Bailout Plan details thread?

[vol_freak]

Originally Posted by BigPapaVol

If you assume 100mm adults, $700 bn is $7K per adult.

Hmm. I figured that number to be higher.

[droski]

insuring them would cost a lot more money than buying the assets. remember they are buying these things at a 30-40% discount already. the defaults are priced in to it. and there is no way we lose $700 bil. not unless housing prices drop to zero.

[BigPapaVol]

Originally Posted by vol_freak

Long term governmental conspiracy?

if this whole debacle is a money making scheme on the part of the gov't, then we have bigger fish to fry.

Not sure what you mean by doing that "to" us. Bottom line is that I just don't think it's necessary for them to buy all of these up themselves. Why not just guarantee them? Then the only infusion of money would end up being those that defaulted. Not $700 billion or $5 trillion or whatever.

they have essentially guaranteed them today and to what end? Gov't guarantee would have some negative ramifications IMO. It would make the default much easier and a bank willing to give in, hence pursuing the borrower less. Gov't ownership means some henchmen like the FDIC are going become the debt collectors. That will suck for the folks who default.

A tax increase is too easy for the common person to see through. This way, people are willing to give up whatever they have to just so that the government will save us all. But I agree that we're in trouble any way you look at it.

Limited application? Can you clarify what you mean?

by limited application I mean that the bill will dictate that any excess funds will be used to retire additional gov't debt, or something of that nature, but cannot be used like general funds.

[oklavol]

Originally Posted by droski

insuring them would cost a lot more money than buying the assets. remember they are buying these things at a 30-40% discount already. the defaults are priced in to it. and there is no way we lose $700 bil. not unless housing prices drop to zero.

They are taking ownership of millions of homes where there are no buyers. There's an oversupply of housing. I think it will be years before the market corrects itself in this respect. There was a big housing bubble and builders built like crazy to make as much as possible and now the bubble burst and the govt owns all of these empty homes aka forclosed houses where the buyers defaulted. These houses will sit on the market for years without a buyer and the govt will be waiting for years to get these offloaded. If the govt doesn't own them then these banks will and go under. It's lose, lose really. But the govt has no choice really.

[vol_freak]

You make some good points BPV. I'm not going to say that they created this whole thing just to make money, but their way out certainly stands to benefit big government over big business.

I see what you are saying about government ownership but just not certain I agree. I don't see people wanting to default on purpose and I certainly don't see how it would make it easier to default if the government insures it. Even so, the money involved to insure the defaults would require a lot less involvement than the $700 billion, not to mention the additional costs of setting up this new agency.

Originally Posted by BigPapaVol

by limited application I mean that the bill will dictate that any excess funds will be used to retire additional gov't debt, or something of that nature, but cannot be used like general funds.

I don't recall reading this. Was it worded this way in the bill that was rejected today? I seem to recall otherwise but maybe I'm wrong.

[BigPapaVol]

Originally Posted by vol_freak

I don't recall reading this. Was it worded this way in the bill that was rejected today? I seem to recall otherwise but maybe I'm wrong.

I think that's one of the reasons the bill was rejected. Very few Republicans want the next regime to have carte blanche with anything.

[droski]

Originally Posted by oklavol

They are taking ownership of millions of homes where there are no buyers. There's an oversupply of housing. I think it will be years before the market corrects itself in this respect. There was a big housing bubble and builders built like crazy to make as much as possible and now the bubble burst and the govt owns all of these empty homes aka forclosed houses where the buyers defaulted. These houses will sit on the market for years without a buyer and the govt will be waiting for years to get these offloaded. If the govt doesn't own them then these banks will and go under. It's lose, lose really. But the govt has no choice really.

the majority of the loans in the bonds are not in default. i very much doubt that the govt will end up owning millions of homes or something. and you can always sell a home at some price. i do agree the housing market is still overvalued from a cost basis though. but a floor has to be reached even if it is artificial.

[BigPapaVol]

Originally Posted by droski

the majority of the loans in the bonds are not in default. i very much doubt that the govt will end up owning millions of homes or something. and you can always sell a home at some price. i do agree the housing market is still overvalued from a cost basis though. but a floor has to be reached even if it is artificial.

I've been reading that the market is just now priced at a point where per capita incomes can pay for real estate per the ratios that lenders need to generate decent CDOs.

[droski]

Originally Posted by vol_freak

Even so, the money involved to insure the defaults would require a lot less involvement than the $700 billion, not to mention the additional costs of setting up this new agency.

yes it would cost a lot less than $700 bill. probably like $400 billion. but insuring them is a straight loss. buying these assets is a likely gain. the housing market woudl have to drop 50% further (literally) for the loss on these bonds to be $400 bil.

[BigPapaVol]

Originally Posted by droski

yes it would cost a lot less than $700 bill. probably like $400 billion. but insuring them is a straight loss. buying these assets is a likely gain. the housing market woudl have to drop 50% further (literally) for the loss on these bonds to be $400 bil.

agreed. The insurance would be egregious and would represent easy outs for the lenders. Recovery rates would likely be cut in half.

[vol_freak]

Originally Posted by BigPapaVol

I think that's one of the reasons the bill was rejected. Very few Republicans want the next regime to have carte blanche with anything.

And that's one of this big issues I had with the plan in its current form.

Originally Posted by droski

the majority of the loans in the bonds are not in default. i very much doubt that the govt will end up owning millions of homes or something. and you can always sell a home at some price. i do agree the housing market is still overvalued from a cost basis though. but a floor has to be reached even if it is artificial.

some good points. If the government owned all of the MBS in the country, they would technically own all of the homes with a mortgage, right? Who would make them honor the terms of the original notes if they are above the court system (that's how I've understood it anyway).

Originally Posted by droski

yes it would cost a lot less than $700 bill. probably like $400 billion. but insuring them is a straight loss. buying these assets is a likely gain. the housing market woudl have to drop 50% further (literally) for the loss on these bonds to be $400 bil.

Ah, so now we are getting somewhere. Buying them is likely a gain, meaning that a lot of our current situation is fabricated by this panic. There is inherent value here and money to be made by someone.

The insurance plan would not be a total loss because they would have the properties (assets) that are not worthless. Maybe in the short term, but not in the long term.

[BigPapaVol]

Originally Posted by vol_freak

Ah, so now we are getting somewhere. Buying them is likely a gain, meaning that a lot of our current situation is fabricated by this panic. There is inherent value here and money to be made by someone.

But there won't be money made by anyone if we don't do something today. All of the assets will be forced to the liquidation market because of the capital situation of our lenders. Liquidation pricing across our real estate market will further suppress pricing. Another of the positives in the gov't holding the bad debt is the fact that this real estate isn't forced into auction style selling, so the RE market as a whole isn't devalued to that type of pricing. That happens and many retirees will be hauling their cookies back to work and minicipalities can kiss enormous swaths of ad valorem tax revenue goodbye.

[oklavol]

Originally Posted by droski

the majority of the loans in the bonds are not in default. i very much doubt that the govt will end up owning millions of homes or something. and you can always sell a home at some price. i do agree the housing market is still overvalued from a cost basis though. but a floor has to be reached even if it is artificial.

I don't understand then. I thought default loans is what caused the banking/mortgage crisis, caused the banks to lose their liquidity, etc.

It's possible most of the home loans that have defaulted will find a buyer, but if anyone who wanted to buy a house could before, and strict new lending guidelines are put in place now, who is going to come forward to be a buyer?

Most people who are good candidates already own a home, and those who weren't have defaulted. Just seems like a classic case of oversupply of homes for potential buyer. The builder is the one who profited from this selling homes to people who couldn't afford them. Banks making loans they shouldn't make etc.

[BigPapaVol]

Originally Posted by oklavol

I don't understand then. I thought default loans is what caused the banking/mortgage crisis, caused the banks to lose their liquidity, etc.

but the bonds as a whole take a writedown, since they're sold in blocks. The writedowns essentially value the distressed assets at liquidation or below, so the bond value takes a hit. Additionally, additional expected losses in the bond take a huge beating at the hands of regulators forcing large writedowns.

The writedowns essentially force the holder of the bonds, if holding in a portfolio as security for something else, to provide the amount of capital written down as security for whatever the bond was providing in capital.

As the market for these bonds become less liquid, because many were dumping them due to the value hits, the values became even more depressed. The mark to market values of these assets essentially wento to 0 based upon lack of bid pricing out there. You have a large pool of assets considered illiquid or valueless, you have to produce collateral of another kind to fund the business. Enough of that problem and you no longer have any capital agains which to leverage and operate.

A simplistic explanation of what happened to these guys.

[droski]

Originally Posted by BigPapaVol

I've been reading that the market is just now priced at a point where per capita incomes can pay for real estate per the ratios that lenders need to generate decent CDOs.

maybe in rural areas. definitely not in urban areas.