NationStates Jolt Archive

Is there a method to the madness? Who knows.

http://money.cnn.com/2009/03/21/news/economy/bank_bailout_next_step/index.htm?postversion=2009032305
U.S. - with firms - to buy 'bad' assets
Geithner to formally unveil details of next step in rescuing banks: Public-private partnerships. Treasury to put up $75 billion to $100 billion.

WASHINGTON (CNNMoney.com) -- The Obama administration on Monday will formally unveil a program to help banks clean up their books by subsidizing private investors' purchase of troubled assets.

The effort marks the next big step in Washington's six-month-old bank rescue, which has so far mostly entailed making capital investments and backstopping bank debt.

Administration officials, in a briefing with reporters late Sunday night, said they plan to commit $75 billion to $100 billion to start wiping out bad assets and would evaluate how programs are working before deciding how to commit more money.

The goal is to buy up at least $500 billion of bad assets -- loans, such as those for subprime mortgages, that are now in danger of default.

So yes, they are now proposing to do essentially the same thing they were proposing to do several months ago. Of course, then two things made life difficult: firstly, banks were about to collapse all around them, and they had no time to actually do anything and secondly, they had no idea what price to pay for these assets.

Let's say for a minute that the former is not a problem anymore - the second still is. So the plan is, for now, to let auctions happen. The government subsidises the buyers and hopes that with that incentive there will be someone to take these bad assets off the banks' balance sheets. The problem has always been that in public people liked to maintain that if the taxpayer would hold on to these assets for long enough, she'd get the money back. But paying a fair price was never the point of the exercise. A fair price is not what the banks paid for it (they paid way too much) and it's not enough for them to survive on. The buyer was always going to take a big expected loss, because in this case, for a lot of these assets it really is a zero-sum game.

So now the hope is that private buyers of the stuff will be enticed to bid by being offered taxpayer funds. But even if they are - how are they going to structure the auction in such a way that the banks end up with enough compensation for imaginary value? And isn't this just shifting the losses to be made on these assets to the buyers, who are then going to have to be backstopped by the government afterall, either now during the auction or afterwards?

So what does NSG think?

Let the banks Fail!!!

Let the banks Fail!!!
You tried that with Lehman Brothers, remember?

Here's another article on the topic: United States of Indignation (http://www.businessspectator.com.au/bs.nsf/Article/United-States-of-Indignation-$pd20090323-QDRTA?OpenDocument&src=sph)

Is there a method to the madness? Who knows.

http://money.cnn.com/2009/03/21/news/economy/bank_bailout_next_step/index.htm?postversion=2009032305


So yes, they are now proposing to do essentially the same thing they were proposing to do several months ago. Of course, then two things made life difficult: firstly, banks were about to collapse all around them, and they had no time to actually do anything and secondly, they had no idea what price to pay for these assets.

Let's say for a minute that the former is not a problem anymore - the second still is. So the plan is, for now, to let auctions happen. The government subsidises the buyers and hopes that with that incentive there will be someone to take these bad assets off the banks' balance sheets. The problem has always been that in public people liked to maintain that if the taxpayer would hold on to these assets for long enough, she'd get the money back. But paying a fair price was never the point of the exercise. A fair price is not what the banks paid for it (they paid way too much) and it's not enough for them to survive on. The buyer was always going to take a big expected loss, because in this case, for a lot of these assets it really is a zero-sum game.

So now the hope is that private buyers of the stuff will be enticed to bid by being offered taxpayer funds. But even if they are - how are they going to structure the auction in such a way that the banks end up with enough compensation for imaginary value? And isn't this just shifting the losses to be made on these assets to the buyers, who are then going to have to be backstopped by the government afterall, either now during the auction or afterwards?

So what does NSG think?
I bought shares in a fund that specialized in sub-prime loans. Never, ever again.

You tried that with Lehman Brothers, remember?

Here's another article on the topic: United States of Indignation (http://www.businessspectator.com.au/bs.nsf/Article/United-States-of-Indignation-$pd20090323-QDRTA?OpenDocument&src=sph)

Well the best way would be to get Bill Gates, Warren Buffet, and others of the ultra rich. Have the banks accept only 50 cents on the dollar for whats left on the loans in danger of collapse, but have Gates and Co insure that amount personally.
Basically how the panic of 1907 was Fixed by JP Morgan.

It's just more of what Paulson had suggested. Obama doesn't have any idea what to do.

http://www.nytimes.com/2009/03/23/opinion/23krugman.html?_r=1

It's just more of what Paulson had suggested. Obama doesn't have any idea what to do.

http://www.nytimes.com/2009/03/23/opinion/23krugman.html?_r=1

Why would anyone take Paulson seriously on anything to do with banks after the disgustingly lax (I should really say nonexistent) way he managed the first half of the bailout?

Why would anyone take Paulson seriously on anything to do with banks after the disgustingly lax (I should really say nonexistent) way he managed the first half of the bailout?

Geithner's plan is just Paulson's plan with some window dressing.

The worst part is, if it doesn't work, there won't be any money or political capital to do anything about it.

http://business.timesonline.co.uk/tol/business/columnists/article5950258.ece?openComment=true

The only way that I can see anything having an impact is to accurately value the bad assets. I don't see anything really being stable untill that happens. And I'm not so sure this is a good way to go about doing it.

The only way that I can see anything having an impact is to accurately value the bad assets. I don't see anything really being stable untill that happens. And I'm not so sure this is a good way to go about doing it.

You only get one chance to get it right. We can't keep saying, "here's another 1 trillion dollar plan..."

You study under WEW? You're awesome.

I can see the banks' side of the story - they claim that if they go under, then an awful lot of innocent people are going to get hurt. Which is true. A great many people put their savings into banks (savings, term deposits etc. etc.) and if the banks go under, then their savings (which they put in the banks because they thought the banks safe) will be wiped out.

However, saving the peoples' money doesn't mean saving the banks. Have the Fed (or Treasury) guarantee private - individual and small business - deposits, and then let the greedy bastards go under. The freedom to succeed includes the freedom to fail.

Also, when will Obama get it - now is NOT the time to start healthcare plans. "Green Jobs"? Maybe. At least that puts people to work making things. Healthcare? Later. After the recession.

You study under WEW? You're awesome.
Do you suppose he has time to teach anymore? I'd love to go to one of his lectures -- I'd even break my "no one is worth paying to see speak" rule to see Dr Williams.

He still teaches courses, I think.

So, in order to eliminate these banks' impaired assets, which were created by artificially low socialized risk, we're going to use artificially low socialized risk to get someone else to buy them at inflated prices...and then proceed to bail them out when, predictably, those assets continue to underperform and have to be written off or written down. Thank God for circular logic.

That is, by a wide margin, the worst idea I have heard to date...I think this one might be a good order of magnitude worse than Paulson's plan. Congratulations, Timmy, you're doing a heckuva job.

That's stupid. If you want to give the banks a break on the bad assets they're holding, maybe tax them less, but let the banks sell them whenever the economy turns around and not before.

It's just more of what Paulson had suggested. Obama doesn't have any idea what to do.

http://www.nytimes.com/2009/03/23/opinion/23krugman.html?_r=1
I didn't realize we put Obama in charge of the Treasury, or any other financial department of the state.

Geithner's plan is just Paulson's plan with some window dressing.

The worst part is, if it doesn't work, there won't be any money or political capital to do anything about it.

http://business.timesonline.co.uk/tol/business/columnists/article5950258.ece?openComment=true

So.. Paulson is saying Obama doesn't know what he is doing because he is using Paulson's own plan. I don't know if you meant to make it sound like Paulson was an idiot with your partisan hackery, but that's how it came out.

That's stupid. If you want to give the banks a break on the bad assets they're holding, maybe tax them less, but let the banks sell them whenever the economy turns around and not before.
Taxing them less isn't going to do anything. For there to be taxes to cut, the banks would first have to make a profit.

It's not a cash flow or income statement thing, it's a balance sheet thing. The banks are actually broke, they're insolvent. They have liabilities on one side, and those are covered by assets that have no value on the other. Every rescue proposal so far has failed to properly address this. And this one does the same thing: they're pretending that these assets are actually good value, and just because people are scared and irrational nobody buys them. So then all you have to do is get someone to buy them, and then people calm down and everything returns to normal.

But this isn't a fear thing, these assets are actually close to worthless and will, on the whole, stay that way. People are being quite rational when they don't buy them, and things just won't return to how they were before. This is a structural break, not some sort of transitory blip.

So I would say that now two successive Treasuries "just don't get it".

Taxing them less isn't going to do anything. For there to be taxes to cut, the banks would first have to make a profit.

You could permit a significant extension for loss carrybacks. That would let these companies get tax refunds for the taxes paid in profitable years in the past, providing them with a considerable amount of cash to cover losses. For companies like AIG or GM, that could amount to billions of dollars of cash. The same plan could work for any company, from the banks to the Big Three to anyone else.

The salient point is that this isn't a bailout in the sense of giving them additional money, it's refunding money that these companies did in fact earn in the past. While the costs are the same, there are inherent limits build in to the carryback that make it a better choice; you can use it, but the amount you're going to get hinges on your past success. This rewards successful companies that get in to trouble while punishing those that have languished for years and that deserve to finally fail.

Market rose six percent. They like it. And since certian posters always talk about how the market is always right and what we really should be paying attention too, that means the plan must be good, right?

Probably not. Some of you wouldnt be you if you didnt adhere to such an obvious and predictable double standard.

Meh. Bankers compensation needs to be saved some way or another.....

Probably not. Some of you wouldnt be you if you didnt adhere to such an obvious and predictable double standard.
I don't really care how equity markets react to this stuff. I really don't think it tells us a whole lot.

Fact of the matter is that the market has been fundamentally overpricing companies for a year now, because they didn't want to admit the severity of the consequences of a banking collapse on corporate revenues and profits. A few details are going to be welcome, but what you'll find is that there are a lot of technical reasons for why the market might have bounced a bit now.

As far as the actual structure of the plan is concerned, I'm not a fan. And no one is going to change my mind by pointing to the Dow Jones for the day.

Market rose six percent. They like it. And since certian posters always talk about how the market is always right and what we really should be paying attention too, that means the plan must be good, right.

The plan could be very successful if it's managed properly and resists the foolish, fear-driven urgency of all of the previous stimulus plans. I think the risk will be that the government will end up bailing out its private-sector partners that are doing the buying, but given the size of these plans it won't be long before they've literally bought up the majority of the impaired assets.

If things go really well, they might even end up making money off of them like the government did back in the 1990's after the Resolution Trust Corp. sold off its assets following the end of the S&L crisis. That's no doubt the hope behind this plan. I figure that might do a fair job of paying down the debt incurred for this program unless we do something really stupid and continue to run deficits after the economy has recovered. Hopefully Obama has the good sense to restrain his normal spending until the funds are there to cover it...we can't handle yet another red-ink president and he would be doing this country a massive disservice if he doesn't succeed in restraining the budget.

while i am slow to dismiss any possibility out of hand, if the banking bailout proves to be anything other then robbing from the poor and giving to the rich, i'll believe it when i see it.

it is certainly doing nothing to pump any real value back into any economy.

i think i've finally had the pretense explained to me in terms even i can make some sense of, though its probably not the right or real sense. appearently the prevailing pseudowisedom being that assets are under valued. to me this seems more then absurd on the face of it. even adjusted for inflations, concentrated value assets, otherwise known as big ticket items, seem, if anything OVER capitolized.

this is why a correction is called a correction. and while they are no longer overvalued by the 500 to 600 per cent they had been at the beginning of the so called melt down, they're still at close to or arround 200. so when houses come down another half of where they are now, THEN they'll be in line with where they would have been without the bubble of get rich quick inflating of them.

still out of the range of sane consumption by persons of modest or even average income, which is just plain wrong and the only real cure for is to legalize improvised shelter in at least some places and circumstances.

Taxing them less isn't going to do anything. For there to be taxes to cut, the banks would first have to make a profit.

It's not a cash flow or income statement thing, it's a balance sheet thing. The banks are actually broke, they're insolvent. They have liabilities on one side, and those are covered by assets that have no value on the other. Every rescue proposal so far has failed to properly address this. And this one does the same thing: they're pretending that these assets are actually good value, and just because people are scared and irrational nobody buys them. So then all you have to do is get someone to buy them, and then people calm down and everything returns to normal.What types of assets are we talking about? I was thinking of things like houses that the banks foreclosed on. I suppose you mean other types of assets, which admittedly probably are making up a greater share of their assets.

This is a totally fucking retarded idea. Veto!

This is a totally fucking retarded idea. Veto!
if this is addressed to the title of this thread, i have to agree completely.
however since rather a number of ideas have been expressed in it, this is not entirely clear in context.

specifically, printing money and giving it to banks, without creating any sort of real value for it to represent, is not something i can see as how its supposed to stimulate anything, other then gratuitous unearned and undeserved executive bonuses.

if this is addressed to the title of this thread, i have to agree completely.
however since rather a number of ideas have been expressed in it, this is not entirely clear in context.

specifically, printing money and giving it to banks, without creating any sort of real value for it to represent, is not something i can see as how its supposed to stimulate anything, other then gratuitous unearned and undeserved executive bonuses.

If I don't reply to a specific post I am referring to the OP :)

If I don't reply to a specific post I am referring to the OP :)
tnx, i frequently do the same thing.

What types of assets are we talking about? I was thinking of things like houses that the banks foreclosed on. I suppose you mean other types of assets, which admittedly probably are making up a greater share of their assets.
RMBSs, SIVs, CDOs, CDO²s and so on. The houses themselves would be an issue as well, but in my mind at least, it's about the kind of financial products that leveraged the initial houses into something else entirely. And then of course all the other stuff that doesn't directly have anything to do with houses at all.

financial instruments don't have that much to do with any kind of real value either. infrastructure, durable technological artifacts, and real gratification do.

financial instruments don't have that much to do with any kind of real value either. infrastructure, durable technological artifacts, and real gratification do.
Well, if I write you a piece of paper that says I'll build you a house in a year's time, then that has at least some kind of real value, right? If you can rely on me not breaching this contract, then the paper is as good as having a house, with a one year discount because you have to be patient for that time.

There's not a whole lot intrinsically wrong with the idea of a financial instrument. It's just a whole lot of IOUs put together. The question is what happens when these IOUs get traded, and there exists a second valuation separately from your own (or indeed, many others).

Well, if I write you a piece of paper that says I'll build you a house in a year's time, then that has at least some kind of real value, right? If you can rely on me not breaching this contract, then the paper is as good as having a house, with a one year discount because you have to be patient for that time.

There's not a whole lot intrinsically wrong with the idea of a financial instrument. It's just a whole lot of IOUs put together. The question is what happens when these IOUs get traded, and there exists a second valuation separately from your own (or indeed, many others).

All you said is that "financial instruments have no real value."

All you said is that "financial instruments have no real value."
What is "real value"? Do you mean that the electronic signals, or even pieces of paper, that make up a financial instrument independently of any underlying assets and the cash flows they produce, are more or less worthless? That's kinda obvious, but also missing the point by miles.

Ultimately, a financial instrument is no different to the deed to a house. The piece of paper has no great value, but it is nonetheless enforcable in such a way as to make it near-as-dammit equivalent to the physical asset itself. It's a claim on some physical asset, or whatever this asset produces. So does a deed have any "real value"?

Market rose six percent. They like it. And since certian posters always talk about how the market is always right and what we really should be paying attention too, that means the plan must be good, right?

Probably not. Some of you wouldnt be you if you didnt adhere to such an obvious and predictable double standard.
Housing numbers were also better... Make your own conclusions.

What happens if a private investor makes a bundle off these bad loans? Is Barney Frank going to demand he surrender his profits? Is Charles Grassley going to demand seppuku?

It's just more of what Paulson had suggested.
Is that so surprising? Geit is a Paulson prodigy afterall.
same old, same old.

Market rose six percent. They like it.
Of course they like it. Geit's just announced that he'll throw money at them, for toxic assets at whatever price they decide it's worth.
Who wouldn't be happy if a totally clueless multi-trillionaire turned up on your doorstep with a fat wad of cash and said he'd buy whatever you wanted to sell, at whatever price you asked?
what does he care? It's not his money afterall.

I don't think that many people here understand something very important:

The "bundled" mortgages etc. etc. that triggered the panic - they aren't paying nothing. They are simply paying (as my Economics lecturer put it this morning) between 87 and 97% of what they "should" be paying. Which has been noted in the market, as the very people who bundled them are now buying them for a song.

It's a wonderful racket, sure, but I have some doubts as to whether the taxpayer should be subsidising it, which is essentially what the bailouts are, especially AIG's bailout.

The market must be made to understand two things:

1. Operations carry an inherent degree of risk. A responsible bank (many of these do exist, and haven't asked for bailout money) will plan for a certain percentage of borrowers defaulting, and will also in other ways reckon risks into their balance sheets from day one.
2. If you want the freedom to succeed (as they were clamouring for for years), then you must also accept the freedom to fail along with it.

What is "real value"? Do you mean that the electronic signals, or even pieces of paper, that make up a financial instrument independently of any underlying assets and the cash flows they produce, are more or less worthless? That's kinda obvious, but also missing the point by miles.

Ultimately, a financial instrument is no different to the deed to a house. The piece of paper has no great value, but it is nonetheless enforcable in such a way as to make it near-as-dammit equivalent to the physical asset itself. It's a claim on some physical asset, or whatever this asset produces. So does a deed have any "real value"?
this is the myth that money is wealth. sorry. it just plain isn't.
and it isn't setting the flow of real goods and services back in motion either.
which is the basis of the pretension of the need for a bailout in the first place.

yes, without the existing system MAY very well collapse, and have to be rebuilt or replaced with something more stable, but the point is, if its going to do so, throwing symbolic value at it isn't going to stop it from doing so, and maybe, just maybe, if its that unstable and vulnerable, maybe it needs to be anyway.

you can say its worked for a couple of hundred years, but has it? really?

1929 wasn't the only 'great depression' to happen during that time. there's been at least a couple every century before then too.

and those just as much putting the lie that keeps being denied is a lie, that markets somehow magically self regulate. nothing self regulates when the pretense of its being too big to fail gets bought into.

markets can only self regulate by being allowed to fail, if you want to go that way fine, but trying to have it both ways is just plain self deception.

It's basically just theft.

And, in all this excitement, the fed and treasury quietly announced they are transferring the Maiden Lane LLCs - where all the stinky stuff from AIG, BCS et al. from the fed balance sheet to the Treasury.

This is the stuff that the taxpayers weren't going to take a loss on. HAHA, I told you the fuckers would do this.

Anyway, onto, theft plan II. What I like most about this one is the asshats who made a lot of money creating this shit in the first place are now going to get another windfall jamming it down the taxpayers throat. Hooray for managerial socialism!

A much better plan would be to ringfence the garbage and nationalize the financial system. The revenues derived from the nationalized entities can be used to deal with the writedowns in the garbage portfolio as it sours.

It's not as if this has even any hope of working. Assets will continue to sour as unemployment continues to rise. This is just another looting job like TARP.

this is the myth that money is wealth. sorry. it just plain isn't.

and it isn't setting the flow of real goods and services back in motion either.
which is the basis of the pretension of the need for a bailout in the first place.

Money and goods are an inseparable part of wealth and happiness. There isn't much you can do without money and goods, and you certainly can't enjoy life without them; in the end, you've got to eat and drink and they both require resources, either yours or somebody else's to obtain. Now, they aren't necessarily a means to an end in and of themselves, but it is nothing more than nonsense to claim that they are irrelevant.

Otherwise, the poverty-stricken and starving people of the Sudan and Ethiopia would be the wealthiest and happiest people on Earth.

Money and goods are an inseparable part of wealth and happiness. There isn't much you can do without money and goods, and you certainly can't enjoy life without them; in the end, you've got to eat and drink and they both require resources, either yours or somebody else's to obtain. Now, they aren't necessarily a means to an end in and of themselves, but it is nothing more than nonsense to claim that they are irrelevant.

Otherwise, the poverty-stricken and starving people of the Sudan and Ethiopia would be the wealthiest and happiest people on Earth.

Logical error here: claiming that goods don't lead to happiness is not equivalent to claiming that no goods leads to happiness. Similarly, claiming that money is not wealth is not the same as claiming that no money is wealth.

Logical error here: claiming that goods don't lead to happiness is not equivalent to claiming that no goods leads to happiness. Similarly, claiming that money is not wealth is not the same as claiming that no money is wealth.

But if you say that goods are not part of wealth, and that wealth is not part of happiness, then having neither should have no effect on happiness. That makes no sense since the happiest people on Earth (in Scandinavia, IIRC) have significant quantities of both goods and aggregate wealth. That's more in line with what I was trying to convey.

(Also, your post is really, really refreshing...I enjoy it when people actually think about the logic of statements and question them)

What is "real value"?

i believe i answered that in the very quote you replied to and disputed: tangible infrastructure and artifacts, nature's cycles of renewal our existence depends upon, and real gratification, as primary examples.

possibly none of these are universally treasured at all, but a promissory note (which is all that paper currency is) is no more valuable then its being fulfilled can be counted upon, and i have my rather serious doubts about you building me a house, (or at least doing so as economically as i could improvise shelter i'd be happy with were it lawful for me to do so) let alone one i'll be happy with.

in short, to be allowed to improvise my own shelter in ways and forms i'd be happy with, is worth far more to me, then all the little green pieces of paper's worth of some huge monstrosity, such as people seem to be required to live in, designed more to impress each other then to actually facilitate the real gratifications of creating and exploring.

But if you say that goods are not part of wealth, and that wealth is not part of happiness, then having neither should have no effect on happiness. That makes no sense since the happiest people on Earth (in Scandinavia, IIRC) have significant quantities of both goods and aggregate wealth. That's more in line with what I was trying to convey.
People in Scandinavia also have a significant number of government programs that raise the quality of life.

People in Scandinavia also have a significant number of government programs that raise the quality of life.

Which are part of wealth. They're goods, money, and services.