Larry Kudlow seems to think the negotiated bailout might not be too bad a deal

[XMan]

<a target=_blank class=ftalternatingbarlinklarge href="http://article.nationalreview.com/print/?q=YWE3ZTg5MDZjOTI2MDA4MjYxMGQ3ZDg1YzI5MTBmOWE=">Let?s walk through this hypothetical for a moment. Through a market-driven auction, the Treasury will purchase some dollar amount ? say $100 billion ? of loans that banks will sell. The Treasury will then buy those loans at the prices that fill the auction, starting with the lowest prices and working up. Now, the Treasury will hold those bonds either to maturity or for a sale in the open market if rising prices in the market make that sale attractive. In other words, suppose the Treasury buys a bond package at 20 cents on the dollar. They hold it for a while, and if market conditions improve, they sell it for 50 cents on the dollar to some buyer (e.g., an investment fund, a private-equity fund, a hedgie). The Treasury will make the sale at the higher price in order to gain a profit for taxpayers.


In the meantime, as the Treasury holds the loans, the government will get monthly cash-flows coming in on the mortgages, or on any other loans that it owns. So it is win-win for taxpayers. First, taxpayers get the cash flow generated by the assets. (Something like a 10 percent interest rate.) Second, if the loan is sold for profit, the taxpayers will own that profit. And the new law must of course stipulate that all the cash flows and/or profits go for debt-reduction to protect taxpayers.
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If the conditions spoken of are accurate, I can see how this might be an all right deal for us as taxpayers eventually. Of course there's no guarantee of profit, but Kudlow is usually someone trustworthy in the financial markets.

 

[Harvey]

I could never stomach watching Kudlow for more than ten minutes. As a talking head, he's seldom been anything but a partisan hack, and boring and often wrong about financial issues to boot.

JMHO.

 

[cubeless]

larry's been getting a little crazy as of late, but, IF the thing goes like that then he's correct...

if the idea is to create the market by the fed becoming a purchaser on the open market at true market rates that are not inflated (but watch no one want to sell since then everyone has to mark to market) then this could work...

but leave it to the feds to muck it up...

 

[LegendKiller]

Originally posted by: Harvey
I could never stomach watching Kudlow for more than ten minutes. As a talking head, he's seldom been anything but a partisan hack, and boring and often wrong about financial issues to boot.

JMHO.

So, you're right about this?

 

[IronWing]

I agree with this idea in theory but...
The Treasury buys stuff, it has no clue what the stuff is or whether or not the stuff is worth any price. It does so in a 100% leveraged deal, the Treasury has to borrow all the funds needed to buy the mystery stuff and pay interest on the loan. Someday this mystery stuff may be worth more than the Treasury paid, or not. Meanwhile, the Treasury has to hire someone to watch the stuff, collect the incoming funds, if any, foreclose on defaults, flip the properties in a downturn, or maintain properties. All that costs money. The Treasury is buying slices of mortgages, not necessarily whole mortgages. What if the other partial owners want to foreclose and the Treasury doesn't? Or the Treasury does and the other parties don't? Seems like a neat way to pay lawyers some money on top of the other costs.

Side note: I'd like to buy my own mortgage at pennies on the dollar. Silly me for paying in full every month.

 

[Harvey]

Originally posted by: LegendKiller

Originally posted by: Harvey
I could never stomach watching Kudlow for more than ten minutes. As a talking head, he's seldom been anything but a partisan hack, and boring and often wrong about financial issues to boot.

JMHO.

So, you're right about this?

I thought JMHO was pretty self-explanitory. I can't stand watching the guy long enough to search out references. If it makes enough difference to you, you can always do your own homework.

 

[smack Down]

If that was what the bailout bill mandated along with the government requirement that if at maturity the bond still payed out less then the government paid the company would be required to make up the difference or if sold before maturity at a loss the company had to make up the difference.

Instead Paulson can buy bonds from Goldman at 90 cents on the dollar and a week later sell them back to Goldman at 10 cents on the dollar.

 

[Harvey]

Originally posted by: smack Down

Instead Paulson can buy bonds from Goldman at 90 cents on the dollar and a week later sell them back to Goldman at 10 cents on the dollar.

The original Paulson/admin proposal made no provision for oversight, said nothing about giving the taxpayers any equity stake in the companies receiving the money, did nothing to rule out golden parachutes for the execs of failed companies and nothing to help home owners and working people.

If that's what Kudlow approves, I don't need to go looking for other links to prove he's an administration tool.

 

[LegendKiller]

Originally posted by: smack Down
If that was what the bailout bill mandated along with the government requirement that if at maturity the bond still payed out less then the government paid the company would be required to make up the difference or if sold before maturity at a loss the company had to make up the difference.

Instead Paulson can buy bonds from Goldman at 90 cents on the dollar and a week later sell them back to Goldman at 10 cents on the dollar.

The last draft I saw was that if we take a loss then we have to be given warrants with a value of 125% of the loss. Not sure if that made it into the final version.

 

[Engineer]

Mr. "I believe that free market capitalism is the best path to prosperity"...what a hypocrit.

 

[mshan]

I suspect that even with the modified modified Paulson plan, we the taxpayers are overpaying for the bad assets we are going to take on from the banks.

Barney Frank may have slipped on recent PBS interview when he said we would get "most" of our money back. Obama during recent debate again seemed to be implying best case scenario was breaking even, not making money.

Recent WSJ editorial below said it might end subsidizing healthy banks while cutting out dead wood of the system.

There are way too many Wall Street cheerleaders for this deal. If the healthy banks (Goldman Sachs, JP Morgan Chase, Wells Fargo, Bank of America) lift way more than say the XLF and the market as a whole, it might be a clue that at best, we are paying way more than we should be to take these bad assets off of their balance sheets.

WSJ Editorial ("The Taxpayers Deserve a Better Deal"): Link

NY Times Article ("How Sweden Solved It's Banking Crisis"): Link

 

[Eeezee]

I hate it when people decide to hyperlink entire paragraphs of text. It's harder to read. People need to quit that shit :|

 

[Thump553]

Kudlow is generally pretty hard to watch for more than a few minutes, but I must admit his interviews and panels on the bailout were among the best I saw. He consistently asked the right question, and would lead each interviewee around their standard party line and instead ask a question that went right to the heart of thier position.


For example, I saw the architect of the GOP House minority "insurance" plan and Kudlow basically got him to admit the insurance is unworkable in about thirty seconds, but that they want some version of their proposal in the final draft.

Like Harvey says he's hard to stomach but he helped me here.

 

[smack Down]

Originally posted by: LegendKiller

Originally posted by: smack Down
If that was what the bailout bill mandated along with the government requirement that if at maturity the bond still payed out less then the government paid the company would be required to make up the difference or if sold before maturity at a loss the company had to make up the difference.

Instead Paulson can buy bonds from Goldman at 90 cents on the dollar and a week later sell them back to Goldman at 10 cents on the dollar.

The last draft I saw was that if we take a loss then we have to be given warrants with a value of 125% of the loss. Not sure if that made it into the final version.

What I hear is that the treasury has the option under some cases to take an equity stake. That simply isn't good enough.

 

[LegendKiller]

Originally posted by: smack Down

Originally posted by: LegendKiller

Originally posted by: smack Down
If that was what the bailout bill mandated along with the government requirement that if at maturity the bond still payed out less then the government paid the company would be required to make up the difference or if sold before maturity at a loss the company had to make up the difference.

Instead Paulson can buy bonds from Goldman at 90 cents on the dollar and a week later sell them back to Goldman at 10 cents on the dollar.

The last draft I saw was that if we take a loss then we have to be given warrants with a value of 125% of the loss. Not sure if that made it into the final version.

What I hear is that the treasury has the option under some cases to take an equity stake. That simply isn't good enough.

AFAIK, those cases are when they have taken a loss.

If we are out, on par, and have received the excess spread on the deal, and we can keep our economy in order, we shouldn't be too picky.

 

[nobodyknows]

Originally posted by: Engineer
Mr. "I believe that free market capitalism is the best path to prosperity"...what a hypocrit.

Heh, you'll get a a chuckle from this article then:

Tuesday, July 17, 2007 Triumphant Goldilocks [Larry Kudlow

The big theme in today?s Dow crossing the 14,000 threshold for the first time is one of unprecedented global economic growth and a worldwide stock market boom.

Simply put, this is the greatest global stock market boom in history.

What we are witnessing here, in virtually every corner of the globe, is the success and the spread of unbridled free market capitalism. It is a dynamic worldwide march toward lower tax rates, deregulation, and, as market strategist Don Luskin put it on last night?s show, the ?interconnectedness? of global economies through free trade, the free flow of capital, and the robust free exchange of information.

Despite the persistent doom and gloom refrain from various sourpuss prognosticators, it remains the greatest story never told.

And it's not over yet................