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EDITOR OF REDSTATE

Fire Sale On Wall Street

By: Erick Erickson (Diary)  |  September 25th, 2008 at 09:02 AM  | 

RESIZE: AAA

It is becoming abundantly clear that if the Paulson Plan does not pass by market close on Friday, the world will be a very different and more unstable place come sunrise Monday morning.

Why?

The credit market is crashing. There is not enough credit in the market right now. Come Monday, if Wall Street does not have the assurance of a workable plan, the nightmare scenario that there may not be enough credit to get paychecks cashed next week may very well come true.

That is not hyperbole. That is an accurate reflection of existing facts on the ground. It is a very real possibility.

Conservatives are opposed to this plan. But there are too many distractions conservatives are tossing out like “mark to market accounting”. These distractions will not solve the problem.

If the Republicans cannot offer up a real alternative, and the McCotter plan and all other plans taking equity ownership in financial institutions are even more unacceptable than the Paulson plan, the Paulson plan is what we must consider.

If we do nothing by Friday evening, the world’s financial markets could burn on Monday — a massive market crash, the freezing up of credit, massive unemployment, etc. In a better world, the Paulson plan would pass with no add ons and with the assurance that the purchased securities would be purchased based on their present value, not over valued. The companies that made the bad deals would die. Buying the securities overvalued would not only drag out a recession for a decade, but would just roll the ball down the road to be dealt with again at a later date.

Because it does not seem likely that the Paulson Plan can pass in a way to ensure there are no overvaluations of securities and no Democratic add ons, the GOP should vote against the plan. It would, in fact, be better to let the markets burn than socialize them. New forests rise from fire. New markets can rise from a fire. But neither forests nor markets can grow when suffocated.

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COMMENTS

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  • aceintx

    nt

  • Section9

    Spare me the nobility of the Lost Cause.

    Lee surrendered at Appomattox, but he still surrendered. Barney Frank and the Porkmeisters hold the whip hand, unfortunately, and have ladeled this monstrosity with more pork than Maxine Waters could have imagined in her wildest dreams.

    However, if there is a crash in equities and a genuine credit freeze, don’t kid yourself: Bush, McCain, and the Republican Party will be blamed.

    Thanks, but no thanks. This is a small price to pay for not spending a generation in the political wilderness trying to argue that the Second Great Depression wasn’t really our fault.

    Sometimes, as with Barry Goldwater and the Civil Rights Bill in 1964, Republicans have to learn not to drink from the Cup of Stupid. Thankfully, it appears that both McCain and Palin get this.

  • dt

    Erick, I’m sorry to have to say this, but what you’re proposing is utter lunacy. The kind of crash that could come about through inaction would lead to a massive expansion of government programs a la the new deal, not to mention untold human suffering both here and abroad. You can’t possibly want that can you?

  • Erick

    You aren’t reading carefully.

    The GOP should vote against the plan if they can’t get a clean plan.

    The Democrats will pass it.

    Let them own it.

  • birdmojo

    “This bailout which will work and make everything the way it should have been” and “disaster” but a choice between “kicking the can down the road for a month, maybe two, then disaster” and “disaster”.

  • hunter

    You are wrong.
    If we pursue your strategy, we will be lucky to be the equivalent of France on the other side. And with the egomanical democrat nominee as the winner in your strategy, we will be a lot closer to Mexico when the dust settles.
    If we are lucky.
    Washington knew about this a year ago. Heck, I got out of the markets a year ago this August when the first mortgage shoe dropped. This has been no surprise.
    Our entire system has ebcome so dysfunctional- all three branches- that standing on some ideological principal is not going to amount to anything.
    President Bush has been trapped in some sort of passive agressive pose since Katrina. And the democrats have done no better. We have been abandonded by our leaders.
    This is like a war. We either use the tactics and strategies that keep us alive and lead to hope of victory, or we lose and die.
    Refusing to use a particular weapon because it does not fit our taste is inviting defeat of massive levels.

  • Erick

    The Paulson plan needs to pass. And the GOP should let it. They can vote against it while the Dems pass it.

    Sure, some Republicans will need to vote for it, but not most of them.

  • Spartan4Life

    So, the GOP’s role here is to provide political cover for the Dems? They do that for us all the time, don’t they?

    I’m with Erick. Give them enough votes to pass the plan but no more. They got us in this mess in the first place.

  • Spartan4Life

    So, the GOP’s role here is to provide political cover for the Dems? They do that for us all the time, don’t they?

    I’m with Erick. Give them enough votes to pass the plan but no more. They got us in this mess in the first place.

  • dt

    I could be wrong, but the only way anything is going to get done here is through the suspension calendar, which requires 2/3rds support in the house and unanimous consent in the Senate. We simply don’t have time to do anything else. Thus, if this plan doesn’t get significant republican support, it will fail, so I don’t think that what you propose is a realistic option here. Please correct me if I’m wrong on any of the above.

  • red_oakster

    Forbes, Kudlow, Kyl, and Cheney, to name a few conservatives, recognize the disaster that awaits if the credit markets are not relieved.

    The necessity of this intervention is a result of failing to reform Faniie and Freddie in 2005, in 2003, and earlier. Some conservatives tried to reform the two GSEs, but they FAILED. That they tried doesn’t count in the reckoning. Neither does the fact that folks like Frank and Dodd were the engineers of that failure.

    Dangerous risks were taken, and now we all have to pay a price. The house is on fire, the cost of the firehouse is dear, but the alternative is much worse.

    If there is a silver lining, after the rescue this week, we have five weeks until election day to tell the world who the arsonists were.

  • red_oakster

    Better to acknowledge the necessity of this, and to focus on who caused the problem, starting the minute after the rescue becomes law. That gives us five weeks.

  • dt

    But I fear you may not be.

  • awtherfrd

    Why can’t we put in some add ons as well. How about tax cuts, drill now legislation, assurances we will never see another GSE.

  • awtherfrd

    Why can’t we put in some add ons as well. How about tax cuts, drill now legislation, assurances we will never see another GSE.

  • terilyn

    let go and hope for the best is not a good choice. I’ve thought about that alot over the past few weeks and it’s terrifying. One can only hope that we get a good, honest group of individuals overseeing this money. Asking for an honest group in DC is rather ridiculous , I know. But letting the markets fail is not an option that will benefit anyone. I certainly am not looking forward to a Depression.

  • buddha1556

    GWB has really screwed over his own party with this, and I don’t see how going on television last night helped anything. The problem with your plan of letting the Democrats pass this bill is that most of America will associate it with Bush anyway. I’m not sure the Republicans have a way to save face on this sans coming up with a different plan. I just want to punch someone when I hear about all of the crap that Frank and company are attaching to this bill. I’m only 27, so I know I should have time to recover from whatever happens. If this doesn’t pass, I really feel for those in their late 50′s and early 60′s who plan to retire soon. If it does pass, I will have to think long and hard before ever bringing a child into the world that we’ll be living in. This is the ultimate definition of a lose/lose situation.

  • General_Confusion

    “But in addition to the new changes they are seeking, Democrats are also urging the White House to deliver Republican votes for the package. “We are not taking ownership of this,” Mrs. Pelosi said.”

    Source: http://online.wsj.com/article/SB122226131131670949.html?mod=specialpagecampaign2008_mostpop

    I believe what Nancy it trying to do is get all the pork add-ons while we get the blame. So much for cover.

    Great deal we have here, socialize the market, add some pork. Republicans get the blame and Wall Street gets to walk away from their problem. I guess there will be Lehman Brothers style bonuses this quarter all around Wall Street.

    Everybody wins, well except the taxpayer and Republicans.

  • RHogue

    I’m glad to see some pundits finally get a clue as to what is going on.

    If you still don’t want the Paulson plan read this:

    http://online.wsj.com/article/SB122230704116773989.html

    “My analysis suggests that Treasury Secretary Henry Paulson (a former investment banker, no less, not a trader) may pull off the mother of all trades, which could net a trillion dollars and maybe as much as $2.2 trillion — yes, with a “t” — for the United States Treasury.”

    For goodness sake, educate yourselves before posting ignorant comments. Actually listen to Paulson and Bernanke on CSPAN.

    Government got us into this, and it’s going to have to get us out. Get with the program y’all.

    Once the hole in the boat is fixed, we will have to row the boat ashore, and re-build it…but that’s later, not now.

  • birdmojo

    Say it with me: “I know that every single time that anyone has ever said ‘this time it’s different’ they have been wrong but, seriously, this time it’s different.”

  • Pentagon16

    If the GOP does not act and bring out a bill in the next few days-

    Obama is going to win the election. Then you think HIS bill with Reid and Pelosi will be more conservative than what we have now?!!

    Only at that stage the GOP will be blamed for the depression, the libs will gain even more power through the November elections, and their solutions to the economic crisis will be much worse.

    Always count on paleocons to chop off not only their own nose to spite their face- but a leg and arm as well.

  • PhxG

    I have been watching the problem and see that the lack of credit is key to the potential for problems, not the failure of any one or multiple entities.

    What would happen if say 5% of the US population could not get their paychecks cashed? Then the trickle down effect of failing to pay bills. The liquidity of companies not even remotely related to the Wall Street groups are now in jeopardy. And while I am not a believer in “the ripple effect” of most financial problems, this is a case where it is so big a rock that the ripples will indeed upset other boats on the lake.

    I am by no means an expert, but I believe that if the credit market constricts enough, we will see a wholesale “calling of loans” and the use of acceleration clauses like never before. And if we get to that point, even the most financially secure of the middle class will be faced with severe problems too.

  • Alberta

    you call mark to market trivial but it isnt. If we changed the way these toxic securities where presented on the balance sheet, we could free up credit.

    The CDOs and such were bought with borrowed money. The people who lent the money are making the people that borrowed the money put more and more capital away to cover their borrowing. This is causing the freeze up. Why are they being forced to put more and more capital away? Because the CDOs on the books arent worth anything AS OF THIS DAY. So scrap mark to market and the whole Enron overreaction GAAPs and let them mark em UNTIL MATURITY or UNTIL GAIN of X is REALIZED. This move should calm the markets and end the panick or near panick conditions.

    The books will look healthy, credit will be put back into the system, and we wont have to print money and become Zimbabwe.

    This bailout is theft. The government is going to steal the wealth of the investment banks, hold on to it for a few years, and then sell it at a profit. Cramer sayed we should call it “Invest in America”

    This is getting long sorry. I have opposed this seizure from the beggining, and notwithstanding my above suggestion, there are a lot of good smart people out there who think if this doesnt passed, we get Great Depression 2.

    Joe P on Kud was talking about Beaver Bonds. Anyone know what that means?

  • buddha1556

    If you’ve read any of Blackhedd’s posts in the last few days, the Fed plan as it stands is going to OVERPAY for these assets. The link you provided is not exactly breaking new ground, it’s been discussed. My understanding is that the Fed intends to pay at or near the hold to maturity price, not the current value. The profit your link talks about evaporates pretty quickly when the government is overpaying.

  • JSobieski

    Anything above the mark-to-market value is technically overypaying, but paying the mark-to-market value won’t help solve the problem.

    The problem is that assets are temporarily undervalued in a substantial way according to the government-required accounting rules.

  • Uma_Richie

    from the airlines every week?

    There’s something wrong when a bank is willing to extend credit to someone based on the number of frequent flyer miles he’s racked up. I thought the applications would have stopped with the financial crisis, but another arrived again on Monday.

  • Achance

    And most of them are to my two older stepkids, who are decidely NOT creditwothy. I wouldn’t loan either of them $20 for gas with an expectation of getting it back. The oldest left a trail of unpaid bills all the way through college, some of which we only knew about when the letters from the collection agencies would show up at our house. Even so, hardly a day goes by without a credit card or loan offer coming for him.

  • markreiboldt

    Let’s be clear that the bailout is not socializing the markets. Even though the ‘doom and gloom’ scenario has been overdone, the systemic risk involved if action isn’t taken is far too great to play politics with. The bailout represents what the government (e.g., Fed, Treasury, et al) must do when the markets are at the brink of disaster. I have talked previously about what caused this crisis, but it isn’t just Democrats or Republicans, or inept Wall Street managers, or speculating hedge funds, or even consumers. It’s all of the above. And now, the markets must be rescued, as is the role of the central bank stepping in as a lender of last resort. But, make no mistake about it, we can’t afford to ‘let the markets go’ and we certainly can’t afford to play politics with this situation. Also, keep in mind, that the $700 billion is not a grant – it’s an investment in the markets and despite what many have said, the valuations are low. We can thank Lehman and the other financial firms for that. So, this is no time for the Potomac Two Step and it certainly isn’t a scenario where we can let the markets go.

  • MrSandman

    Please explain how everything will turn up roses and Paulson will magically turn a profit on these. It’s good money after bad.

    The banks need to fail.

    It’s the only solution to the problem.

  • MrSandman

    Please explain how Paulson will make everything turn up roses. I’d love to hear it.

    This is flushing good money after bad.

    The banks need to merge or fail….followed by stringent disinfection of the survivors.

    Yes. It will hurt like hell. But it is the only long term solution to the problem.

  • Vegas_Rick

    Are you unaware that both the Savings and Loan bailout and the later Chrysler bailout both turned out to be very profitable for the tax payer?

    Granted, the profits went into the general fund and were probably spent on entitlement programs, but, they were profits none the less.

    It all depends on how much we pay for these securities. It sounds like Bernanke doesn’t want to set the price low enough to really put the pain to the institutions holding them. But, I think, if he doesn’t over pay, we may be in the money in a couple or three years. :)

  • Vegas_Rick

    Are you unaware that both the Savings and Loan bailout and the later Chrysler bailout both turned out to be very profitable for the tax payer?

    Granted, the profits went into the general fund and were probably spent on entitlement programs, but, they were profits none the less.

    It all depends on how much we pay for these securities. It sounds like Bernanke doesn’t want to set the price low enough to really put the pain to the institutions holding them. But, I think, if he doesn’t over pay, we may be in the money in a couple or three years. :)

  • JSobieski

    it is the reason why 9% mortgage delinquency is about to destroy the U.S. financial system.

    The core of the Paulson plan is to fix the balance sheets of institutions so they can lend again.

    The balance sheet issue is the direct result of “mark-to-market”.

    I agree that Paulson is better than nothing, but to say that Paulson is the only possible solution to this, and that we should all just jump in line is rediculous.

    The Paulson Plan is a brute force remedy that one would expect to come out of a country like Venezuala or Russia.

    Make no mistake here, capitalism is in jeopardy. This is a fundamental intrusion into the economy in the way that the New Deal was.

  • Whitfox

    “The credit market is crashing. There is not enough credit in the market right now. Come Monday, if Wall Street does not have the assurance of a workable plan, the nightmare scenario that there may not be enough credit to get paychecks cashed next week may very well come true.

    That is not hyperbole. That is an accurate reflection of existing facts on the ground. It is a very real possibility.”

    … but I’m not seeing any citations or sensible analyses to demonstrate this. Granted, I’ve not read every thread on RedState about the bailout. But you’d think people selling the bailout would want to make this case. Because without that urgency, we have time to consider better plans.

  • JSobieski

    seeks to purchase securities at actual current market value. The actual current market value (thanks to mark-to-market) is the reason why the balance sheets of the Wall Street are in shambles.

    Paying the market value would by definition, NOT impact the balance sheet in any way.

    The Paulson Plan essentially admits that this is an accounting issue by providing for purchasing bonds at rates that are higher than the current market rates (an acknowledgment that the current rates are unduly distressed).

    People like Forbes and Gingrich have put forth viable and superior alternatives. Not sure why should ignore them.

  • JSobieski

    It takes the option of the most intrusive government intervention possible, rather than the least necessary to get the job done.

    The fact that democrats are so willing to sign on to this should tell you something.

    This is how democrats think. Problem => government expenditure.

    Regulations triggered this problem. Changing the regulations should tbe PRIMARY focal point for solving the problem.
    http://www.forbes.com/forbes/2008/1006/017.html

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

    http://online.wsj.com/article_email/SB122178603685354943-lMyQjAxMDI4MjIxMjcyODI2Wj.html

    http://www.redstate.com/diaries/jsobieski/2008/sep/25/a-modest-proposal-that-could-save-the-us-go/

  • dld1717

    I agree and I fear our Party will suffer the consequences for decades to come

  • JSobieski

    I agree that we are on the edge of the abyss.

    So we should be reckless because of that?

    So we should be socialists because of that?

    The Paulson Proponents spent the week ignoring rational discussion of rational alternatives, and now want to blackmail conservatives into just going along.

    New Deal and Great Society all over again.

    If nobody in government could see fit to propose or even discuss less invasive and costly solutions, then why even care about elections? political parties? conservative principles?

    I am relieved that the House Republicans are actually standing up for a more sensible policy.

  • dbecraft

    No, the world will not end! Yes, this is another Y2K scare!

    When will you silly people get a grip and realize that the only thing that will correct this problem is for those that made bad loans to fail. Let it happen!

    When it does, we will have a short depression, no credit, etc., then things will continue as before.

    I am really tired of the Fed and some of those here that think that the world will end if they do not come up with another bailout! Get a grip!

  • dld1717

    People are suffering and nervous we need something to be done and fast

    I have no idea what to do but our party can’t be viewed as party doing nothing and it seems our party does not even have 1 unified voice on this

  • SeanH90050

    A student asked me this earlier, and I think the limits of my knowledge of this market (I’ve never tried to get a mortgage), and its problems kept me from answering. I know I am missing something obvious, but I just can’t rationally grasp it…

    Lets say I am in good standing with my mortgage, but if the government is buying foreclosed homes cheap, and selling them at 30-40% of their value, would it not be in my interest to then default my own mortgage, and try to buy it back at auction for the low price? That way I would save a bundle on my payments, and not be paying for a house that is declining in value anyway, assuming the others around me are also having problems.

    I figured the problem would be finding someone to lend to you after foreclosure, but if the problem is this CDA regulation that requires lending agencies to lend in spite of poor credit, something I haven’t heard as being discussed to change right now as part of the bailout, then isn’t this a moot point?

    What would stop us from doing that? Aside from the LT effects on the market, and what it would mean to future development, since I couldn’t see anyone building anything because of this – how would they ever cover their costs – I can’t see what would stop this from happening, so I appeal to your help.

    Please hit me with the obvious…

  • JSobieski

    is the likelihood of socialism after a collapse.

    Think about Katrina, and imagine the same 24/7 media drivel in the midst of a depression.

    This crisis was created through regulation, and there are solutions that can be applied that are primarily regulatory in nature.

  • dbecraft

    those that should have never bought a home in the first place. Now, while I can feel for them, they can always rent.

    Why the carrying on for those that made bad decisions?

  • JSobieski

    you won’t get another one for 7 years. As screwed as things are, a bankrupcty will stop you from getting a new mortgage unless you can successfully lie about it.

    Mortgage-based securities are not sold individually–they are sold in bundles, so you would have to purchase a bundle of mortgages in order to buy out your mortgage

  • dbecraft

    NUTS! We are heading into Socialism unless something happens to change the course of our over-spending idiot Congress.

    So, yes, I agree with your sentiment, and it may take another Tea Party to correct the problem. Another bailout is not in any way corrective though.

  • markreiboldt

    This is quite a claim you’re making. I’m not a fan of the doom and gloom school, but honestly how do you know the fallout will be a “short depression, no credit, etc”? Do you have some compelling data or heck even a chart?

    You can claim it’s hyperbole, but in saying that, you’re speculating just as much as those saying the end of the world is coming if we don’t do this.

    Also, you’re totally wrong. Allowing the markets to fail threatens systemic risk that is beyond your understanding. It’s not just about a depression (that’s the least of our worries right now) or lack of credit (we’re already there). Do you know the true impact of what you’re saying? No, so you, friend, are the only one blaring the hyperbolic garbage.

  • SeanH90050

    I knew I was missing something simple.

  • dbecraft

    NOT be defaulting. If you are among the few that do, you entered into a contract that was over your head!

    That is the major problem – the mortgage institutions decided to make it way too easy to get a home mortgage.

  • JSobieski

    I support the Forbes plan. That a Bush White House would just jump in 100% for the most statist solution possible is quite disappointing.

  • dbecraft

    The fact that you were not qualified to be buying a home of said value! If you were such an idiot to enter into such an agreement, then you should default.

  • dbecraft

    that this bailout will save the Republic!

  • mbecker908

    Post foreclosure, with rebuilt credit, you can qualify for a full doc loan in three years.

    Post Ch7 BK, it’s two years from discharge. Post Ch13 BK with perfect payment history from the Court, two years from filing, which typically means 1 day after discharge.

  • dbecraft

    not so sure that you do!

    Yes, harsh, but I am getting really tired of these Socialists that seem to think that government bailouts are the road to success.

    Please…

    If you had any understanding of our “supposed” government, you would understand that bailouts would (should) be against the Constitution. (Where are all those lawsuits when we need them).

    Let us either make it under our Constitution and capitalism or let us fail!

    I’d rather us fail and start over than creep into Socialism or Communism.

  • JSobieski

    Hmmm. Makes Chapter 13 sound promising, and if I apply mark-to-market accounting rules, I am clearly insolvent at the moment.

    Maybe I could take the opportunity to upgrade homes?

  • SeanH90050

    the question. As I pictured it, you have 2 houses next to one another that are identical. The house next to you defaulted, and is now being sold for, lets say, 33% of its value as part of this bailout.

    Why wouldn’t you want to do the same thing with yours if you could get it at that price? Your property value is dropping anyway.

    I knew these securities were sold in tranches, but I did not know the government, or whoever under this plan, would sell them off in groups as well.

    That’s why i punted on my student earlier, and asked here now.

  • JSobieski

    Most of the bad paper contains good loans.

    91% of all mortgages are exactly where they are supposed to be. Back in October 2007, that number was 99%.

    All mortgages—good and bad, are valued at pennies on the dollar because there is currently no demand to by them. Thus, according to the mark-to-market accounting rule, the values are substantially distressed.

    I fully believe that the government would ultimately make money from the Paulson plan, but I still opposed it in favor of other alternatives.

  • dbecraft

    You and they do NOT know what that papers value is! That is one of the major problems! If they knew, they would have buyers at the market value…heh, oh yeah, come on buyers, take me on…geez…

    You silly people and most of the government does not have a clue about the value of these mortgages, so how do you?

    This may be worthless paper or worth a large portion of the price… That is why the government is taking over – risk is only allowed for the lowly tax payers.

  • markreiboldt
    1. Injecting liquidity can allow capital to move freely throughout the markets, thus stabilizing the threat of systemic failures.
    2. Increasing reserves can restore firms’ ability to disperse credit, thus increasing ratings and in turn injecting more capital and liquidity into the market (it’s a cycle)
    3. The injection of capital can restore investor confidence as value is created from credit purchases at discount valuations (even if you don’t think the mark-to-market method is the best, which I don’t, these securities being bought are comparitively cheap any way you look at it)
    4. Securing billions of dollars in debt means other firms at risk will not be subject to failure from the systemic events that have ocurred over the past two weeks
    5. Most importantly, injecting stabilization into the markets secures my/your facilities in that shareholders and consumers experience widescale protection, so that the value of assets doesn’t disappear when the Asian markets open on Sunday night (here in the US)

    These are things I do know, because I don’t speculate. Do you really want to see the value of your own personal assets (e.g., retirement, etc) be greatly diminished overnight? Like I said, I don’t subscribe to the gloom and doom model and I have confidence in the markets, but we all created this mess, and we shouldn’t underestimate the threat of systemic failure that is likely to ocurr and more importantly what that means to you individually.

  • dbecraft

    Won’t happen in a normal market. Of course if your looking for a government bailout, you would be looking for the same
    opportunity (call it greed). You can WANT all you want…

    Now if the government never did offer such bailouts, that would not be a problem – would it?

    Sometimes I wonder why anyone would by a house anyway…

  • JSobieski

    We do know that 91% of the mortgages are on time.

    That is a fact. Its a fact that could change, but it is a fact.

    If the value of the mortgage-based securities was a simple reflection of mortgage defaults, you would expect in the aggregate for the delinquency/defaults to result in somewhere between 5-8% decrease in value.

    Instead, because of the reverse bubble effect from the mark-to-market accounting rules, we have a snowball of distress sales in which both good and bad paper are selling for peanuts.

    Nobody in the administration has offered half the explanation that I just provided above.

    You owe me an apology.

    I am against the Paulson plan.

    So no, I don’t sound like someone from the administration.

  • dbecraft

    have ascertained the value of these mortgages since even the FED doesn’t know… but hey, I applaud your expertise.

    Now maybe you can tell us just how much it will cost in actual money since you know the value of these assets.

    Awaiting your answer with much enthusiasm…

  • Mike_Dugas

    Why the rush to open our federal wallets and reward bad businesses,businessmen and business practices without doing anything first that might let the market itself deal with it?
    Why not suspend capital gains taxes for 3 to 5 years? That would allow for a huge
    inflow of capital that people have been
    “stashing away” to prevent from getting
    robbed by that punitive tax.
    Significantly lower what are the highest corporate taxes in the world, already known to create jobs and increase the tax coffers.
    And where are the flat-taxers and fair taxers when we need them? This would be a great time to push for a bold move on tax reform.
    And should I even mention the repeal of the aptly named “Death Tax”?
    All or some of these tax policy reforms would create a huge influx of capital and would allow for a lot of this debt to be bought up and spread out just like it’s supposed to work. The real problem is everything they are doing or are planning to do rewards those who caused this misery and punishes
    those who are legitimately successful.

  • mbecker908

    While the eligibility rules are based on “filing date” as opposed to “discharge date”, it’s worth noting that the reason it’s structured that way is because most Ch13s are in-process for five years so the borrower has a documented payment history that effectively counts as “rebuilt credit”.

  • JSobieski

    We do know that 91% of the mortgages are on time.

    That is a fact. Its a fact that could change, but it is a fact.

    If the value of the mortgage-based securities was a simple reflection of mortgage defaults, you would expect in the aggregate for the delinquency/defaults to result in somewhere between 5-8% decrease in value.

    Instead, because of the reverse bubble effect from the mark-to-market accounting rules, we have a snowball of distress sales in which both good and bad paper are selling for peanuts.

    Nobody in the administration has offered half the explanation that I just provided above.

    You owe me an apology.

    I am against the Paulson plan.

    So no, I don’t sound like someone from the administration.

  • Mike_Dugas

    Why the rush to open our federal wallets and reward bad businesses,businessmen and business practices without doing anything first that might let the market itself deal with it?
    Why not suspend capital gains taxes for 3 to 5 years? That would allow for a huge
    inflow of capital that people have been
    “stashing away” to prevent from getting
    robbed by that punitive tax.
    Significantly lower what are the highest corporate taxes in the world, already known to create jobs and increase the tax coffers.
    And where are the flat-taxers and fair taxers when we need them? This would be a great time to push for a bold move on tax reform.
    And should I even mention the repeal of the aptly named “Death Tax”?
    All or some of these tax policy reforms would create a huge influx of capital and would allow for a lot of this debt to be bought up and spread out just like it’s supposed to work. The real problem is everything they are doing or are planning to do rewards those who caused this misery and punishes
    those who are legitimately successful.

  • dbecraft

    will provide is another chance for the market to make a buck!

    Of course it will be short term, but that is all they need to turn a profit.

  • JSobieski

    The facts are that 91% of mortgages are just fine.

    The dip in mortgage-based securities far exceed a 9% delinquency.

    This is all in the aggregate.

    Any given security can be garbage, but the idea that only the bad mortgages are resulting in bad paper is incorrect.

  • JSobieski

    nt

  • dbecraft

    of mortgages are paid on time… I guarantee that most of those that are available in this batch of worthless papers are a much less percentage… You disagree?

  • JSobieski

    The entire market for the paper is shot to hell. In part because nobody trusts anyone else’s paper and in part because the mark-to-market rule is causing a death spiral in valuation for all securities, further triggering additional fire sales due to regulations pertaining to debt/equity ratios.

    At this point, the paper is priced as crap, whether or not it actually is crap.

    Merril Lynch wasn’t a peddler of crap, and they sold their stuff at 22 cents on the dollar.

    Do you think 78% of their mortages were in default?

  • markreiboldt

    has nothing to do with the constitution, at least not in the sense that you are using it. There’s nothing against what the constitution says in a financial system bailout. The markets weren’t even around when the constitution was around. That’s the most ridiculous comment ever. Further, there’s nothing socialist about a central bank intervening as a lender of last resort, which is one of its mandates. It intervenes only as a last resort and that is where we are at. I’m sorry, but you’re wrong and you don’t understand the issue.

  • JSobieski

    is by definition socialism.

    So talk of government acquiring stock, etc. is a move towards socialism.

    Don’t sugar coat what is happening.

  • dbecraft

    then his plan will be good for you (short term, but good). Have at it…make a profit while you may, but don’t pretend that it will be good for the rest of us.

  • dbecraft

    I would then suggest that you buy up all you can of these disposable papers and make a grand profit! Wonder why nobody else is interested…hmmm.

    Oh well, we have a buyer!

  • JSobieski

    characterizing my position as if I do.

    Very annoying.

  • dbecraft

    It’s just the only plan on the table…

  • dbecraft

    some of the judges on Fox News questioning these actions…(I know, but that is about the only news I listen to). Hey, a judge is a judge…

  • JSobieski

    and you keep beating me on the head with the Paulson plan.

    There are other proposals out there. Just not being offered by people in government.

    http://www.forbes.com/forbes/2008/1006/017.html

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

    http://article.nationalreview.com/?q=YmMxNTg0Mjk3MmM3YmExNTI3MzY0NDVjYWMxMDE2ODI=

    http://online.wsj.com/article_email/SB122178603685354943-lMyQjAxMDI4MjIxMjcyODI2Wj.html

    http://www.redstate.com/diaries/jsobieski/2008/sep/25/a-modest-proposal-that-could-save-the-us-go/

  • dbecraft

    not a plan (and not likely to be).

    My plan is to let things alone and let the market decide – ie. do nothing.

    It might cause heartache in the short run, but will be the best long term. I don’t expect many to agree, but that is my plan.

  • JSobieski

    Policy makers tend to champion ideas written about by others. I suspect that there will be some good things that result, and maybe some additional discussions of additional alternatives.

    Buying into the choice of bad solution vs. no action dichotomy is a recipe for a bad outcome.

  • JSobieski

    You gloss over the numerical facts I use to support my general contention that in the aggregate, the bad paper is actually undervalued.

    Merrill Lynch sold out for 22 cents on the dollar.

    Only 9% of mortgages are delinquent.

    Can you do the math?

  • markreiboldt

    on an aggregate level, then we all do well. If the markets fail, then every single one of our pocketbooks will be impacted negatively. There’s nothing wrong with letting the market drive efficiency (indeed, it should be that way), but the market was never designed to be 100% full proof. It can fail and cause widescale problems. Don’t fool yourself into thinking the market is perfectly efficient. The efficient market hypothesis is a nice theory, but often not a reality. As such, the market will need assistance from time to time, only in extreme situations. This is one of those.

  • markreiboldt

    is not purchasing the means of production. The government is injecting liquidity into the open capital markets. The government is not expropriating or socializing anything. The definition of socialism you’re using assumes the gov’t is taking control of the markets, but it isn’t. The gov’t is doing what it does all the time. Do you realize the Fed has injected more capital into the markets within the last couple of months than it does in some entire years? Also, do you realize the primary mandate of the central bank (e.g., the Fed) after managing inflation is to serve as a lender of last resort when the markets are experiencing systemic failure? Well, I can tell you systemic failure is here, and unless assistance comes, the markets will not be able to handle it. So, it isn’t socialism; indeed, it’s not even close.