What do we do know? Home Mortgage and Financial Bail Out

[Cold_Zero]

Look,We can point fingers, assign blame and engage in polemic attacks, but it isn't going the fix the problem of the Suprime Home Mortgage Crisis, the ensuing Securities Crisis and now the Credit Crunch.

So far:The White House has proposed a $700 billion dollar bail out of the Home Mortgage Securities that are in trouble. The suggestion is to have these securities put into a pool where the government will buy them, rework the loans and then sell them again.

The Federal Reserve stroked a $29 billion dollar deal to finance the sale of Bear Stearns.

The Federal Reserve put $85 billion dollars on a credit line for AIG.

The Federal Reserve Last week pumped over $100 billion dollars in world markets to loosen up the Financial Markets so that banks would start lending money to other banks.

The Treasury Department put $200 billion on a line of credit for Fannie and Freddie and effectively took them over.

With Washington Mutual circling the drain and Lehman Brothers filing for Bankruptcy, is the new $700 billion dollar 'bail out' proposed by the White House really something that we should be doing? Should we give a blank check to the Treasury Department and furthermore absolve the transgressions of the CEOs, CFOs and regulators who helped create this mess.

Please keep the finger pointing and the polemics to a minimum. I believe this issue is too important now that we (as American Taxpayers) are way too invested in this mess.bud

[Cold_Zero]

Nice to see Dr. Ron Paul back in the mix. In times of crisis, I really appreciate the Libertarian view point.http://www.cnn.com/2008/POLITI....html

Another decent article that brings the crisis closer to home.http://money.cnn.com/2008/09/2...92308

[S13_love]

Look, Should we give a blank check to the Treasury Department and furthermore absolve the transgressions of the CEOs, CFOs and regulators who helped create this mess.

IMO...no but i dont think we have much of a choice anymore, oh here's something interesting that i found today...

"Two law enforcement officials said Tuesday the FBI is looking at potential fraud by mortgage finance giants Fannie Mae and Freddie Mac, and insurer American International Group Inc. Additionally, a senior law enforcement official said Lehman Brothers Holdings Inc. also is under investigation.

The inquiries will focus on the financial institutions and the individuals that ran them, the senior law enforcement official said.

The law enforcement officials spoke on condition of anonymity because the investigations are ongoing and are in the very early stages.

Officials said the new inquiries bring to 26 the number of corporate lenders under investigation over the past year.

Spokesmen for AIG, Fannie Mae and Freddie Mac did not immediately return calls for comment Tuesday evening. A Lehman spokesman did not have an immediate comment.

Just last week, FBI Director Robert Mueller put the number of large financial firms under investigation at 24. He did not name any of the companies under investigation but said the FBI also was looking at whether any of them have misrepresented their assets."

That was a part from some article on yahoo but whatever.

So this $700 billion bailout, this means as taxpayers...we are going to be the ones to pay for this right? So basically, we are paying for someone else's mistakes....(<--- did i interpret that wrong?)

[Cold_Zero]

The way I understand it, the current bailouts of Freddie, Fannie, AIG have consisted lines of credit that the Fed or Treasury Department extend to them since these companies' security ratings are junk status (what they use to obtain more money to buy more loans) and the companies' ability to borrower long term and short term debt is crippled (because no one in their right mind would lend them money and expose themselves to further risk) they have no way to raise money in order to make money. So they will go to the Fed and borrow money at a discounted price. The Fed will monetize the credit when needed. Basically they will print the money up and further expose the country to devaluation of the US dollar and inflation down the road.

The Bear Sterns deal consisted of the government stepping in to help finance the deal with other private buyers.

You better believe that we as US Taxpayers will be paying for all of this. The question will be, will these mortgages in this junk securities have to be paid back? And what about the people who did put their nose to the grindstone, cut their spending and paid their mortgage? I can see a scenario where I had 2 ARMs on my house, I default and the Government steps in and reworks the terms of my lines (aka makes a fixed 6% 30 year mortgage and reduces the principle on the loan). Meanwhile you with your ARM that is at 15% are struggling and making your payments (late) get no relief.

[S13_love]

Basically they will print the money up and further expose the country to devaluation of the US dollar and inflation down the road.

You better believe that we as US Taxpayers will be paying for all of this. The question will be, will these mortgages in this junk securities have to be paid back?

So, we should expect to see gas prices go up again?...damn, oh well

I totally love this! A handful of old (and now considered retarded imo) people can f*** up a financial market in a country in a matter of a few years...awesome!

, awesome, so me and everybody else in the country are just doing their normal thing day in and day out, then a week later everybody gets to be involved in paying back a $700 billion debt

That is a good question, I would guess they have to be paid back.

[AZhitman]

From what I understand, it's not altogether a bad deal, and here's why:

A lot of these defaulting loans were at 9, 10, 12 percent. The Fed can borrow at 2-3%. This means they can salvage mortgages for these homeowners (I know, it's a crappy fix) and still make money on them by offering them at 6-7%.

I don't doubt that the funds will come back, with profit.

It's a catch-22, for sure, as I oppose it on principle. But smarter people than me are saying its damn near a necessity at this point.

[Encryptshun]

My biggest beef with the bailout is that we are socializing our financial industry. I cannot abide that thought. If we give our government authority to control lending in the U.S., the free market will NEVER get it back. I don't care what anyone says, this is the END of private capitalization for the lending sector in our country.

Any other company would be allowed to file for bankruptcy protection and be reviewed and granted/denied that protection based on the strength of their business case. Yet forget crutches, these douchebags who embarked on what is almost a criminal enterprise are being given a limo and a chauffeur. The biggest reason that a CEO vests in making his/her company successful is that the compensation package is heavily weighted in terms of stock. Company performs badly, stock drops, CEO's package is worth less. Company performs well, opposite happens. It's capitalism's version of a check-and-balance system. The CEO's check to that balance is to say "well, put a limit on what I can lose -- after all, I can't directly control everything in the market".

This bailout disrupts that check and balance and lets we taxpayers forego the punishment that these execs would otherwise suffer, golden parachute or otherwise.

After Enron, the government got involved. SOX was implemented and it's grown totally out of control (because it's regulated by the -- gasp! -- government). So if we socialize our lending institutions, just IMAGINE the regulations, restrictions, reporting requirements, legislation, required contractual clauses, and review the government is going to impose. Forget 45 days to secure a loan once you put a bid down on a house -- it's going to take six months! And you talk about lending to underqualified buyers, let's look at all the wonderful Section 8 and Affirmative Action components that can be attached to this.

This is a bad massage and there will be no happy ending.

[marlin29311]

So this $700 billion bailout, this means as taxpayers...we are going to be the ones to pay for this right? So basically, we are paying for someone else's mistakes....(<--- did i interpret that wrong?)

Yup.

However, there can be good out of all of this.

1 - fiscal reform. Hey, we've talked about it forever, but nothing screams "DO IT" like having a financial meltdown. Kinda like the Patriot act in 2001 - everyone kinda muddled around it, 9/11 happens, bam, it;s done.

2 - the gov't will make money. AIG is on a loan basis - they owe that money back to the governemnt in 2 years at 12% interest. Sounds good to me (provided it all goes well).

While it does suck right now, I do believe that the gov't wouldnt do something if it was totally stupid to do. I mean, there are things that we don't see that occur behind the scenes when decisions are made. I'm sure everything was done for a reason. Kinda like in a recal on a product - the recal is only made if the financial burden of recalling is less than the potential lawsuits; no one admits this, but it happens.

[srellim234]

Has anyone else noticed that Bush, Cheney and friends used false pretenses to get us into Iraq and began issuing "no-bid" contracts and sent massive quantities of money to their old cronies? Now, on their way out the door, they are using the same fear tactics and panic to do the same thing?

"You need to give us a check for $700 billion now and trust us, we'll distribute the money as we see fit. Don't worry about it."

Why is it that capitalism is everything on the way up, but we have to abandon capitalism on the way down? Everyone involved assumed the risk; even those "innocents" are indirectly guilty of voting in the people that failed to excercise due diligence in regulating and providing long term oversight to this.

Can't get a loan in the future? Tough. Maybe you should try living within your means and not buying a new car ever couple of years. Let the companies cut up the credit cards. Let the mortgage companies and banks fold up. If there is truly a need for their services, a new company will step in and fill it, presumably with a better business plan than the greedy S.O.B.s that the Bush Administration is trying to pay off.

For the record, I am currently unemployed (last two jobs- one company purchased and everyone laid off nationwide, second one the position was eliminated and no other positions available), we're struggling to make our mortgage and feed the kids, etc. But, we take responsibility for our actions. We signed the loans based on our job situations at the time and took the risk. It's OUR responsibility to get out of the mess and not my next door neighbor's.

Let the shareholders vote out the boards that vote for ridiculous bonuses, golden parachutes, etc. and short term business plans based on short term stock prices and get back to good old fashioned business and hard work. Shareholders accepted the risk when they bought into the company that the stock could go up OR down. Let them fix their own problems, just like my wife and I have to fix ours.

[AZhitman]

"You need to give us a check for $700 billion now and trust us, we'll distribute the money as we see fit. Don't worry about it."

Steve, ni all fairness, it's NOT just the GWBA asking this - It has bipartisan support, and the sole opposition appears to be from some far-right muckrakers.

I concur 100% with the rest of your post, though.

[srellim234]

Giving the money has bipartisan support. Democrats in Washington are heavily invested in Wall Street every bit as much as Republicans and stand to lose a lot if they don't pay off. But, the money is going to be spent initially by Bush appointees, apparently in whatever way they want. No guarantees that whatever they spend it on will be proper or effective.

[rn79870]

Latest estimates state that although the investment may be 700 Billion, the actual loss/profit on the deal will be in the neighborhood of 200 +/-, after all the dist settles.

The problem is only partially the bailout. The bigger problem is Paulson's desire to have complete control, absent any review. Isn't that what got us into this problem in the first place?

Now that the government owns an insurance company, and a few financial institutions, plus who knows how many houses in America. Can you say Socialist. Yes, Socialist, (and it wasn't the left that put us there.)

[marlin29311]

The government doesn't "own" AIG in the way that you would think ownership prevails over the company. AIG is still going to operate the way that it wants to, provided it pays back the $80 billion in 2 years. However, their underwriting standards are still the same and the risks that they are going to take on are still governed by their underwriting guidelines.

Fannie Mae and Freddie Mac and the others...that's another issue...

[audtatious]

Biden actually came up with a good thought (for once). He made the suggestion to allow banks to rework the loans with those being foreclosed on to lessen the burden (or something similar). So, Joe Smith has been hit by the ARM bounce and is now 2 months behind and can't afford the new payment. The bank takes things back to a lower rate and renegotiates the loan so that Joe Smith may be able to keep the home.

Would this work to limit future foreclosure issues? I'm sure it would not address all of them but if we can avoid a good portion of them it would help. The banks just won't make as much money on those loans.

[HashiriyaS14]

The bailout is an investment in our own personal financial security.

Anyone with an investment portfolio or a piece of real estate is, at least personally, to benefit from the bailout. This is particularly true of Fannie and Freddie. If they had really been allowed to fail, we'd have seen more like a 2,500-3,000 drop in the Dow, not 500.

The banks and other institutions are loaded up with toxic mortgage debt that appears to be worth (in a private transaction) about $0.28 on the dollar (i.e. Bear Stearns). They're currently all carrying it on their books at more like $0.65 on the dollar, representing a seriously mis-stated balance sheet.

The government, and thus the taxpayers, will swoop in, buy up all the bad loans for some unspecified amount (the Big Variable), thus causing a substantial write-down but also providing the banks a clean balance sheet and thus also a clean starting point.

Then, depending on what the taxpayers paid for the debt, we'll see what it really ends up being worth. Perhaps the taxpayers pay $0.35 on the dollar and we see it being worth $0.50, or perhaps it's only worth $0.10. It could swing either way. I think the Bear Stearns evaluation is a little severe, I think it's definitely worth more than twenty-eight cents on the dollar, but only time will tell.

[AZhitman]

Now that the government owns an insurance company, and a few financial institutions, plus who knows how many houses in America. Can you say Socialist. Yes, Socialist, (and it wasn't the left that put us there.)

Someone put a tachometer on Bob, he's spinning to redline.

"It wasn't the left that put us there"

Well, since you're so enlightened, why don't you educate America on how the Left is absolved of any responsibility in this.

I won't hold my breath.

[Cold_Zero]

This just in

McCain Suspends Campaign to help with BailoutJohn McCain asked the Presidential Debate Commission on Wednesday to postpone Friday's scheduled debate with Barack Obama so that he can work on the financial crisis bailout plan now on Capitol Hill.The Arizona Republican senator said he will suspend his presidential campaign on Thursday to return to Washington to help with bailout negotiations. He urged Obama to do the same.For the latest campaign information, tune in to News talk 1430 WXNT.

McCain suspends his campaign to help resolve the Financial Crisis.bud

[audtatious]

Sounds like he and Obama are going to make an announcement today about this issue....

[96Qowner]

Wow, that's a shocker.

[S13_love]

While it does suck right now, I do believe that the gov't wouldnt do something if it was totally stupid to do. I mean, there are things that we don't see that occur behind the scenes when decisions are made. I'm sure everything was done for a reason. Kinda like in a recal on a product - the recal is only made if the financial burden of recalling is less than the potential lawsuits; no one admits this, but it happens.

I do believe that too, I just hope the government thought this one through.

Basically, im hoping that they considered EVERY potential good thing that can happen and EVERY consequence that might happen, and for any potential consequences (inflation?, weakening the dollar?) that they have a plan or at least an idea on how to take care any issues that may...or may not occur

[audtatious]

I hope our elected officials don't screw this one up.

I was able to lock in a refi at 5.675 last night so at least some things are not bad yet.

[marlin29311]

That's actually a smart move there....

For those that do have good credit and don't overspend what their means allow, a market like this is a good time to work on those home projects you wanted to work on or at least refi your mortgage down to save some $$$ in the long run. As a 22 year old with perfect credit, I'm extremely excited to get started in the housing market in the next year or two becuase of the low rates...

I wouldn't place too much worry to losing that - banks in general are fine, its the large lending institutions that are finding trouble with their accumulations of debt...

[smockers83]

I hope that's a fixed rate Matt that isn't another 30 year. If you can afford to do so, continue making payments like you were even though you have a lower minimum payment. You'll get that thing paid off quicker and save a lot on interest. Loans aren't all about the rate, its about the term as well.

[HashiriyaS14]

I hadn't read up on the AIG "bailout" until today, and it's anything but.

The US Government is getting repayment (duh) plus LIBOR plus 850 basis points! That's like 11.65% preferred return!

And it's floating, and with interest rates near historical lows, LIBOR will only be going up.

I think both AIG and the $700 billion plan are probably pretty solid ideas, although the latter depends a lot on at what price we (the taxpayers) will be buying up these loans.

Lemme tell you though, I work in private equity and my firm would be on an 11.65% pref like R. Kelley on a 12 year old girl. AND the Government gets some management oversight! Can't beat it.

[AZhitman]

Matt got a 15-year.

I have a 30-year at 6% (29 years remaining) and a 15-year at 6.25% (9 years remaining).

[AZhitman]

I hadn't read up on the AIG "bailout" until today, and it's anything but.

The US Government is getting repayment (duh) plus LIBOR plus 850 basis points! That's like 11.65% preferred return!

And it's floating, and with interest rates near historical lows, LIBOR will only be going up.

I think both AIG and the $700 billion plan are probably pretty solid ideas, although the latter depends a lot on at what price we (the taxpayers) will be buying up these loans.

Lemme tell you though, I work in private equity and my firm would be on an 11.65% pref like R. Kelley on a 12 year old girl. AND the Government gets some management oversight! Can't beat it.

Hey Hash -

I already posted about this.

The Fed borrows at 2-3%, charges 6-8%, and in a resurgent economy, that translates to 10-12% return.



Love ya brotha.

[audtatious]

I hope that's a fixed rate Matt that isn't another 30 year. If you can afford to do so, continue making payments like you were even though you have a lower minimum payment. You'll get that thing paid off quicker and save a lot on interest. Loans aren't all about the rate, its about the term as well.

Fixed at 15 years. The actual monthly payment is only $25 more than we pay right now (not including the $300 extra a month we pluck down on the loan) with 24 years left on the current mortgage. We should have this paid down rather quickly.

[Jesda]

Now that the government owns an insurance company, and a few financial institutions, plus who knows how many houses in America. Can you say Socialist. Yes, Socialist, (and it wasn't the left that put us there.)

Socialist

[audtatious]

Except he is wrong as the left is 80% to blame.

[mtcookson]

From what I understand, it's not altogether a bad deal, and here's why:

A lot of these defaulting loans were at 9, 10, 12 percent. The Fed can borrow at 2-3%. This means they can salvage mortgages for these homeowners (I know, it's a crappy fix) and still make money on them by offering them at 6-7%.

I don't doubt that the funds will come back, with profit.

It's a catch-22, for sure, as I oppose it on principle. But smarter people than me are saying its damn near a necessity at this point.

The only issue I foresee with that is... isn't the reason the government is bailing them out due to people NOT paying the loan in the first place? If they didn't pay the loan then, chances are they still won't be paying now...

Otherwise, that wouldn't be a bad deal.