n/t

At least from the average American’s perspective?

He’s going to inject 700 billion to bail out Wall Street while the taxpayers will foot the bill creating more financial hardship in the form of taxes and inflation when we’re already struggling with higher prices and making ends meet?

How many more people will be pushed into defaults on credit cards, mortgages, and everything else in an effort to bailout the others. You know, that domino effect? The average American is hurting now and they want to make it worse?

If I have this summed up about right, then I may as well walk away from my own home now instead of trying to hang on for another few years sinking money into it just to see it all be taken away. I may be in that lower 40% of taxpayers but I do pay taxes.

I caught a little bit of the hearing yesterday, and thanks to things you said earlier here I had my ear ready to hear any discussion related to valuation.

I happened to have it on during a Menendez piece, and instead of the usual pompous grandstanding he asked a few decent questions it seemed to me. Here is my very broad paraphrasing of two of them – feel free to tell me if my interpretation is off base.

Q: If as you said nobody knows how to value these things, then how do you set a value for them?

A: It’s like a Sotheby’s auction where you don’t know what something is worth until the auction is over and you have a buyer.

My interpretation: An art auction drives a top price. Here we’re taking all the downside risk hoping the price recovers years later. So to carry his analogy out, he’s asking us taxpayers to buy a painting for $700B that we’ll put it up for auction years from now, because it wouldn’t bring anywhere near that price today. But the people who sell us the painting now are quite happy.

Q: How are you going to know if these firms are dumping off their worst assets and keeping the good ones for themselves?

A: We’ll be going through a class at a time, and it could well be that we decide to take the worst of the bunch in each case.

My interpretation: This is what will convince people it’s a bailout of Wall Street. The millionaires running the show who helped create the crisis get to keep the good stuff and we taxpayers will get to eat the losses where they screwed up. What a deal!

I have been thinking about something for the past 24 hours. I’m not saying I know what the cure is but commons sense tells me this is not right.

If the U.S. is going to pour the tax money into a fix, why not pour it into the nation’s infrastructure? This infusion would keep people working and spending money in the economy while the banks rebuild themselves from the ground up which is what needs to happen. We would see something for the money we spend as well.

We could easily pay to have a complete hydrogen fueling infrastructure, a complete CNG infrastructure and a lot of other things that would cure other ills our nation faces.

This bail out, as it is now, looks like something that is going to kill taxpayers without giving anything to show for it. It looks like a Wall Street scam.

to cover the extra risks associated with the types of mortgages that are failing and supposedly creating this problem?

and see how they handle it?

Thanks for taking something so complicated and making it understandable.

Like the new insurance ad. I don’t like it but I get it.

The reaction of ordinary Americans is this:

Curious if you saw Ben Stein’s WSJ article on the collapse and what you thought of it?

The $700 billion price tag is not just being given away. The money is being used to buy mortgages that do in fact have a value, but due to current conditions the market is unable to decide on a price.

With a mortgage default rate of 4%, paying $0.30 on the dollar and holding these securities seems like a great deal in the long run for the taxpayer.

The MBS market is huge, and not going to go away because of this episode. There is plenty of money out there and they will return to the market once stability and order return to the market.

I say write the check.

That we’re going to be swindled once again. At this point I’m losing what little trust I had in these jokers. Sounds like capitalism for the common person, socialism (only when reality bites) for the powerful and connected. Paulson, if he had any honor, should recuse himself from this.

ask Congress to cut out 700 billion of its spending and send it on over to Wall Street.

“Hey Congress, I already gave” Campaign.

Kind of like the Drill Here, Drill Now thing.

“Was it over when the Germans bombed Pearl Harbor? Who’s with me”?

Bernanke acknowledges that accounting rules are transforming this problem from bad economic news into a potential apolcolypse.

) `’Accounting rules require banks to value many assets at something close to a very low fire-sale price rather than the hold-to-maturity price,” Bernanke said in testimony to the Senate Banking Committee today.

http://www.bloomberg.com/apps/news?pid=20601068&sid=aqCh43qzoq5M&refer=home

Bernanke also provides that for the crisis to be avoided, the way in which the mortgage-based securities are value must be changed, and that the mark-to-market method can’t be used.

“If the Treasury bids for and then buys assets at a price close to the hold-to-maturity price, there will be substantial benefits.”

http://www.bloomberg.com/apps/news?pid=20601068&sid=aqCh43qzoq5M&refer=home

Why not just allow the current bond holders (e.g. the PRIVATE SECTOR) to determine a value for the bonds in the way that Bernanke wants the GOVERNMENT to do with our tax dollars? Would not such an alternative not achieve the same result while avoiding a potentially permanent expansion of government into the economy>

All of this can be avoided if a system were put into place that allowed private companies to hold these distressed assets. Rather than a centralized holding place, why not use a decentralized one? Why not allow financial firms with structured (Tier 3) assets issued between December 2003 and August 2007 to suspend mark-to market accounting for those assets, and receive government insurance as a backstop? This would be a temporary solution, not requiring any ultimate change in Sarbanes Oxley or mark-to-market accounting rules, and the government could even make money by selling insurance with less risk to the taxpayer than buying them outright. In essence a firm could sequester, or firewall off these specific assets from the rest of its balance sheet, and either finance this itself, or bring in outside financing. The firm would promise to hold the securities to maturity, or until government insurance was no longer needed when it liquidated the assets. All of these deals could be settled in the private sector, in multiple locations with the government looking over the shoulder of each deal.

If the rules had been relaxed a little bit for these specific assets, Merrill Lynch could have created its own private equity investment fund inside its corporate structure instead of selling at a huge loss to Lone Star, which created its own holding vehicle. This plan would leave mark-to-market accounting regulations intact. It would be a temporary change in the rules. Its most important attribute is that it leaves taxpayer powder dry for another day. It also allows the private sector to price assets in an environment that is
not contrived and will help avoid the loss of, or government takeover of, more private firms.

http://www.ftportfolios.com/Commentary/EconomicResearch/2008/9/22/heresaplantoavoidanew_rtc

http://online.wsj.com/article_email/SB122178603685354943-lMyQjAxMDI4MjIxMjcy
ODI2Wj.html

The more we learn, the more clear it becomes that this is not really about liquidity or temporary technical impediments to lending.

This is about taking banks who have, in effect, become insolvent or nearly so through highly-leveraged bets that went bad, and recapitalizing them with taxpayer dollars (without getting any equity for the taxpayers). The mechanism is to overpay for the bad debt, hoping that no one pays attention to the vast (and I mean VAST) transfer of wealth that will take place.

It would be cheaper and faster to just wire a few hundred billion to the banks at issue as a gift, and let the market handle clearing out the bad financial instruments. That would at least save us the cost of erecting a huge bureaucracy designed to achieve the same end. The only problem with just wiring the money is that it would make apparent what’s going on, and democracy might break out, stopping the bailout in its tracks.

Also, I don’t take inflation as lightly as you do. I think it was Reagan who described it as an insidious silent tax. It hits hardest at those who have budgeted and saved, and disproportionately disadvantages the elderly and those on fixed incomes. It’s not at all harmless. (And, yes, you didn’t say it was harmless, but you are far more comfortable with it than I am.)

with her “No drill” energy plan amendment…

whose money market fund has suspended cash redemptions temporarily.

The fund has top credit holdings, all A-1/P-1, with a rock solid credit rating. There is no threat to the fund’s yield or its Net Asset Value of $1.00, which is the standard for money funds.

The problem: when someone wants to redeem shares, the fund has to sell one of their high quality holdings to raise the cash to pay the shareholder. On some days, there are literally no buyers, so no investment sales can take place for top-graded paper.

This is the kind of thing that gums up the economy big time.

As I’ve said before, a stitch in time saves nine.