Special Commentary on CNN: Bailouts will lead to rough economic ride

[piasabird]

I do not believe that all this is caused by a few bad home mortgages. I doubt if the mortgage failure rate is even 10% of all the "HOME" mortgages. I think if you look at the total HOME mortgage Market, it is not large enough to justify the bailouts. I also think that a lot of these problems are only relevent in certain regions and only perpetrated by certain Home Lending Institutions and Mortgage brokers.

What I am looking at is a lot of these Mortgages that are failing are large high-value properties which are commercial ventures. Take a look at some of the properties owned by people like Mr Trump. Are we going to be bailing our large corporations and Ultra Rich Individual millionaires to the tune of Millions?

At no time have I seen a written report of how this problem was caused and what the bailout will include?

This bailout looks like there is no benefit to the poor sucker stuck with a variable rate loan who will be on the street next week. The truth be told, I think people that cant afford a house were stuck with a variable rate loan they could never pay (Probably not a large portion of the problem). However, with no report showing any real numbers and no charts to look at it is hard to tell what we are dealing with.

The other problem is were there not any laws on the book to cover these problems? If there were existing laws on the books, and they were not enforced, then why do we need new laws and regulations that we will not enforce? Also will this fix just force the USA down the road to socialism where the government owns all our property? Property ownership is on the key basic components of Democracy, and I am not willing to let the government to control something too much. If anything we need to simplify the method we use to buy a house. Anyone that has ever purchsed a house probably wonders why we need 1 inch of paper just to complete the process!

I dont want to be bailing out just some fat cats and banks in California, when the banks we have in St Louis, MO, are all using sound financial practices. This is an anticompetitive measure that will do nothing but drive up the price on existing houses. Somewhere there has to be some punishment for lending institutions that wrote all these bad mortgages. These bad institutions deserver to be forced out of business or taken over by others, or liquidated and sold to the sound financial institutions.

 

[chess9]

Originally posted by: bamacre

Originally posted by: chess9

Originally posted by: DisgruntledVirus

Originally posted by: brxndxn
I'd rather take a horrible depression in my 20's rather than an even more horrible depression later on in life unexpectedly...

I'll take no depression in my lifetime.

Seeing as how it's too late for that already, I agree with you.

Fortunately, I am cashed out of real estate, and the stock market. I've had my money in very conservative bonds for 4 years now. In this market cash or gold talks. (I'm not into gold speculation, thank you anyway. I did that when I was young and stupid.)

-Robert

But with inflation, cash isn't a good idea, no?

Cash is safer than almost everything but gold right now, IMHO.

-Robert

 

[LegendKiller]

Originally posted by: Budmantom

Originally posted by: Slew Foot

Originally posted by: jpeyton
No money for poverty, health care, education, flood/storm damaged cities, rutted highways, state police, college tuition...

...but we find $1 trillion+ to buy bad debt off Wall Street.

:roll:

:thumbsup:

F' the banks and the government

QFT

What's funny is that you're part of the problem. In 2005, when people like you could have been screaming about this problem, you sucked it in, hook, line, and sinker. You said there was not going to be a bust, it was "all regional".

Seriously, with false prognositications, poor logic, and limited knowledge, why the hell would anybody believe anything you say?

You can't even see the forest from the trees.

 

[chess9]

Originally posted by: badkarma1399

Originally posted by: chess9

Bober, yes, I agree that all the new BORROWERS helped to drive up prices, but most of it was driven by market psychology. No one wanted to believe home prices, except in a few markets would drop significantly. California was considered an outlier, statistically. People were relying on the fundamental soundness of their home value to kick up their credit card debt, car debt, school loans for kids, etc. It was crazy.

-Robert

fixed

I think there were plenty of signs that the real estate market was running on overdrive, just nobody wanted to listen.

It seems that whenever someone describes a market as red hot, its just about doomed to come crashing down.

I agree there were plenty of signs, but a sign is not enough for most people. Like speed limit signs, which are ignored. Remember, we've had about 65 years of solid upward growth in real estate values. It's hard to convince people the earth is coming to an end when they don't even see angels yet. 🙂

-Robert

 

[LegendKiller]

Originally posted by: piasabird
I do not believe that all this is caused by a few bad home mortgages. I doubt if the mortgage failure rate is even 10% of all the "HOME" mortgages. I think if you look at the total HOME mortgage Market, it is not large enough to justify the bailouts. I also think that a lot of these problems are only relevent in certain regions and only perpetrated by certain Home Lending Institutions and Mortgage brokers.

What I am looking at is a lot of these Mortgages that are failing are large high-value properties which are commercial ventures. Take a look at some of the properties owned by people like Mr Trump. Are we going to be bailing our large corporations and Ultra Rich Individual millionaires to the tune of Millions?

At no time have I seen a written report of how this problem was caused and what the bailout will include?

This bailout looks like there is no benefit to the poor sucker stuck with a variable rate loan who will be on the street next week. The truth be told, I think people that cant afford a house were stuck with a variable rate loan they could never pay (Probably not a large portion of the problem). However, with no report showing any real numbers and no charts to look at it is hard to tell what we are dealing with.

The other problem is were there not any laws on the book to cover these problems? If there were existing laws on the books, and they were not enforced, then why do we need new laws and regulations that we will not enforce? Also will this fix just force the USA down the road to socialism where the government owns all our property? Property ownership is on the key basic components of Democracy, and I am not willing to let the government to control something too much. If anything we need to simplify the method we use to buy a house. Anyone that has ever purchsed a house probably wonders why we need 1 inch of paper just to complete the process!

I dont want to be bailing out just some fat cats and banks in California, when the banks we have in St Louis, MO, are all using sound financial practices. This is an anticompetitive measure that will do nothing but drive up the price on existing houses. Somewhere there has to be some punishment for lending institutions that wrote all these bad mortgages. These bad institutions deserver to be forced out of business or taken over by others, or liquidated and sold to the sound financial institutions.

It's not actual losses that are hurting the banks. It's paper losses.

What's funny is that we are going to take these assets on, far under par, and *MAKE* money on this situation.

 

[Pneumothorax]

Originally posted by: Budmantom

Originally posted by: Slew Foot

Originally posted by: jpeyton
No money for poverty, health care, education, flood/storm damaged cities, rutted highways, state police, college tuition...

...but we find $1 trillion+ to buy bad debt off Wall Street.

:roll:

:thumbsup:

F' the banks and the government

QFT

That's the sad thing that most Americans don't realize. I heard a couple of on=-street interviews by the local news station and most were just balking at the 700B price or didn't even know much about it. What the news should be reporting is this will TAKE AWAY money from the proposed UHC, road improvements, EDUCATION. If this stuff was mentioned, maybe "joe blow" might understand better

 

[Xavier434]

Originally posted by: chess9

Originally posted by: badkarma1399

fixed

I think there were plenty of signs that the real estate market was running on overdrive, just nobody wanted to listen.

It seems that whenever someone describes a market as red hot, its just about doomed to come crashing down.

I agree there were plenty of signs, but a sign is not enough for most people. Like speed limit signs, which are ignored. Remember, we've had about 65 years of solid upward growth in real estate values. It's hard to convince people the earth is coming to an end when they don't even see angels yet. 🙂

-Robert

That is also very much true. We cannot expect the general public to both see and understand what the signs meant. We can expect paid professionals to relay that information when these people come to them asking for it though.

 

[LegendKiller]

Originally posted by: Pneumothorax

Originally posted by: Budmantom

Originally posted by: Slew Foot

Originally posted by: jpeyton
No money for poverty, health care, education, flood/storm damaged cities, rutted highways, state police, college tuition...

...but we find $1 trillion+ to buy bad debt off Wall Street.

:roll:

:thumbsup:

F' the banks and the government

QFT

That's the sad thing that most Americans don't realize. I heard a couple of on=-street interviews by the local news station and most were just balking at the 700B price or didn't even know much about it. What the news should be reporting is this will TAKE AWAY money from the proposed UHC, road improvements, EDUCATION. If this stuff was mentioned, maybe "joe blow" might understand better

I won't take away from anything. Additionally, once they are sold, and/or the mortgages are paid down. WE WILL MAKE MONEY on this.

Is it that hard to understand?

 

[piasabird]

Accountants Lied, People Died!

 

[JS80]

Originally posted by: LegendKiller

Originally posted by: piasabird
I do not believe that all this is caused by a few bad home mortgages. I doubt if the mortgage failure rate is even 10% of all the "HOME" mortgages. I think if you look at the total HOME mortgage Market, it is not large enough to justify the bailouts. I also think that a lot of these problems are only relevent in certain regions and only perpetrated by certain Home Lending Institutions and Mortgage brokers.

What I am looking at is a lot of these Mortgages that are failing are large high-value properties which are commercial ventures. Take a look at some of the properties owned by people like Mr Trump. Are we going to be bailing our large corporations and Ultra Rich Individual millionaires to the tune of Millions?

At no time have I seen a written report of how this problem was caused and what the bailout will include?

This bailout looks like there is no benefit to the poor sucker stuck with a variable rate loan who will be on the street next week. The truth be told, I think people that cant afford a house were stuck with a variable rate loan they could never pay (Probably not a large portion of the problem). However, with no report showing any real numbers and no charts to look at it is hard to tell what we are dealing with.

The other problem is were there not any laws on the book to cover these problems? If there were existing laws on the books, and they were not enforced, then why do we need new laws and regulations that we will not enforce? Also will this fix just force the USA down the road to socialism where the government owns all our property? Property ownership is on the key basic components of Democracy, and I am not willing to let the government to control something too much. If anything we need to simplify the method we use to buy a house. Anyone that has ever purchsed a house probably wonders why we need 1 inch of paper just to complete the process!

I dont want to be bailing out just some fat cats and banks in California, when the banks we have in St Louis, MO, are all using sound financial practices. This is an anticompetitive measure that will do nothing but drive up the price on existing houses. Somewhere there has to be some punishment for lending institutions that wrote all these bad mortgages. These bad institutions deserver to be forced out of business or taken over by others, or liquidated and sold to the sound financial institutions.

It's not actual losses that are hurting the banks. It's paper losses.

What's funny is that we are going to take these assets on, far under par, and *MAKE* money on this situation.

BUT IT'S A BAILOUT IT'S GOING TO COST TAXPAYERS $700 BILLION OUT OF POCKET WEALTH TRANSFER TO CEOS YARRRRRGH

In all seriousness, I would do everything opposite of what RP recommends on the economy. The guy has no fucking clue.

 

[LegendKiller]

Originally posted by: JS80

Originally posted by: LegendKiller

Originally posted by: piasabird
I do not believe that all this is caused by a few bad home mortgages. I doubt if the mortgage failure rate is even 10% of all the "HOME" mortgages. I think if you look at the total HOME mortgage Market, it is not large enough to justify the bailouts. I also think that a lot of these problems are only relevent in certain regions and only perpetrated by certain Home Lending Institutions and Mortgage brokers.

What I am looking at is a lot of these Mortgages that are failing are large high-value properties which are commercial ventures. Take a look at some of the properties owned by people like Mr Trump. Are we going to be bailing our large corporations and Ultra Rich Individual millionaires to the tune of Millions?

At no time have I seen a written report of how this problem was caused and what the bailout will include?

This bailout looks like there is no benefit to the poor sucker stuck with a variable rate loan who will be on the street next week. The truth be told, I think people that cant afford a house were stuck with a variable rate loan they could never pay (Probably not a large portion of the problem). However, with no report showing any real numbers and no charts to look at it is hard to tell what we are dealing with.

The other problem is were there not any laws on the book to cover these problems? If there were existing laws on the books, and they were not enforced, then why do we need new laws and regulations that we will not enforce? Also will this fix just force the USA down the road to socialism where the government owns all our property? Property ownership is on the key basic components of Democracy, and I am not willing to let the government to control something too much. If anything we need to simplify the method we use to buy a house. Anyone that has ever purchsed a house probably wonders why we need 1 inch of paper just to complete the process!

I dont want to be bailing out just some fat cats and banks in California, when the banks we have in St Louis, MO, are all using sound financial practices. This is an anticompetitive measure that will do nothing but drive up the price on existing houses. Somewhere there has to be some punishment for lending institutions that wrote all these bad mortgages. These bad institutions deserver to be forced out of business or taken over by others, or liquidated and sold to the sound financial institutions.

It's not actual losses that are hurting the banks. It's paper losses.

What's funny is that we are going to take these assets on, far under par, and *MAKE* money on this situation.

BUT IT'S A BAILOUT IT'S GOING TO COST TAXPAYERS $700 BILLION OUT OF POCKET WEALTH TRANSFER TO CEOS YARRRRRGH

In all seriousness, I would do everything opposite of what RP recommends on the economy. The guy has no fucking clue.

It just amazes me people have no fucking clue. Bill Gross estimates we could make 4-8% PER YEAR on the assets, AFTER we take into account our own US debt cost.

Fucking A people. You keep your job, we save the economy, AND we make 4-8% per year. Is this a hard equation to get or are Americans that braindead?

 

[BigDH01]

Originally posted by: LegendKiller

Originally posted by: piasabird
I do not believe that all this is caused by a few bad home mortgages. I doubt if the mortgage failure rate is even 10% of all the "HOME" mortgages. I think if you look at the total HOME mortgage Market, it is not large enough to justify the bailouts. I also think that a lot of these problems are only relevent in certain regions and only perpetrated by certain Home Lending Institutions and Mortgage brokers.

What I am looking at is a lot of these Mortgages that are failing are large high-value properties which are commercial ventures. Take a look at some of the properties owned by people like Mr Trump. Are we going to be bailing our large corporations and Ultra Rich Individual millionaires to the tune of Millions?

At no time have I seen a written report of how this problem was caused and what the bailout will include?

This bailout looks like there is no benefit to the poor sucker stuck with a variable rate loan who will be on the street next week. The truth be told, I think people that cant afford a house were stuck with a variable rate loan they could never pay (Probably not a large portion of the problem). However, with no report showing any real numbers and no charts to look at it is hard to tell what we are dealing with.

The other problem is were there not any laws on the book to cover these problems? If there were existing laws on the books, and they were not enforced, then why do we need new laws and regulations that we will not enforce? Also will this fix just force the USA down the road to socialism where the government owns all our property? Property ownership is on the key basic components of Democracy, and I am not willing to let the government to control something too much. If anything we need to simplify the method we use to buy a house. Anyone that has ever purchsed a house probably wonders why we need 1 inch of paper just to complete the process!

I dont want to be bailing out just some fat cats and banks in California, when the banks we have in St Louis, MO, are all using sound financial practices. This is an anticompetitive measure that will do nothing but drive up the price on existing houses. Somewhere there has to be some punishment for lending institutions that wrote all these bad mortgages. These bad institutions deserver to be forced out of business or taken over by others, or liquidated and sold to the sound financial institutions.

It's not actual losses that are hurting the banks. It's paper losses.

What's funny is that we are going to take these assets on, far under par, and *MAKE* money on this situation.

It's possible we make money. However, I think it's clear that we won't be buying these at much of a discount. And, this is an honest question, how do we know what these are really worth? I don't think the banks know and I highly doubt we really know. I doubt the US will lose the entire G$700 but I highly doubt we'll profit either.

 

[JS80]

Originally posted by: LegendKiller

Originally posted by: JS80

Originally posted by: LegendKiller

Originally posted by: piasabird
I do not believe that all this is caused by a few bad home mortgages. I doubt if the mortgage failure rate is even 10% of all the "HOME" mortgages. I think if you look at the total HOME mortgage Market, it is not large enough to justify the bailouts. I also think that a lot of these problems are only relevent in certain regions and only perpetrated by certain Home Lending Institutions and Mortgage brokers.

What I am looking at is a lot of these Mortgages that are failing are large high-value properties which are commercial ventures. Take a look at some of the properties owned by people like Mr Trump. Are we going to be bailing our large corporations and Ultra Rich Individual millionaires to the tune of Millions?

At no time have I seen a written report of how this problem was caused and what the bailout will include?

This bailout looks like there is no benefit to the poor sucker stuck with a variable rate loan who will be on the street next week. The truth be told, I think people that cant afford a house were stuck with a variable rate loan they could never pay (Probably not a large portion of the problem). However, with no report showing any real numbers and no charts to look at it is hard to tell what we are dealing with.

The other problem is were there not any laws on the book to cover these problems? If there were existing laws on the books, and they were not enforced, then why do we need new laws and regulations that we will not enforce? Also will this fix just force the USA down the road to socialism where the government owns all our property? Property ownership is on the key basic components of Democracy, and I am not willing to let the government to control something too much. If anything we need to simplify the method we use to buy a house. Anyone that has ever purchsed a house probably wonders why we need 1 inch of paper just to complete the process!

I dont want to be bailing out just some fat cats and banks in California, when the banks we have in St Louis, MO, are all using sound financial practices. This is an anticompetitive measure that will do nothing but drive up the price on existing houses. Somewhere there has to be some punishment for lending institutions that wrote all these bad mortgages. These bad institutions deserver to be forced out of business or taken over by others, or liquidated and sold to the sound financial institutions.

It's not actual losses that are hurting the banks. It's paper losses.

What's funny is that we are going to take these assets on, far under par, and *MAKE* money on this situation.

BUT IT'S A BAILOUT IT'S GOING TO COST TAXPAYERS $700 BILLION OUT OF POCKET WEALTH TRANSFER TO CEOS YARRRRRGH

In all seriousness, I would do everything opposite of what RP recommends on the economy. The guy has no fucking clue.

It just amazes me people have no fucking clue. Bill Gross estimates we could make 4-8% PER YEAR on the assets, AFTER we take into account our own US debt cost.

Fucking A people. You keep your job, we save the economy, AND we make 4-8% per year. Is this a hard equation to get or are Americans that braindead?

It's freaking government arbitrage. It's not even a bailout. It's maybe a rescue. It's not necessarily socialism. It's in fact government capitalism. Government raises money for 1% and arbitrages it for freaking 8% taking advantage of the liquidity (or lack thereof).

 

[LegendKiller]

Originally posted by: BigDH01
It's possible we make money. However, I think it's clear that we won't be buying these at much of a discount. And, this is an honest question, how do we know what these are really worth? I don't think the banks know and I highly doubt we really know. I doubt the US will lose the entire G$700 but I highly doubt we'll profit either.

They will be bought at a pretty big discount. We won't even get close to losing 10% in the worst case scenario.

Think of it this way. A BBB mortgage bond will have about 4% enhancement on it, that covers 8% gross defaults (assuming, at worst, a 50% recovery on the house), excluding excess spread (mortgage yield - funding costs - servicing costs). Excess spread might be ~1% per annum. That means that over 10 years the losses on the pool can approach 18% gross defaults, with NO loss to the BBB tranche.

Then, on top of that, we buy it for a 10% discount. That means that we can sustain an extra 10% net loss. That means the mortgages could sustain 20% gross losses from the discount (50% recovery).

That means before we lose ONE DOLLAR, gross losses have to approach 38%. To lose 10%? Losses would have to hit 58%. How likely is that?

 

[dyna]

There needs to be some long term penalty for these companies that receive the bailout. Such as them having to pay back every dime they received in assistance. They need to be tightly regulated and oversight any major business process changes/practices going forward and executive pay ceilings. Companies that pull through it on their own should be given some advantage for their resilience. Buyouts should not be allowed.

 

[Lemon law]

No, the theory that government intervention into the markets caused this just will not fly. Not after we have dismantled a century of good regulations and safeguards and replaced it with nothing but greed.

To a large extent, its the greed of the investors who knew their ARM's and no money down investments might cause a few defaults, but they figured they would be out of the game of musical chairs before the music stopped. Much of this crisis could have stopped if Bernake and Paulson had intervened early, suspended the ARM's, but they did nothing.

Now the real estate market has crashed, dropping more than 30% or more in many places, and its far more than a normal market correction. And now many former homeowners that were fooled into foolish loans now find it very wise to just walk away, leaving the current mortgage holder holding the bag.

Now those very jerks who would not have shared their profits with the tax payer and were unwilling to reduce their draconian arms now come crying to the taxpayer saying make me whole and reward my greed and stupidity. And then blackmail us with a or else we will collapse the whole banking system.

 

[bamacre]

Originally posted by: Lemon law
No, the theory that government intervention into the markets caused this just will not fly.

Sorry to burst your bubble, 😀 , but yeah, it flies.

 

[Pneumothorax]

Originally posted by: LegendKiller
It just amazes me people have no fucking clue. Bill Gross estimates we could make 4-8% PER YEAR on the assets, AFTER we take into account our own US debt cost.

Fucking A people. You keep your job, we save the economy, AND we make 4-8% per year. Is this a hard equation to get or are Americans that braindead?

Can you guaranteeee this Mr. Killer? Honestly, I'd rather see a crash and burn (AND CEO's lose their shirts) and buy stuff while the dow is at... let's say 6000

 

[JS80]

Originally posted by: Pneumothorax

Originally posted by: LegendKiller
It just amazes me people have no fucking clue. Bill Gross estimates we could make 4-8% PER YEAR on the assets, AFTER we take into account our own US debt cost.

Fucking A people. You keep your job, we save the economy, AND we make 4-8% per year. Is this a hard equation to get or are Americans that braindead?

Can you guaranteeee this Mr. Killer? Honestly, I'd rather see a crash and burn (AND CEO's lose their shirts) and buy stuff while the dow is at... let's say 6000

If that happens the money you have in the bank waiting to get in will be worthless

 

[LegendKiller]

Originally posted by: Pneumothorax

Originally posted by: LegendKiller
It just amazes me people have no fucking clue. Bill Gross estimates we could make 4-8% PER YEAR on the assets, AFTER we take into account our own US debt cost.

Fucking A people. You keep your job, we save the economy, AND we make 4-8% per year. Is this a hard equation to get or are Americans that braindead?

Can you guaranteeee this Mr. Killer? Honestly, I'd rather see a crash and burn (AND CEO's lose their shirts) and buy stuff while the dow is at... let's say 6000

Yeah, great idea. Watch the world collapse so you can profit. Hey, that was their rationale too.

 

[JS80]

Originally posted by: LegendKiller

Originally posted by: Pneumothorax

Originally posted by: LegendKiller
It just amazes me people have no fucking clue. Bill Gross estimates we could make 4-8% PER YEAR on the assets, AFTER we take into account our own US debt cost.

Fucking A people. You keep your job, we save the economy, AND we make 4-8% per year. Is this a hard equation to get or are Americans that braindead?

Can you guaranteeee this Mr. Killer? Honestly, I'd rather see a crash and burn (AND CEO's lose their shirts) and buy stuff while the dow is at... let's say 6000

Yeah, great idea. Watch the world collapse so you can profit. Hey, that was their rationale too.

That's the sad thing, his money will be worth toilet paper if it happens and he would not be able to profit.

 

[chess9]

Originally posted by: LegendKiller

Originally posted by: BigDH01
It's possible we make money. However, I think it's clear that we won't be buying these at much of a discount. And, this is an honest question, how do we know what these are really worth? I don't think the banks know and I highly doubt we really know. I doubt the US will lose the entire G$700 but I highly doubt we'll profit either.

They will be bought at a pretty big discount. We won't even get close to losing 10% in the worst case scenario.

Think of it this way. A BBB mortgage bond will have about 4% enhancement on it, that covers 8% gross defaults (assuming, at worst, a 50% recovery on the house), excluding excess spread (mortgage yield - funding costs - servicing costs). Excess spread might be ~1% per annum. That means that over 10 years the losses on the pool can approach 18% gross defaults, with NO loss to the BBB tranche.

Then, on top of that, we buy it for a 10% discount. That means that we can sustain an extra 10% net loss. That means the mortgages could sustain 20% gross losses from the discount (50% recovery).

That means before we lose ONE DOLLAR, gross losses have to approach 38%. To lose 10%? Losses would have to hit 58%. How likely is that?

LegendKiller:

Consider this:

1. Cost of employees at Fed or some new agency to do the work;
2. Cost of borrowing to pay the 1 trillion bucks;
3. Unknown value of all these derivatives. One bank in Australia wrote them ALL off as worthless. Many commentators think their value is very very low. Less than 50% of what the banks are SAYING they are worth.
4. Dollar value of the US using one trillion dollars worth of its credit worthiness? When will the bond sales stop producing buyers, or when will the rates on bonds have to rise to, say, 20%? Death to the US, is what that would be.
5. What's the dollar value of the example this DOESN'T set?

Just say no to the bailout.

EDIT: BTW, taking advice from Paulson and Bernanke is like asking Dr. Jack Kevorkian for his top ten life extension tips.

-Robert

 

[JS80]

Originally posted by: chess9

Originally posted by: LegendKiller

Originally posted by: BigDH01
It's possible we make money. However, I think it's clear that we won't be buying these at much of a discount. And, this is an honest question, how do we know what these are really worth? I don't think the banks know and I highly doubt we really know. I doubt the US will lose the entire G$700 but I highly doubt we'll profit either.

They will be bought at a pretty big discount. We won't even get close to losing 10% in the worst case scenario.

Think of it this way. A BBB mortgage bond will have about 4% enhancement on it, that covers 8% gross defaults (assuming, at worst, a 50% recovery on the house), excluding excess spread (mortgage yield - funding costs - servicing costs). Excess spread might be ~1% per annum. That means that over 10 years the losses on the pool can approach 18% gross defaults, with NO loss to the BBB tranche.

Then, on top of that, we buy it for a 10% discount. That means that we can sustain an extra 10% net loss. That means the mortgages could sustain 20% gross losses from the discount (50% recovery).

That means before we lose ONE DOLLAR, gross losses have to approach 38%. To lose 10%? Losses would have to hit 58%. How likely is that?

LegendKiller:

Consider this:

1. Cost of employees at Fed or some new agency to do the work;
2. Cost of borrowing to pay the 1 trillion bucks;
3. Unknown value of all these derivatives. One bank in Australia wrote them ALL off as worthless. Many commentators think their value is very very low. Less than 50% of what the banks are SAYING they are worth.
4. Dollar value of the US using one trillion dollars worth of its credit worthiness? When will the bond sales stop producing buyers, or when will the rates on bonds have to rise to, say, 20%? Death to the US, is what that would be.
5. What's the dollar value of the example this DOESN'T set?

Just say no to the bailout.

EDIT: BTW, taking advice from Paulson and Bernanke is like asking Dr. Jack Kevorkian for his top ten life extension tips.

-Robert

This post makes me want to cry.

 

[First]

Ron Paul has been saying the same stuff about the economy, Fed, and gold standard for 30 years and has been wrong for 30 years. Little has changed, expect a likely prolonged recession, to change this reality. He'll continue to look foolish on economics.

 

[bamacre]

Originally posted by: Evan Lieb
Ron Paul has been saying the same stuff about the economy, Fed, and gold standard for 30 years and has been wrong for 30 years. Little has changed, expect a likely prolonged recession, to change this reality. He'll continue to look foolish on economics.

Yeah, he was wrong here. And the economy right now is in excellent shape, I have no idea what he's talking about.