But think of all the cool Chino-Mex restaurants we'll have.

All I'm saying is, despite claims to the contrary, the proposed bailout doesn't really address the underlying cause of this whole mess - too many people already have or will soon default on their mortgages.

Could the gov't give people incentives to continue pay their mortgages while taking action to ensure that they don't default? Of course they could. When the gov't is as far up your ass like ours is, they've got lots of options. Would it be easy? No. Would it be cheap? No.

I'm not against the gov't taking action here. $700 B now could be a lot cheaper than a complete collapse in a few months or next year. From the financial people I've talked to, this really could be every bit as scary as 1929. What bothers me is that there hasn't been any real discussion of alternatives.

Bailing out borrowers is the worst kind of nonsense. You have to allow the market to correct for inflated real estate values or you will be propping it up forever. You are also screwing the guy who wants to buy a home but acted responsibly and didn't overextend himself. Furthermore, what's the point in trying to help someone who has no equity and has a loan that's untenable. Isn't it a lot better all around to get them out of the loan and let the bank take a loss on it and do whatever it can with the collateral. Foreclosure is never the first option for the bank either and at some point, you have to let the market correct.

Does something like this work?

1.) Govt buys the bad debt for a pittance.
2.) Govt restructures/refinances mortgages where they can

When they can't:
3.) Sell the house if the resident has enough equity or the govt forecloses and rents it back to the consumer at a rate based on the previously lower mortgage payments before the balloons popped up. The govt then gets to sell the house later if the market improves.

And just how is bailing out these banks any different?

Agreement has been reached - http://news.yahoo.com/s/ap/20080925/ap_ ... l_meltdown

with strings...

I never said i support the bailout.

The intent though isn't to prop up the shareholder's equity value or rescue troubled banks, its to clear out the credit markets and provide some stability to a troubled financial system.

A lot of commentators have argued that the treasury's and fed's actions to date haven't been particularly kind to the equity holders of financial institutions. They severely diluted shareholders in AIG with 80% warrants and according to some forced Bear Stearns to sell at a very low ball price and strongly encouraged the Merrill/BOFA deal. I don't know that i buy that the fed really could force Bear Stearns or AIG's hand if they had better alternatives available but its hard to argue that equityholders didn't get creamed in the process.

I think what the intention here is for the government to buy these "troubled" assets from the bank at a price that is greater than fire sale prices but lower than their true long term value and make a small profit in the process while stabilizing the market and injecting needed liquidity. Whether its necessary or wise to do this at all is a fair question. There are smarter people that are more informed than any of us here who reach differing conclusions on that. Assuming this goes through, where the assets are should be priced and what the terms should be is a fair question.

If bailing out homeowners somehow fixed the system, I'd be for it. It doesn't though. I'm not sure this does either. I at least see why some people think it does. Hell, I'm glad I don't have any direct vote or say in this.

Todd, look just ONE post above billyg's.

Didn't bother.
I just saw the story at CNN and posted the link.

Whatever.
Thanks though.

Its been done before after the S&L scandal with the Resolution Trust Corporation and it is generally agreed that that worked pretty well. The big question is whether the government/taxpayers are also going to want an equity stake in the companies in addition to the paper they are buying.

As for homeowners, the government has already mandated a mechanism by which homeowners can renegotiate their mortgage terms; the problem is that a lot of people have first AND second mortgages, often with two different banks which makes it nearly impossible to fix.

If dems insist on equity stakes it will kill the bill.

I know how the RTC worked but i still say its an open question on whether its a good idea. The stock market has responded positively but the credit market hasn't, and that's what they are mostly trying to fix. There are still huge credit spreads. One commentator on CNBC this morning was asking why this should do ANYTHING to change underwriting standards. He was also arguing that the banks have enough capital to handle this themselves if they just eliminate dividends and stop all share buybacks for some period of time. I'm not really sure who is right.

For whatever its worth,

200 economists sign letter opposing bailout

but...

Don't recognize any of the names even if many are associated with distinguished universities

Don't see spade kitty on there

I'm sure you could find 200 economists that would say the exact opposite.

Billy,

I think we need to print up 500 wristbands with W.W.S.K.D. on them and send them to congress stat.

C'mon. Let's be fair to the guy... it was me who brought it up that he was an econ. major and I am admittedly basically ignorant on how these things work. And I only did so because he is the only friend of mine who I can point to that has actually studied this stuff.

Just out of curiosity Billy -- since you speak with authority on this issue -- were you a business/econ. major as well?

Not trying to start anything, I just want to know how you are forming your opinions, because they seem to be pretty well-informed, knowledgeable, and coherent.

I believe he mentioned that he's worked in gov't.

I think I remember something about that now. But, again out of curiosity, what? I just want some context for your commentary, Bill.

Todd,

I wasn't making fun of Spade Kitty. He seems smarter than most here. I was poking fun at you for putting so much stock in what he says just because he has an economics undergraduate degree.

I'm a fairly private person so i'm reluctant to get too detailed. But I guess there's no harm in a little general background. I was a economics/business and political science double major in college. I worked in Washington for 4 years after college primarily on economic policy. I wasn't there when the RTC was created but I was there while it was selling off assets.

When i left DC, I went back to school and got an MBA focusing in Finance. I've spent most of my life after that working in Private Equity, Venture Capital and Investment Banking. One of the firms I worked for made its name buying distressed assets from the RTC although that was before I worked there.

So you realize now that F4DF thinks you're a lemming, right?

That's cool.
I fully admit to knowing next to nothing about all of this -- I only put stock in what he said, because he's a friend that I know damn well that he knows a lot more than I do about the situation. Obviously you do too.

I thought this was somewhat entertaining and moderately relevant...

http://www.youtube.com/watch?v=R1X6RQLZtoA

Just saw Todd's thread. Thought I'd revive this one for better or worse

http://news.yahoo.com/s/ap/financial_me ... 1whCFH2ocA




Considering the results, this should go in the dictionary as definition of lame duck.

I have a question here as I'm not real smart on a lot of this stuff. Just read Citi bought out Wachovia, and given that I finance my truck through Wachovia, what does that mean to me? Is it just a matter of I will be paying a different bank or is there a chance my payments/interest rate will change now?

The Citi-Wachovia deal has not finalized, and is not supposed to for some time. Nothing will happen until then. Afterwards, all that ought to happen is that you will write the check out to Citi.

It seems to me that your financing is a contract, so unless you've defaulted on payments, I don't think Citi can change your rate. There could be some BS clause in the contract that says "in the event of a change in ownership", though I guess.

Good to know. Thanks.