The Great Recession - post mortem

[Daimyo]

Originally Posted by Flasch186

I like Obama's proposal to allow retirees to tap IRA's early w/o penalty for a short window.

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

[SirFozzie]

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

[SirFozzie]

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.

[SportsDino]

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.

[SportsDino]

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').

[SirFozzie]

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

[Flasch186]

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.

[Buccaneer]

Whether it's accurate or not, news of financial instability around the world has sparked the conversation for many.

Are we headed for another depression?

A CNN/Opinion Research Corp. poll taken recently found that more than half of American believe another economic depression is likely.

Most economists don't take quite as dire of a perspective.

"On a 1-10 scale, the Great Depression was a 10 and we are now around a 3 or a 4," Dr. Ali Malekzadeh, dean of the college of business at Xavier University told WLWT-TV in Cincinnati.

Malekzadeh and other economists point out that while many younger Americans have not seen such difficult financial periods in their lifetime, the numbers just don't spell disaster as they did in the 1930s.

Consider:

The Dow Jones Industrial Average Dropped 40 percent in two months at the beginning of the Depression. Currently, the Dow has only dropped about 20 percent over the last year.

Unemployment during the Depression reached 25 percent. Now, the jobless rate is around 7 percent.

The gross domestic product plunged 13 percent in 1932. Even in worst-case scenarios, several economists told CNNMoney.com that they don't see the GDP dropping more than 4 percent over the next year.

That's not to downplay the current economic situation, but rather to suggest the U.S. is merely in a recession and not yet close to a depression.

lost the link, sorry.

[Buccaneer]

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.

[Fighter of Foo]

Originally Posted by SirFozzie

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.

WRONG 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.

[flere-imsaho]

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.

[sterlingice]

Originally Posted by stevew

It would seem that the time would be ripe for a new american automaker to emerge. They wouldn't have the legacy benefits to pay, nor the crippling pay structure of the current companies. Of course the initial outlay would be extremely expensive, but they could tailor their lines to producing the fuel efficient low emmisions cars that need to be built going forward.

Oh yeah!

SI

[sterlingice]

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

SI

[flere-imsaho]

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.

[ISiddiqui]

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

[SportsDino]

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.

[Fighter of Foo]

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.

[Buccaneer]

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

"I think that people in anticipating keeping up have bought beyond their means and now they're paying for it," long time Palmer Lake resident Dan Elders says.

Elders has lived in one of the Palmer Lake neighborhoods for 30 years. He's a small business owner and has come to love his neighborhood. However, he feels it's changing, and is saddened to see the alarming numbers of foreclosures.

"It's excruciating, you used to be able to drive down the road and wave to every other car - you knew who was driving it."

Elders believes the Palmer Lake area is a dream place for many new homeowners. However, he believes that many new homeowners from in and out of state realized their dreams too early and are now paying for it after over-extending themselves.

Yep.

[Flasch186]

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.

[Galaxy]

Originally Posted by SirFozzie

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.

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.

[Buccaneer]

Originally Posted by Flasch186

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.

Do you think people/consumers will finally learn then?

[Flasch186]

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

AP IMPACT: Mortgage firm arranged stealth campaign

Hollis McLoughlin, an executive of DCI, watches a Washington Capitals hockey AP – Hollis McLoughlin, an executive of DCI, watches a Washington Capitals hockey game Saturday, Oct. 11, …

WASHINGTON – Freddie Mac secretly paid a Republican consulting firm $2 million to kill legislation that would have regulated and trimmed the mortgage finance giant and its sister company, Fannie Mae, three years before the government took control to prevent their collapse.

In the cross hairs of the campaign carried out by DCI of Washington were Republican senators and a regulatory overhaul bill sponsored by Sen. Chuck Hagel, R-Neb. DCI's chief executive is Doug Goodyear, whom John McCain's campaign later hired to manage the GOP convention in September.

Freddie Mac's payments to DCI began shortly after the Senate Banking, Housing and Urban Affairs Committee sent Hagel's bill to the then GOP-run Senate on July 28, 2005. All GOP members of the committee supported it; all Democrats opposed it.

In the midst of DCI's yearlong effort, Hagel and 25 other Republican senators pleaded unsuccessfully with Senate Majority Leader Bill Frist, R-Tenn., to allow a vote.

"If effective regulatory reform legislation ... is not enacted this year, American taxpayers will continue to be exposed to the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system and the economy as a whole," the senators wrote in a letter that proved prescient.

Unknown to the senators, DCI was undermining support for the bill in a campaign targeting 17 Republican senators in 13 states, according to documents obtained by The Associated Press. The states and the senators targeted changed over time, but always stayed on the Republican side.

In the end, there was not enough Republican support for Hagel's bill to warrant bringing it up for a vote because Democrats also opposed it and the votes of some would be needed for passage. The measure died at the end of the 109th Congress.

McCain, R-Ariz., was not a target of the DCI campaign. He signed Hagel's letter and three weeks later signed on as a co-sponsor of the bill.

By the time McCain did so, however, DCI's effort had gone on for nine months and was on its way toward killing the bill.

In recent days, McCain has said Freddie Mac and Fannie Mae were "one of the real catalysts, really the match that lit this fire" of the global credit crisis. McCain has accused Democratic presidential candidate Barack Obama of taking advice from former executives of Fannie Mae and Freddie Mac, and failing to see that the companies were heading for a meltdown.

McCain's campaign manager, Rick Davis, or his lobbying firm has taken more than $2 million from Fannie Mae and Freddie Mac dating to 2000. In December, Freddie Mac contributed $250,000 to last month's GOP convention.

Obama has received $120,349 in political donations from employees of Freddie Mac and Fannie Mae; McCain $21,550.

The Republican senators targeted by DCI began hearing from prominent constituents and financial contributors, all urging the defeat of Hagel's bill because it might harm the housing boom. The effort generated newspaper articles and radio and TV appearances by participants who spoke out against the measure.

Inside Freddie Mac headquarters in 2005, the few dozen people who knew what DCI was doing referred to the initiative as "the stealth lobbying campaign," according to three people familiar with the drive.

They spoke only on condition of anonymity, saying they fear retaliation if their names were disclosed.

Freddie Mac executive Hollis McLoughlin oversaw DCI's drive, according to the three people.

"Hollis's goal was not to have any Freddie Mac fingerprints on this project and DCI became the hidden hand behind the effort," one of the three people told the AP.

Before 2004, Fannie Mae and Freddie Mac were Democratic strongholds. After 2004, Republicans ran their political operations. McLoughlin, who joined Freddie Mac in 2004 as chief of staff, has given $32,250 to Republican candidates over the years, including $2,800 to McCain, and has given none to Democrats, according to the Center for Responsive Politics, a nonpartisan group that tracks money in politics.

On Friday night, Hagel's chief of staff, Mike Buttry, said Hagel's legislation "was the last best chance to bring greater oversight and tighter regulation to Freddie and Fannie, and they used every means they could to defeat Sen. Hagel's legislation every step of the way."

"It is outrageous that a congressionally chartered government-sponsored enterprise would lobby against a member of Congress's bill that would strengthen the regulation and oversight of that institution," Buttry said in a statement. "America has paid an extremely high price for the reckless, and possibly criminal, actions of the leadership at Freddie and Fannie."

Nine of the 17 targeted Republican senators did not sign Hagel's letter: Sens. Mitch McConnell of Kentucky, Christopher "Kit" Bond and Jim Talent of Missouri, Conrad Burns of Montana, Mike DeWine of Ohio, Lamar Alexander of Tennessee, Olympia Snowe of Maine, Lincoln Chafee of Rhode Island and George Allen of Virginia. Aside from the nine, 20 other Republican senators did not sign Hagel's letter.

McConnell's office said members of leadership do not sign letters to the leader. McConnell was majority whip at the time.

Eight of the targeted senators did sign it: Sens. Rick Santorum of Pennsylvania, Mike Crapo of Idaho, Jim Bunning of Kentucky, Larry Craig of Idaho, John Ensign of Nevada, Lindsey Graham of South Carolina, George Voinovich of Ohio and David Vitter of Louisiana. Santorum, Crapo and Bunning were on the Senate Banking, Housing and Urban Affairs Committee and had voted in favor of sending the bill to the full Senate.

On Thursday, Freddie Mac acknowledged that the company "did retain DCI to provide public affairs support at the state and local level." On Friday, DCI issued a four-sentence statement saying it complied with all applicable federal and state laws and regulations in representing Freddie Mac. Neither Freddie Mac nor DCI would say how much Goodyear's consulting firm was paid.

Freddie Mac paid DCI $10,000 a month for each of the targeted states, so the more states, the more money for DCI, according to the three people familiar with the program. In addition, Freddie Mac paid DCI a group retainer of $40,000 a month plus $20,000 a month for each regional manager handling the project, the three people said.

Last month, the concerns of the 26 Republican senators who signed Hagel's bill became a reality when the government seized control of Freddie Mac and Fannie Mae amid their near financial collapse. Federal prosecutors are investigating accounting, disclosure and corporate governance issues at both companies, which own or guarantee more than $5 trillion in mortgages, roughly equivalent to half of the national debt.

Freddie Mac was so pleased with DCI's work that it retained the firm for other jobs, finally cutting DCI loose last month after the government takeover, according to the three people familiar with the situation.

Freddie Mac's problems began when Hagel's legislation won approval from the Senate committee.

Democrats did not like the harshest provision, which would have given a new regulator a mandate to shrink Freddie Mac and Fannie Mae by forcing them to sell off part of their portfolios. That approach, the Democrats feared, would cut into the ability of low- and moderate-income families to buy houses.

The political backdrop to the debate "was like bizarre-o-world," said the second of three people familiar with the program. "The Republicans were pro-regulation and the Democrats were against it; it was upside down."

Sen. Richard Shelby, the committee chairman at the time, underscored that in a statement Wednesday, saying that with Democrats already on their side, it was not surprising that Freddie Mac and Freddie Mae went after Republicans. "Unfortunately," said Shelby, R-Ala., "efforts then to derail reform were successful."

In a sign of bad things to come, Freddie Mac was already having serious problems in 2005. Auditors had exposed massive accounting issues, so improved regulation was one obvious remedy.

Once Freddie Mac's in-house lobbyists failed to keep Hagel's bill bottled up in the committee, McLoughlin responded by secretly hiring DCI.

DCI never filed lobbying reports with Congress about what it was doing because the firm was relying on a long-recognized gap in the disclosure law.

Federal lobbying law only requires reporting and registration when there are contacts with a legislator or staff.

"To have it stealthy, not to let people know who is behind this, in my opinion is unethical," said James Thurber, director of the Center for Congressional and Presidential Studies at American University who long has taught courses about lobbying.

Goodyear is a longtime political consultant from Arizona who resigned from the Republican convention job this year after Newsweek magazine revealed he had lobbied for the repressive military junta of Myanmar.

McLoughlin, Freddie Mac's senior vice president for external relations, was assistant treasury secretary from 1989 through 1992 in the administration of President Bush's father. McLoughlin served as chief of staff to Sen. Nicholas Brady, R-N.J., in 1982 and to Rep. Millicent Fenwick, R-N.J., from 1975-79.

Seven of the 17 targeted Republican senators were in the midst of re-election campaigns in 2006, and according to one of the three people familiar with the program, Freddie Mac and DCI hoped those facing tough races would tell their Republican colleagues back in Washington that "we've got enough trouble; you're making it worse with Hagel's bill."

Five of the seven DCI targets who ran for re-election in 2006 lost, and Senate control switched to the Democrats.

A Freddie Mac e-mail on May 4, 2006 — the day before Hagel's letter — details the behind-the-scenes effort that Freddie Mac and DCI generated to hold down the number of Republicans signing Hagel's letter urging a full Senate vote. It said:

"What I'm asking is that DCI get a few of their key well-connected constituents from each state to call in to the DC office of their Republican senators and speak to the (legislative director) or (chief of staff) and urge them not to sign the letter. The following could be used as a short script."

The proposed script read: "We can all agree that Fannie's and Freddie's regulator should be strengthened but unfortunately, S.190 goes too far and could potentially have damaging effects on Georgia's — example — home buyers."

According to the third of the three people familiar with the program, "DCI was asked to help keep senators from signing; it was a big part of their effort that year and it was viewed as a success since many DCI targets did not sign the letter."

DCI's progress after the first four months of the campaign was spelled out in a 19-page document dated Dec. 12, 2005, and titled, "Freddie Mac Field Program State by State Summary Report."

A snippet of a senator-by-senator breakdown of the efforts says this about Maine's Snowe:

"Philip Harriman, former state senator, co-chair of Snowe's 2006 campaign, personal Snowe friend, major GOP donor and investment adviser, has written the senator a personal letter on this issue. Dick Morin, vice president Maine Association of Mortgage Brokers, has been in direct contact with Sen. Snowe's committee staff, has sent a letter to Snowe, and is pursuing a dozen(s) of letters from his members."

On Wednesday, Snowe's office issued a statement saying that she "literally gets hundreds of 'Dear Colleague' letters seeking support for their positions that she does not sign. Had this legislation come up for a vote in 2006, she certainly would have considered it on its merits — as she does every vote. Just last July, she voted for the housing bill that established a new, stronger regulator."

Rosario Marin, a staunch McCain supporter who spoke at the GOP convention in September, was among the people DCI used in carrying out the campaign.

Marin, the U.S. treasurer during the first term of the Bush administration, went to Missouri and to Montana, Burns' state, where she spoke out against Hagel's bill.

At the time, Burns, who ended up losing his re-election bid, was caught up in a Washington influence peddling scandal centering on disgraced lobbyist Jack Abramoff.

Marin's visit triggered a local newspaper story in which the reporter contacted Burns' staff for comment. Burns' office told the newspaper the senator was not supportive of the latest version of Hagel's bill.

On Wednesday, Marin, now state consumer services secretary in California, issued a statement confirming that her trips to Missouri and Montana were in her capacity as a DCI consultant.

The December 2005 summary listing 17 Republican targets outlines the inroads DCI was making.

"On day one" of the effort, Sen. George Allen of Virginia had not addressed Hagel's bill and his legislative aide for housing was not assigned to it, the report said.

"Today," the report added, "the senator is aware of the issue and ... at the moment he is undecided." Allen's deputy chief of staff "has said that the senator will take into consideration before he decides that Freddie Mac is located in Virginia and is one of the largest Virginia employers."

"Grasstops/opinion leaders James Todd, president, the Peterson Companies wrote to both senators," the report added. "Milt Peterson, the founder and CEO of the company is one of Allen's major donors."

In the end, Allen, who lost his bid for re-election in 2006, did not sign Hagel's letter.

[molson]

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."

[SteveMax58]

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

[flere-imsaho]

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.

[SportsDino]

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).

[SirFozzie]

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.

[Galaxy]

Originally Posted by SirFozzie

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) Government Said to Be Discussing Plan to Aid Homeowners - NYTimes.com

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?

[molson]

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?

[SirFozzie]

Originally Posted by Galaxy

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?

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)

[Galaxy]

Originally Posted by SirFozzie

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.

[SirFozzie]

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?

[Fidatelo]

Originally Posted by molson

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?

I want this to happen. Where do I sign?

[Mac Howard]

Originally Posted by Galaxy

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?

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

[Marc Vaughan]

Originally Posted by molson

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?

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.

[SportsDino]

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.

[path12]

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......

[BrianD]

Originally Posted by path12

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?

[Fidatelo]

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.

[Fidatelo]

Originally Posted by path12

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......

Ack, sorry to hear that

[path12]

Originally Posted by BrianD

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

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).

[Galaxy]

Originally Posted by Fidatelo

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.

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

[BrianD]

Originally Posted by path12

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).

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.

[Fidatelo]

Originally Posted by Galaxy

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

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.

[flere-imsaho]

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.

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.

[SteveMax58]

Originally Posted by Fidatelo

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.

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.

[Fidatelo]

Originally Posted by SteveMax58

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.

[SteveMax58]

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.

[Flasch186]

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.

[flere-imsaho]

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.

If bad mortgages got the financial system sick, credit default swaps helped spread the illness worldwide.

Like many parts of the financial system these days, credit default swaps are so complicated, simple bankers couldn't have created them. They were invented by people like Gregg Berman.

"My formal training is in physics," he says. "I studied experimental physics and nuclear physics before joining finance in 1993."

Now just to be clear, Berman didn't invent these things, but he works for Risk Metrics Group, which helps people manage risk, and so he thinks about them a lot and he's good at explaining what they are.

Imagine, he says, you buy a bond from Ford for $100.

"You're holding your bond and you are worried about Ford's credit. So you enter into an agreement with another party where you say to other party, 'I will pay you some money — 2 percent a year, 3 percent, 4 percent — and what you need to do is give me protection.'

"If Ford should go bankrupt, then I'm going to give you this perhaps worthless bond and you're going to give me my $100 back. In the big context, it looks like insurance."

So is insurance what we are talking about? People with bonds, which are already considered safe, trying to make them safer? Well, it didn't stay that way.

Insurance On A Home You Don't Own

"I think Mae West said it very, very well when she said, 'I used to be Snow White, but I drifted,' " says Satyajit Das, a risk consultant who was around when credit default swaps first appeared.

For 30 years, he has worked with hedge funds and bankers all over the world as a sort of a financial hired gun. He saw first hand how what started as insurance morphed into something else entirely. In the 1990s, he says, he was a fan of credit default swaps.

"But by about 2003-2004, I was starting to get nervous," Das says. "I could see the market had gone from a very legitimate purpose to something which was much more racy and interesting but also much more dangerous."

He says along the way, it stopped being insurance.

"The line between investing and speculation or gambling in financial markets is always a pretty gray one," he says. "And speculation is always a motive."

So, how did we get from one of the safest activities on the planet — insurance — to one of the riskiest — gambling? There's one key difference between an insurance policy and a credit default swap.

"The way that I first described the credit default swap is, you own the bond and you want to transfer the risk to someone else. But what if I want to buy protection but I don't own the bond?" Berman says.

But isn't buying protection on a bond you don't own like buying fire insurance on a house that's not yours?

"It is exactly like buying insurance for a house you don't own," Berman says. "So it's like you took out fire insurance on your home, and I also took out fire insurance on your home, and a thousand other people took out fire insurance on your home.

"And when that happens, what you're doing is, you're betting on the house."

So, a CDS allows people to get paid off by insuring something they don't own — not a house in this case, but a bond.

How Credit Default Swaps Work

A credit default swap is what they call an over-the-counter instrument. It's not something that's traded publicly on an exchange, like a stock. Instead, it's a private deal between any two people with more than $5 million — so that means, effectively, someone at an investment bank, or a hedge fund, or at a big commercial bank like Citibank and Credit Suisse. They all have credit default swap desks.

Now, every day, the guy at this desk is getting thousands of e-mails and calls from people who want to enter into credit default swap contracts with him. Sometimes those people want it for insurance. They have a bond from say, the ABC Co., but they're a little worried about ABC Co.'s financial health. They call the guy at the desk up and say, "Will you sell me credit default swap protection?" In other words, "Will you guarantee that if ABC Co. goes down, you'll guarantee the full value of the bond?"

But sometimes, Das says, they often don't have the bond; they just have a hunch about ABC Co.

"So they want to, essentially, bet that say, ABC Co. will default," he says. "So he and I agree that if ABC defaults, I'll pay him a certain amount and in return he pays me some fees."

Das says that during his time in the industry, the amount of credit default swaps that were speculative grew to dwarf the amount that were used for insurance. The numbers are staggering. There are $5 trillion worth of bonds issued in the world, but the total amount that people have bet on those bonds is $60 trillion. For every one person insuring a bond with a credit default swap, there are more than 10 people betting on it.

"All of this is unregulated partly because they wanted it to be unregulated," says Andrew Ang, a professor at Columbia University Business School who studies the credit default swap market.

The Upside And Downside Of Leverage

One of the reasons the industry wanted credit default swaps to be unregulated has to do with a word you hear a lot when you talk to finance people: leverage.

Here's what they mean by leverage and how it can both give and take away.

Imagine someone with a hedge fund worth $100 million who wants to make a killing in the credit default swap market. He starts calling and e-mailing all those credit default swap desks and hedge funds out there, saying, "I'm selling protection, who wants to buy?"

Someone calls back and says, "I have a billion-dollar bond from Lehman Brothers, I want to insure." He says, great, "I'll insure your bond if you agree to pay me 2 percent of its value every year." The caller says, "All right." They are in business.

Now, let's review those numbers: 2 percent of $1 billion is $20 million, which the person with the $100 million hedge fund gets every year. So, by signing one piece of paper, he has doubled his money in five years — psyching him and his investors.

That's the upside of leverage: You make profits on a billion dollars even though you only have $100 million.

The downside of leverage is that he is on the hook for up to $1 billion if the bond defaults and he doesn't have a billion.

In 2005, this particular bet — on a Lehman Brothers bond — seemed like a sure thing. The idea that Lehman Brothers, one of the oldest and largest investment banks in the world, could possibly default seemed crazy. In 2008, it became scarily, unbelievably real.