actors here played fast-and-loose if not with regulations, than at least with common sense. There's a level of unreality here that I feel shouldn't really exist in financial systems.

Just wanted to give an update on the situation for Ms.path -- she is going to be able to switch to another position in her company. We're going to take a 20% salary hit which will take all the cushion out of our budget, but we'll be able to tighten our belts and get my stepson through his last 20 months of college barring any unforseen circumstances and then things should improve once that's done.

Thanks to all for the good wishes.

Libor's coming down.

Come on now, you don't get $60 trillion of exposure on $6 trillion of real financial instruments without some massive gaming.

Here is a little homework for someone trying to understand the modern financials market... research credit default swap exposure and compare it to stock price/bailouts of these finance firms (and insurers like AIG hint hint). I have not lost on a single short I placed on some of the worst offenders by that metric.

$60 trillion exposure on $6 trillion works IF AND ONLY IF the market is under constant expansion. Besides basic theory, which says that doesn't make sense, the entire idea of a credit default swap is that it is indeed possible that such a situation can occur, therefore necessitating trading away some of your bond profit for the 'insurance'.

Heck even the term of a 'matched book' makes CDS sound just like your average sports betting bookie operation.

Common sense says that with a giant downturn and credit freeze, that defaults can happen... and if the defaults trigger insurance that the bookies cannot cover, well we're going to see some more choking in the financials. I personally think we should get to root assets and shore them up, to avoid the low level defaults that lead to bank defaults that lead to CDS being called in... right now the government seems mostly interested in avoiding bank defaults (a valid concern, their tactics suck and can easily be undone by bad behavior from the banks being bailed or those stable banks getting greedy).

I think we need to let a large number of these contacts fail, there is just too much, and the penalty will fall on all sides (wiping out those selling insurance they can't provide completely, and those buying insurance will have to absorb the full loss of their bond default, and the fees).

Meanwhile, buy cheap oil! I can't fathom the sub-70 price, anyone know what the story the talking heads are giving for it is? (not enough time to sniff CNBC lately :( )

Wife just got laid off. Yay!

:( Sorry dude

Ouch. Sorry to hear that.

Global demand drop, global recession, speculation drove the price up, a future of years where alternative energy gets a drive to innovate, an impetus to drill domestically....etc.

sorry dude.

Thanks guys. Yeah, two weeks before her Christmas bonus which should have bought our whole present list. Well, at least she got two weeks pay and three recommendation letters. Still sucks.

Of course there is some speculation going on, but there is also a lot of very sophisticated credit risk management, transaction cost management and exposure management going on.

The $60 trillion number is somewhat misleading, because it double counts matching exposures. For example, if I've sold protection on a name, but hedged by buying protection on the same name from someone else, that is going to go down as two swaps and count into your aggregate number.

One of the problems we've noted a number of times is the lack of transparency, so it is difficult to gauge what an accurate number is for the real swaps "problem." However, the Lehman example may provide some guidance. It is estimated that there was several hundred billion in CDS written on Lehman itself (bets that Lehman would go bankrupt or hit some other credit event), however because a number of those trades were offsetting the actual dollars that changed hands in the CDS market as a result of the bankruptcy was just a fraction of that several hundred billion dollar number. And that's with the firesale price of about 8.5 cents on the dollar attained in the Lehman CDS auction (this means that those who sold protection would make up 91.5 cents on the dollar to the buyer of protection).


Couple things here. First financials have taken a beating all around. You could also correlate mortgage backed holdings to stock price of banks. Unless you shorted Goldman the day before Buffet's investment, you likely haven't lost a single short on a financial in general.

Second, many view swap spreads as a very useful tool in judging the health of a company. If a swap spread widens (meaning protection sellers are charging more to take credit risk with regard to a company), it generally signals that the company is in trouble and this is generally inversely proportional to the stock price.

Third, AIG is a bit of a special case here. They are not a broker dealer matching their books. They are an insurance company, so they generally landed only on the side of the trade selling protection. They had very few offsetting trades and the market downturns were that much more crushing to them. They also got into a bit of trouble because they had written protection contracts for CDOs (collateral debt obligations) that held mainly mortgage backed securities. Big time trouble.


I've got to be honest, I don't completely follow you here. While of course there was and is speculation going on in the swaps market, there is also a ton of risk management and hedging going on. Swaps price risk. Plain and simple. In theory, they work in either case. In an expanding economy, the protection seller "wins" because he never has to make the contingent payment associated with the default. In a downturn, the protection buyer has his insurance policy, but if the swap has been priced correctly, the seller has been fairly compensated along the way for ultimately bearing the brunt of the default.


Not a bad analogy. Broker dealers serve as an intermediary and make money off the bid-ask spread of the swap. If they've done a good job matching their book, they make a tidy sum.


Yes, counterparty risk, as we saw with Lehman, is the elephant in the room. However, it is not what the media has focused upon. Instead the focus has been on the fact that these are "bets" on whether companies fail? Big effing deal. The real risk is the intermediary failing. If you read Buffet's quotes on swaps from several years ago, this is what he was warning about and Lehman is the perfect example of this.

The swaps written on Lehman Brothers have settled in a pretty quiet way. That's done. Auction on October 10th, settlement last week. What isn't done is settling trades that were terminated because of Lehman's default. This is what I mentioned in my earlier post. You have counterparties who owe Lehman on swaps and you have counterparties that Lehman owes. It is going to take more than a year for the bankruptcy court to sort out who owes Lehman what and make those folks pay and distribute proceeds to those Lehman owes.

That is why you are reading about the need to set up an exchange for swaps trading, much like the futures exchanges in place today. This would greatly reduce the counterparty risk, as you would not be dependent on an intermediary to settle your trade. I am skeptical of this happening any time in the near future.


Again, I don't see individual names defaulting as being a major shock to the CDS market. CDS are marked to market, and collateral is moved on a daily or weekly basis. Auctions are held and triggered swaps are settled. I went back and looked it up, and since the beginning of October, there have been 7 CDS auction protocols for CDS names that hit triggers. That's more than in all of 2006 and 2007 combined. There are an additional 4 scheduled in the next few weeks. Those auctions haven't really disrupted the market and all resulting transactions settled efficiently.

The ISDA protocols are pretty developed in their operation in the face of an individual name default. The ISDA agreements are also pretty smooth in how they handle these. The first big one in October were the Fannie and Freddie bail outs. I went to work that Monday dreading the pending credit event. I spent a total of about half an hour on the whole thing. Very smooth process. And again because of the pricing and collateral movement, most losses on individual names are mostly absorbed by the time of the default.

As I said above, the bigger issue in my mind is counterparty risk. That is why the banks and brokers are looked upon with a little more care. When the intermediary goes away, everyone pays (either in time or money (or both)).

Swaps are an easy target right now because people don't understand them. Has speculation on companies downfall contributed to some of the market panic? Of course. Should there be more transparency in the CDS market? Probably. Would an exchange help? Definitely. Is banning swaps the answer? Definitely not.


Not a commodities guy, but BUY! BUY! BUY!

Ugh...that sucks. All my best.

I do not what the source of this is or who Horowitz is but stories like continues to confirm my belief that the federal govt should not be in the charity business - but many people are still willing to give them more power and funds to do more things like is (esp. for other industries). Fools.

$50 billion of bailout going to employee bonuses

Posted Oct 31 2008, 07:30 AM by Andrew Horowitz
Rating:
Filed under: Merrill Lynch, Morgan Stanley, Goldman Sachs, banking, Andrew Horowitz

As if the economic bailout by U.S. taxpayers isn't enough to make you sick to your stomach, new information has come to light that several banks are planning to pay billions of dollars in year-end bonuses from the bailout funds they received. Investigations are beginning into the nine banks that took in the first $125 billion -- the same $125 billion that was supposed to be used to unclog the credit system which was preventing banks from providing much needed funds for individuals and businesses.
There are many feathers in a ruffle over this and New York Attorney General Andrew Cuomo and several congressmen are furious that over $20 billion has already been earmarked as bonus funds for management and employees. Unbelievably, that is just the estimates from Goldman Sachs, Morgan Stanley and Merrill Lynch. There are six more banks that are also working on similar heists.
Here is their rationale for using that money: It is reported that the financial industry pays base salaries in the range of $80,000 to $600,000 and apparently that is simply not enough to keep some of the best and brightest working to keep their companies profitable. It seems that if they were paid only this meager amount, the company would risk mass defections. That would be a real problem...or would it?
Maybe it is time to peg annual bonuses to something meaningful like profitability. As I recall, not only are these the firms that have been losing money (as is evident by the need for a massive multi-billion dollar bailout) but they have also been shown to be the creators of securitization, derivatives, sub-prime mortgages and other toxic credit that is the root cause of this historic global economic catastrophe!
Maybe I am being too harsh? Perhaps management is entitled to hundreds of millions in bonuses for the hard work they do, day in and day out. You have to feel sorry for them as most have had to give up their private jets and instead fly in a cramped seat in first class. Surely most will now have to wonder how they will deal with the excess workload as they have had to fire thousands of employees. Also, they will need to use a good chunk of that money to rebuild their retirement plans as much of their wealth was tied up in their company's stock which, under their leadership, could be down more than 60% just this year alone.

I agree that this is an outrage but I also believe that the payouts will not occur.

Are they really the best and brightest if they are the ones who created this mess?

Sorry :(

SI

the answer is "no".

The Iraq war was a more efficient use of government resources than this disaster. And we haven't even started feeling the effects.

Except for the 4000 deaths, I'd agree. If we're just talking dollar numbers, then you're absolutely correct. At least we're eventually going to get oil out of Iraq. At this point I'd say a lof of the $750 billion is going to disappear into the ether.

Agreed, the deaths and impact on families and foreign relations in general push the "total balance" in the other direction in terms of failures. But in terms of money, at least it was a boom to the defense industry and employed a lot of people.

I could think of at least 3 ways to use that money that would have a much better impact to the economy:

1. Build Nuke Plants/Upgrade Energy grid - employ people while migrating towards energy independance. What a concept. As a side effect, you may just "inspire" car manufacturers to build electric cars which can run on that nice, new, clean(relatively speaking) grid. More jobs and energy independance=stimulated economy=stronger dollar=stable housing market.

2. Pay Seller Credits - Devil is in the details, but I've preached it before that this will allow for graduality in the housing market and allow for people to move down (and up) to homes that are more affordable while helping to even out house values with each sale.

3. Have a "Brewster's Billions" lottery - If I won, I would spend, spend, spend. So in essence, I would create liquidity and stimulus everywhere I go. Oh wait...did Paulson win that? Damn...never bought mine.

digamma, my position might be related to the lack of transparency in CDS, but here is my concern.

The main intent of credit default swaps is to set up hedges... an area I am well aware of and support. More tools to manage risk the merrier in my opinion.

My concern though is that it has literally become a betting game where the exposure is not being reduced in all cases, but instead you may have firms using it as another way to make huge money with their huge leverage.

For instance, if you only sell insurance, and that is all your firm does, that is not really a hedged position, it is all a bet on the market going one way (up). I'm curious as to how many firms have done just that.

Already they have shown they don't do their homework when it comes to buying mortgage backed securities they DO NOT UNDERSTAND... now I'm nervous they have set up insurance with places that are not stable to provide it, and of course what happens when that falls through. So far you are saying it is going smoothly, so maybe its not a big deal... but I don't think the risk is being managed by CDS if the portfolio is about 10 times the size of the economy it is hedging. I could understand maybe 2-3 times... but to me it seems like the same thing as a mortgage company having 30 to 1 leverage, it is doomed on a downswing.

I guess you are right, shorting just about any financial has been good lately... so I guess look at bailouts/crashes and cds exposure. Lehman, Bear Sterns, AIG are some examples. There have been some foreign meltdowns, so looking at them might be even more informative (I have not as of yet, but I got a hunch).

It does seem that an insurance instrument being used for speculation is the kind of thing that should be regulated against.

The thing I'm saying is that the bigger concern now is not in individual name CDS. It is in counterparty risk. People who traded CDS on Lehman Brothers have settled and are done with the issue. People who traded CDS with Lehman Brothers have a long fight ahead of them to recover anything owed to them.

Lack of transparency does play a role because you want to try to diligence the strength of your counterparty. Because of the lack of transparency, that becomes very difficult.

Sorry GrantDawg. Mine just spent the summer in the same boat.

Maybe I'm naive, but I think McCain could have gotten a lot of points out of saying "fuck the bailout, the taxpayers are going to get raped here!"

Of course, he voted for it anyways. Schmuck.

Probably will be a lot of talk of the 5% drop in the DOW today, but one reason I keep whining to avoid spot prices... even with the drop we are still well over the two week low. Does 500 points come off the board because of Obama, or because it was put on the board to begin with the week before the election and its time for profit taking?

In other news, oil still sucks, but I ironically decided to directly play futures for the first time the day before the election (most of my oil speculation occurs through indirect means in the past). I hate the thought of owning barrels and barrels of crude oil, so I was fully intending to offload it on any uptick.

Yesterday I come back from voting and see I made 8% in a day (before my auto-transaction was triggered). Wacky damn economy! BTW oil futures are back down of course a mere day later.

So I'm just making all this noise because I get annoyed by all the market pundits in the media who seem to be feeding this mad speculative market with all the crazy excuses they have for a one day 5% DOW drop. You would think they would just admit they don't know poo and are talking out their ass (actually nevermind, they KNOW they are speaking shit).

Anyhoo, curious about other's thoughts about how Obama election (or house elections) will impact the economy in the long term.

It means nothing more than what it is. Just like when it tanked when the first bailout attempt failed, and then took a dive when the real bailout finally was passed. Did that mean they were unhappy the first one failed and also unhappy when the other one passed?

You think things are bad now. Wait until the Commercial Credit Crisis begins in earnest, when all the loans on heavily leveraged buyouts start tanking...it will make the Mortgage Crisis fiasco look like kids' stuff.

The people on Wall Street aren't stoopid. If they think Obama's policies will negatively affect business, they'll move capital into other investments.

What we're seeing now is just the continued volatility of the past few months. However by March, April of next year, Wall Street should have a decent read on where Obama is going and will react accordingly.

They're just waiting on the official naming of his intended economic team. They won't have to wait until March or April to know where he is leaning, they will have a good idea when those names come out.

Yes, I agree his economic team selections will influence the market a bit, but I think they will still wait to see whether Obama intends to govern as the centrist he ran as, or slides radically to the left.

People will use the results for whatever spin they subscribe to. When it tanked after the bailout failed, we heard "this will keep happening until you pass it". Then they pass it, more tanking, and that's "just what it is".

I have no doubt that if the stock market was up 800 points in the last few days, the election result would be credited as the reason.

Ouch. Talk about the Ogre's choice.

The Demos are trying to get the auto makers bailed out (again) before the next session comes in, and promising if it gets stalled till then, they'll make it their first priority come January.

I've seen folks urge against it, saying that the auto industry is too deep in the red, and we might as well let them fail naturally. The problem is, that approximately 1 in 10 folks would be out of work if we let them die, through direct layoffs, the knock on effects on the credit market, etcetera.

Die fast, or die slow, is the situation right now.

Why bail them out? Let's take our lumps now, however big, bad, and horrible they end up being. Putting bad companies like those on life support is merely going to delay the inevitable. It isn't like they have some terrific strategy and plan, and just need the money to make it happen. They have no plan beyond begging for some money.

I was very surprised when I moved to America to realise that in many ways the country is far more socialist than England.

There are far more market restrictions over here than back home, for instance the propping up of companies which are obviously non-competitive (compared to England letting our car, steel, coal industries collapse in similar situations) and the frankly shocking protectionist situation with some other industries (e.g. you don't allow ANY non-American banks into the country ).

This sort of thing is almost begging for a wastage of resources and inefficient market structure imho (such as the way your banks are setup to discourage saving and charge customers what in most other countries would be unreasonable amounts for basic services).

FWIW, I can understand the push to help the automakers. Im not sure how I feel about it although the speculation of 1 in 10 people losing their jobs if they should fail is a bit scary.

HOWEVER, I say fuck AMEX. they and their cohorts went out of their way to screw the consumer in the push to change the bankruptcy law and now that the consumer is squeezed and cant pay them, they have som 'bad debt' on their books and want help. I say fuck you to Amex.

Where does that number come from? I'm not saying that you are wrong, but it seems absurdly high to me.

What we need is the Alpha Bailout. Let the gov give every eligible taxpayer $500K. That way we can all pay off our mortgages, loans, bad debts, etc., etc., etc. People could save what they don't use, and it probably wouldn't cost the government much more than what they've paid bailing out the mortgage, insurance, banking, and (more than likely) the auto industry. :popcorn:

The actual number of jobs lost for the auto industry is 2.5 million jobs, which doesn't reach 10%. I'm guessing that 10% number may be a situation where all of the industries that supply the auto industry that may be affected are included in the total jobs lost.

200 000 000 * 500 000 = 100,000,000,000,000

Looks good!

We'll just print up more money to cover it!

Well, I guess this should alleviate some concerns on government buying bad assets. Not sure how they can change it on the fly, haven't we already bought a bunch of troubled assets?

Paulson: Troubled assets won't be purchased - Economy in Turmoil

yeah, the 1 in 10 is a knock on effect.

http://detnews.com/apps/pbcs.dll/art...TO01/811030343

The importance of the auto sector will be underscored this week when the Center for Automotive Research plans to release a new analysis of the impact on the economy if operations cease at any of the Big Three. McAlinden said the resulting drop in tax income and other losses over three years would far exceed the amount being sought in government aid. When the jobs tied to everything from buying a car to washing it and refining the gas that fuels it are added to the total, more than 14 million U.S. workers -- about 1 in 10 -- can draw a line from their job back to an auto factory or office worker, according to CAR.

CNBC. Those working directly and indirectly for the companies (ie. parts, HR, labor, etc. etc. etc.) and also it's affiliates, manufacturers, etc. I thought it sounded high BUT if true that changes the dynamic of there (or another employer of the same size to stay solvent).

So that number is quite inflated. If Ford and GM shut down today, I wouldn't stop buying gas or washing my existing car. And if I needed to buy a car, I'd have to buy a foreign one, driving up demand for them and most likely increasing the number of jobs necessary to support foreign plants in the US.

I'm not saying its a pretty picture if Ford or GM go down, but it isn't like 1 out of 10 people is unemployed within a month either.

No. TARP was never implemented. They only implemented the first step in the plan which was to buy all of the preferred bank stock.

And yet the program continues to be called TARP, which is weird. Unless the "troubled assets" being bought refer to bank stock.