20080929
Bailout: Round 1
I’ve got so many thoughts and emotions running around my head that I will have to take some time to sort out things rationally. However, my irrational response is as follows. I find it somewhat befuddling/amusing that it is the republicans that are against the Wall Street bail out! Aren’t the Republicans the ones who are supposed to be in favor of big business and against the average Joe? Did they want more? We’re they repelled by the cut lines to the golden parachutes for CEOs? And conversely, why are the Democrats so gung-ho in support of this? Is it because of the help for those who borrowed under ‘unsavory terms’ for their mortgage from predatory lenders? I don’t know, but it isn’t making sense to me right now.
I must admit that if I was a republican in the house and had just sat through yet another partisan tirade from speaker Pelosi, I’d probably vote against it too. Of all of the people (and I use that term loosely) in the house, ol’ Nancy scares me the most. Today she had a golden opportunity to demonstrate a non-partisan side of her persona and she completely failed the test. If and when this bill comes back up for a vote, I would only vote for it if Nancy agreed to step down as speaker afterwards.
The thought of Obama and Nancy running things together was worrisome. Now it is frightening. It might actually be sufficient grounds for me to reconsider McCain. I’ll wait to see how Palin comes across in the VP debate before I change colors.
Good god it would be great to have a real choice beyond these two non-starters.
Hooda Thunkit said,
September 30, 2008 @ 0148
Joe,
I see you’ve been sipping the Kool Aide
Here in the Midwest, way outside the beltway I swear I heard multitudes cheering YES! when the bill was pronounced as dead/failed.
Out here, the conservative (small “r” republicans) and or independents are pro business, but revile the excesses of Big Business and feel that THEY, not we should be doing the bailing.
In our traditionally capitalist system there are rewards (and sometimes failures) in the system; Washington though prefers the kind of capitalism that has no risks, only rewards.
I say let the rats sink and drown; the ones that live will quickly get with the game and self-correct…, for the better.
JMZ said,
September 30, 2008 @ 0224
Hooda,
I’m not sure I wanted the bail out to pass or not. I have a dilemma that sort of goes like this. I do not think that the people (5% by last estimate) who borrowed way beyond their means should have their asses saved by writing down their mortgages. I don’t think that the initiate-to-sell model of mortgage origination should let those who lend by lax standards get off scott-free without any lingering risk (see my hot potato post). They should retain responsibility and risk exposure. I do not think that the tactics of Freddie, Fannie, & and the big banks should be rewarded with a bail out unless the assets and equity we receive in exchange have a reasonable chance of covering the initial outlay (loan) plus profit (interest). Having said that, I see one huge problem resulting from not bailing out that no one is talking about. Right now these complicated mortgage backed securitized things (I won’t call them securities because they are not secure) have infected the global banking and investment community. If we let all of these positions unwind two things are likely to happen. First, it will be come apparent that the extreme leveraging in the system is due to something akin to a pyramid scheme (where you keep repackaging into more and more complicated ‘investment vehicles’ in order to cover up the fact that you have sold more than actually exists). Secondly, once unwound and exposed for what they really are, no one is ever going to want to buy the US debt ever again with a result that the dollar will become an unwanted currency. Either would be devestating to the US currency and economy. Not to mention my retirement.
One other thing, Since the US government backs Fannie and Freddie and both of them are basically acting as insurance companies that guarantee the value of the repackaged securities, the government, and by association the taxpayers, are already on the hook for covering all of the risk. It seems as though lending standards for loans eventually insured by the Fannie and Freddie (aka we the taxpayers) need to be held to higher qualification standards. When you look at the $13 trillion in exposure we have perhaps a $700 billion bail out does not look so bad.
No matter what happens, the real problem is that the decline in housing value is here for the long-term since it is now clear that the supply greatly exceeds the ‘qualified demand’. Even if we bail them out now along with some court-ordered revaluation of the debt for at-risk borrowers, the market is still sized for an environment where unqualified bororowers must have access to capital at a price that does not accurately reflect the real risk of loaning the money. In other words, unless we go back to the same failed process of lending money at a cost that does not accurately reflect the true risk, we are not going to see a rebound in housing values any time soon and, therefore, there will be no quick recovery in the value of the poisoned mortgage-backed securities (-ish things) out there causing the problem to begin with.
OK. So now I’m back to the fact that the government is the only player out there that has the ability to buy and hold these tainted security (-ish things) long enough to see them recover in value. That may require holding them for decades. If instead we let these entangled global positions unwind in the market, we risk the global market abandoning us (or is it US?) and keeping us from playing the game in the future.
It is a really tough call to make with only a week to consider the ramifications. I’m happy, perhaps a little surprized, that the house of representatives had the (unintended) collective wisdom to call for a time out in order to think about all of this.
After the election I’ll let you all in on a few of my personal thoughts about the current administration. But for now I still hum “Hail to the Chief’.
Hooda Thunkit said,
September 30, 2008 @ 1105
I’ve heard that the bill started out being 2-3 pages but it is now reported to be 200+ pages and growing.
Seems to me that pork and Christmas trees are creeping into what was supposed to be a simple bailout…
As you feel, I agree that we the masses have no business assuming the debt accumulated by ~ 5% of the foolish people hell-bent on outliving their means; let them fall/fail and let them burn/learn.
And, lets restore capitalism to what it is supposed to be, risk vs, rewards or failure; it used to do pretty well before the gubment removed the risk portion from the equation,,,
Government meddling, changing the rules and encouraging Fannie/Freddie to give everybody substantial credit has to be reversed/undone; everybody wasn’t meant to buy/own homes, that’s what landlords are for.
The gubment doesn’t belong in the insurance business, IMNHO.
As you pointed out housing values have and will decline but probably only back to where it should have been. Government meddling is in large part at fault for the current housing bubble and all of its side effects.
I’m sorry but I think that the gubment has no business in the housing business. The housing market and what banks that are left need to step up and OWN the mess that they created themselves, and make things right again.
If that means that more are to fall, so be it; and those in Government that encouraged this mess need to be purged from the system.
As for the upcoming elections, I’m afraid that it’s just another round of picking the lesser of the weasels, rather than who is most qualified to run the country.
Unfortunately, we’ve already eliminated the best candidates in the earlier rounds. . .