I wrote to my congresswoman and senators reminding them that, following 9/11, the White House stampeded them into a huge, expensive disaster. I suggesetd they take a more thoughtful, analytical approach to this and make sure they have clear answers to the following:

What other plans should we be considering? Why is this the main plan on the table? What makes us think this will work?

For a year we’ve been told the banks don’t know how many bad loans they have on the books so how much confidence should we have in that $700 billion figure?

Only months ago Bernanke and Paulson were telling us this problem was limited and self-contained. They were either wrong or lying so why should we believe them now?

How will we pay for this? If the government is taking on this huge new financial burden, why aren’t we raising taxes to fund it? Since excessive, reckless borrowing got us into this mess why do we think excessive reckless borrowing will get us out?

The most dizzying aspect of this debate is the impact of globalism on the domestic crisis. We are told that in order to save the American banking system taxpayers must bail out foreign banks. What next? Taxpayer subsidies to Toyota to buoy the American manufacturing sector?

I would like to see what happens if nothing is done by our government. I don’t trust that the opinions of the experts are divorced from their investments. A credit freeze? A recession? Are we expected to believe this will affect the majority of citizens, who are not invested, just as much as the richest tier? That not being able to finance that new ‘fridge or car will affect the buyer as much as the banker? Or that new credit systems wont soon rise to replace these if they fail? “Trickle down” has proven not to work for wealth, I can’t see that the pain would trickle down very far.

I would like to know if congress is going to let the bush admin to push through yet another bill before they know the whole story or the true cost. I understood the fanny and fredie bail outs but there is no need to bail out the others! and why is bush sending 80 billion to banks over seas when i dont recall them sending any captial to help us.
and what do we (the tax payers) gets from this?

That not being able to finance that new ‘fridge or car will affect the buyer as much as the banker?

Not being able to finance the fridge or car will affect the workers who make, ship, design, and sell the fridge or car, not to mention the workers who supply the steel, glass, plastic, and other materials that go into it.

The bankers themselves will come out of this fine – the well-to do have enough resources to fall back on and are typically not in personal debt up to their ears like ordinary Americans are.

But none of that means we have to buy into the current plan. There may be alternative plans. Or maybe we just bite the bullet, let the financial institutions fail, endure a recession, and use a few hundred billion to provide better unumployment conpensation or health care to the millions of laid-off workers. That still might be cheaper than the current $700 billion plan, and avoids the problem of bailing out rich fat cats.

“Federal Reserve chief Ben Bernanke warned Wednesday that the current Wall Street crisis could drag the U.S. economy into a deeper downturn and urged Congress to take action on a proposed bailout package.”

I’m not convinced that either Bernanke’s or Paulson’s predictions are correct. History seems to be telling us that neither one of these guys has called the shots correctly to date. I for one would like them to connect the dots for us, the regular tax-paying citizens, on how:

a) if this bailout is denied, what problems ensue

b) if this bailout is granted, what benefits we, USA, realize

And I would like concrete specifics – no speculation!

Nate said “I would like to see what happens if nothing is done by our government. I don’t trust that the opinions of the experts” I agree with you on this 110%

Mostly because as peter said “Only months ago Bernanke and Paulson were telling us this problem was limited and self-contained. They were either wrong or lying so why should we believe them now?”

Fredie and fanie had goverment backing all these others did not so i say let them fail.
They made mega bucks when times were good and were over leveraging (sp) themself knowingly, they took the risks its not the taxpayers place to bail them out, sence we get nothing out of it except maybe a more stable economy.
also as I stated prior why are we sending 80 billion of tax payers money to banks over seas, If our economy affects the global economy why are the other countries trying to help us.

Along the lines of what Peter stated, I think there are plenty of other alternatives. I don’t see any reason to privilege the expectations of supposedly savvy investors any more than the expectations of homeowners. But I can think of many reasons to do the converse.

Peter Nelson’s comments echo my own — I also wrote my senators and congresswoman yesterday.

Members of the Bush Administration have said for over a year that the problems were contained. Then these free-market deregulators interferred in the collapse of Bear Stearns, nationalized Freddie Mac and Fannie Mae and bailed out A.I.G.

How can they expect us that this $700 Billion bill will actually fix the problem that they have failed to fix so many times before?

And how do we know that this is the final expensive step? After all, the Bush Administration has been paying for the Iraq war by going to Congress again and again for special spending.

Tom,

Newt makes no sense. What would reducing the capital gains tax and getting rid of sarbanes-oxley do when the problem is that the underlying assets of these big financial banks and mortgage-back securities are bad debts?

This bailout is a free insurance policy for the fat cats on Wall Street with no premiums. We have a far greater need for heath coverage for all Americans, and some mortgage relief.

I hope that Barney Frank is asked about new streams of income, such as legalization and taxation of internet gaming, Studies have shown that upwards of 100 billion a year could be brought to federal coffers.

Thanks for the program.

Couldn’t there be a law passed forcing mortgage carriers to refinance these sub prime loans at say 7%? If the homeowner can’t afford their payments at that rate then they lose their house. If they can the money will trickle up.

Why when this crisis became obvious didn’t congress immediately pass regulation expressly to regulate default credit swaps, reversing the 2000 bill?

I agree with the gentleman currently speaking about breaking up these huge too big to fail companies.

A bailout might be needed right away, but the people calling for it squandered any sense of authority they may have had by letting this crisis happen in the first place. It also reminds me of how scams operate: spend now (this deal lasts only for a limited time!), think later.

Tom,
I think Warren Buffet set a good example for the government this AM. He provided $5 billion in liquidity to Goldman Sachs in return for 9% ownership. The government should do the same for other troubled financial institutions. This would be far simpler than any other proposal and the taxpayers would be getting something real for their money. Also, Sweden used this approach 15 years ago when they had a similar financial crisis. After the market stabilized, the Swedish government sold off the bank stock, recovering nearly all the taaxpayers money.

Your lines are busy. Regarding the bailout. JUST SAY NO to taxpayer money for the banks. This whole thing smells bad. The conditions to the bailout the democrats are adding are simply lipstick on a pig. Bring the lipstick up separately. Give the pig back to the Treasury.

Posted by Michele Hobart, on September 24th, 2008 at 11:35 am EDT

I would like to know why none of the participants in the discussion today or anyone in recent days has explicitly stated the amount of mortgage-backed securities involved.

Bartlett is either misinformed or a hypocrite. FASB is a private organization. If you don’t like the rules then don’t follow them. Of course no one with any sense would then trust your balance sheet. If anything the FASB standards are worthless.

Government regulation is as critical to the economy as market freedoms are.

By the way the Richest 400 get 670B and the bailout is 700B. Funny how that works out.

I would like to know why none of the participants in the discussion today or anyone in recent days has explicitly stated the amount of mortgage-backed securities involved.

Because they don’t know. And that, by itself, is a good enough reason to not move forward with these scheme. We have no idea whether $700B is enough, too much, or inadequate.

Withdraw the government support and the bargain hunters, like Buffett will inject capital.

To Peter Nelson.

I beg to differ. Registered securities have cusip numbers and are categorized. They can surely run a list of issues.

I am one US citizen that has had enough of hearing our snators and representatives postulate and posture about this economic problem. It is time for them to call for capital punishment for those responsible. Beginning with Paulson and Cox, a few of these sleaze-balls should be executed. That would send the proper message to those thinking of pulling the same crap. Next, we should turn our sights on the corrupt insurance industry – at the heart of the medical care fiasco.

I think the situation should be taken care of NOW, regardless of how long it takes. If they have to extend, and not have the time to prepare for elections, we should re-elect based on how well, we, the taxpayers are taken care of, not on how much they will spend dollar-wise and time-wise on re-election campaigns. The people count – let’s stand up and be counted!!

Great to hear from Bernie Sanders.
On Point missed the point of, I believe, Jennifer from Rutland VT, the ideolgy of free markets requires the heavy balance of true democracy.

Free Markets don’t consider the quality of our air, water, education, the beauty of our coast or land and the health of our kids. This would not be a problem if our government did not recognize corporations as people, and if citizens had more power. I am not convinced by free market theory, but I would give it chance with democracy reforms such as election reform, national ballot initiative, and an end of corporate personhood.

I thought John was going to make my point when he brought up that Warren Buffet provided $5 billion in liquidity to Goldman Sachs in return. Are there other companies, persons or others that wil be interested in buying an interest in the companies that have these troubled assests? Should congress wait to see if there are? I do agree with John that the government should get an interest in any company they provide funds to.

I beg to differ. Registered securities have cusip numbers and are categorized. They can surely run a list of issues.

If it was that simple it would have been done a long time ago.

I agree that it’s not obvious WHY it’s so difficult to get a handle on this. There are a finite number of mortgages in the US and the status of each and every one of them should be easy enough to determine. Those mortgages were sold into the secondary market and packaged and sliced up in different ways, so that part of the problem is a little harder, but nothing that smart team of software engineers with database knowledge shouldn’t be able to solve in a matter of days or weeks.

The hardest part is the dependencies – these securities were used to leverage totally different securities or used as collateral for other deals. But I still don’t understand why, after a whole year, they don’t have every single one of those dots connected.

But the bottom line is that they don’t.

I do agree with John that the government should get an interest in any company they provide funds to.

Sure, let’s just nationlize everything – it worked great in East Germany.

This is why I was saying last night that I’m leaning more and more toward skipping the banks and dealing directly with the houses. We could force the banks to hand over foreclosed houses at firesale prices and basically destroy them to take it off the market. That would reduce the unsold-house glut and thus reduce downward pressure on house prices. We could also offer attractive refinancing to people whose houses are “underwater” (mortgage>equity). I’ll bet both of the above would still cost less than $700B.

I’m a mortgage lender so I am intimately familiar with the crisis at hand. Blame can be assigned to everyone. Let’s forget about that and deal with solving the problem.

I don’t support the blank check for Paulson. It would socialize the economy and hand unprecedented power to one man who has not been infallible.

Here’s the deal. Back in the time of Enron, companies “cooked the books” with creative accounting techniques and overvalued assets. The Feds created the “mark to market” accounting rule. This essentially states that the value of company assets must be continually adjusted, or marked, to the current market. That’s fair in general.

Here’s where that regulation fails. The sub-prime market panic caused an irrational reaction. Investors were afraid and completely closed their wallets. They wanted no part of certain types of investments. This included mortgages that were performing. For example, my company took a tremendous hit about a year ago. We attempted to sell a bundle of home equity loans on the secondary market about a year. It was a high quality portfolio of loans that were performing, that is to say that people were making their monthly payments on the loans they took from us on time as agreed. No one bid on the portfolio at any price. Suddenly there was no market. We were forced by federal regulations to write off these loans entirely. This does not make sense in light of the fact that income was being realized from the payments on these loans. Yes, the collateral, the underlying home values, was depressed; nonetheless, there was still some value in the homes. Did risk increase and lower the value? Yes. Were the mortgages truly worthless? I don’t think so. Some value remained. However, the “mark to market” accounting rule forced us to write off the value entirely. Fortunately, we were well capitalized and could absorb that write down. Others have not been so fortunate. On paper they had to declare insolvency – liabilities were greater than their assets. Bankruptcy was the only alternative. This was due to a paper loss!

Solution: relax the “mark to market” accounting rule in the short run during this time of irrationality. Yes, there will be challenges in valuing these assets with no buyers for them in the market at the moment. But it can be done. It’s simple. No worry about a massive increase in federal debt or liability for tax payers. Businesses will remain accountable and reap the rewards or realize the losses for their management decisions. We will allow capitalism to operate without socializing the economy. I believe this was proposed by a former secretary of the treasury. I may be missing something, but I’d like to hear further discussion about this potential solution.

-Mark

I am a Vermonter–and love Bernie–though, Bernie, you once cut in front of me at Bruggers while I was struggling with my infant in my arms! But I have to agree with many of the points that Mr. Barlett was saying today–Bernie is right on most points as far as where do we go from here, but we have to get away from hyperbole and ideology for the moment and make sure that we don’t head into a protracted economic meltdown.

I have been stuck in bed from surgery and have been investigating this crisis more carefully than usual. A large part of this meltdown has to do with how Fannie and Freddie cornered certain parts of the mortgage markets and how they are organized as GSEs (Gov. sponsored enterprises). Wall Street (yes in their greed) came to rely on the implicit idea that the government would bail out these entities if they ran into liquidity problems. So they became very risky in their investments and they made sure that Fannie and Freddie were backing up a lot of the MBS investment instruments (mortgage backed securities). This implicit government backing played an important role in how it allowed these firms to create this whole house of cards. Both Democrats and Republicans share responsibility for allowing Fannie and Freddie to skew the mortgage markets.

What we need to realize is that markets are never really “free”. There are always some set of both explicit and implicit rules, policies, and pressures that define how any market works. In the case of these MSBs there was almost no explicit regulation ever, especially as new products kept popping up in the market place over the last few years. But the government had an oversite role to play with both Fannie and Freddie as well as a role with the purely private investment firms. And the government is just as culpable here for being asleep at the job, as Wall Street is for its greed.

There is public and private criminal behavior here. The best thing that could happen is that the FBI (if they are honest) will look at everyone–including all of Congress and the Executive Branch. Even though I think it is fair to say that the Republicans bear more responsibility here because of their sucesses at creating a culture of deregulation and no regulation, I can guarantee that Democrats are going to get hit on this too (if we can assume any fairness in our judicial system).

Beside a thorough criminal investigation and guarantees on how tax payer monies will be managed and distributed in this crisis, we can’t just ignore the fact that the Treasury and the Fed might be right about the need to infuse money now. We have to get away from hyperbole and think about good immediate financial management strategy. We need to do a better job of thinking through the consequences of our policies–we can’t just fall back on ideology to inform policy.

And with the way primarily conservative philosophy and policies (but also Democratic policy) have placed so many of our economic eggs in the basket of the financial sector–while allowing other parts of the economy to dwindle–we can’t just now say screw the financial sector without secrewing ourselves. It is not just the people who made this into a scam or invested in risky sectors that are suffering financially (or hopefully will suffer). There are a lot of people who are going to suffer who had nothing to do with this scam. And there will be ripple effects throughout the economy. If investment money goes away, there will be little investment in any companies, new or old, small, medium, or large.

As with the issue of morality (yesterday’s show), we need to get away from the political fingerpointing (but not the criminal) as well as the ideology and hyperbole (both left and right) and start to talk about good management strategies. I know this is easier said than done but bipartisainship is possible. This problem was not created by too little or too much regulation–it is much more complex that such a simple paradigm. It is really more a problem of outdated regulations and policies, greed, Congressional squabbling, and criminal behavior. And if government continues to do its job so poorly, we are going to have similar crisis down the road. We are well on our way to a second-tier nation status. We are going to be the new old-China.

I’m a mortgage lender so I am intimately familiar with the crisis at hand. Blame can be assigned to everyone.

Spoken like a true mortgage lender!

The fact is that blame cannot be assigned to everyone! There are millions of Americans who made responsible, fiscally-conservative choices. When my wife and I bought our current house we made a down payment of about half the purchase price; we have refinanced several times since and at each closing we put money IN, instead of cashing out like some people. Our house is almost paid off. We are diligent savers and conservative investors, and there are millions of others like us!

It really galls me when people in your industry say that “everyone” is to blame. When we bought our first house, a long time ago, putting less than 20% down was rare and required hefty PMI. Less than 10% down was almost unheard of. “0-down”, “interest only” ARMs with big balloon payments, and all the other “innovations” your industry has been promoting would have been regarded as insane.

Your industry has a LOT to answer for in this mess!

am one US citizen that has had enough of hearing our snators and representatives postulate and posture about this economic problem. It is time for them to call for capital punishment for those responsible. Beginning with Paulson and Cox, a few of these sleaze-balls should be executed. That would send the proper message to those thinking of pulling the same crap. Next, we should turn our sights on the corrupt insurance industry – at the heart of the medical care fiasco.
Posted by Dave

Dave I can see your not happy, but using capital punishment is, well it’s bit over the top.

How about we tar and feather a few like they did in the old days, and maybe bring back stocks while we are at it and place them in the mall so people can through rotten food at them.

How about we tar and feather a few like they did in the old days, and maybe bring back stocks while we are at it and place them in the mall so people can through rotten food at them.

I like that idea – and afterwards people from the mortgage industry would have to wear a “scarlet M”.

In case my point wasn’t clear in my prior posting when I said, “We are diligent savers and conservative investors, and there are millions of others like us!” what I meant was that it’s grossly unfair that I have to see my savings eroded by inflation, I have to worry about my employment put at risk, I have to watch my investments go down and I have to see my house price go down, and my taxes have to go to pay for this mess created in significant part by the mortgage industry.

A question to Mark Erickson: How can investors begin to assess risk at this point in the secondary mortgage market? Getting rid of the mark to market rule might be a good short term move but is it really enough?

Hi Peter, OK – vent at me, later. Now, I’d like to hear thought on solutions like the one I proposed or any others. Do you or anyone else have any thoughts on the matter? I think the blaming can be left to commissions to sort out criminal activities after the fact and it can be left to the voters to install elected officials who will do the right thing down the road. Right now we need to focus on a solution. Again, any thoughts regarding solutions to the matter at hand?

-Mark

Another question to Mark Erickson:
I’m assuming the mark to market rule means you have to sell them at what they’re currently worth, and since house values were down, the value was down.

I don’t understand why you would need to sell the mortgages if they were high quality performing loans. Couldn’t you just hold them and continue to collect payments? Why would you have to write them off? Perhaps I’m misunderstanding write offs, but it you wrote them off, what does that mean? Do you foreclose on people that are paying their mortgage or are you still holding the mortgages and receiving the payments off the books?

Mark wrote:

“We were forced by federal regulations to write off these loans entirely. This does not make sense in light of the fact that income was being realized from the payments on these loans”

This is really interesting to me as an investment professional because it relates to a theory I have about how we’ll now when the financials have bottomed and I’d like to hear what you think.

So you’ve completely written off a bundle of performing home equity loans, not because they weren’t performing, but because there’s no market for them. What happens when there becomes a market for them? Wouldn’t you at least partially reverse the writedown?

So here’s my theory: once we see banks reversing some of the reserve they’ve taken for bad loans, we’ll know that the worst is behind us.

Thoughts?

“I’m assuming the mark to market rule means you have to sell them at what they’re currently worth, and since house values were down, the value was down.”

Actually Barbara, that not correct. When there is no market for an asset, the mark-to-market rule, FAS 157, dictates that you have to write the asset down to zero on your balance sheet even if the underlying property, in this case houses and land, still has value.

I think the difficulty Mark is having is partly because these are home equity loans, so a buyer would have a daunting job of due diligence to make sure that the underlying property still had enough value to cover all the debt outstanding on it. . Obviously in this environment there are a lot of people willing to do this.

Being myself from the former USSR I may lack basic understanding of how free market works in this country. I have always thought that when widgets are overpriced the demand for them falls until the prices drop sufficiently to generate demand. The houses are quite obviously overpriced. Demand is low in the absence of the financial crutch, which had fueled the demand. Therefore, the prices need to drop to generate the demand again.

However, the society is intent on putting the floor to the prices and “save” the housing market (whatever that means). This means that my reasoning above is probably flawed. Can you guys point to that flaw?

Being myself from the former USSR I may lack basic understanding of how free market works in this country. I have always thought that when widgets are overpriced the demand for them falls until the prices drop sufficiently to generate demand. The houses are quite obviously overpriced. Demand is low in the absence of the financial crutch, which had fueled the demand. Therefore, the prices need to drop to generate the demand again.

However, the society is intent on putting the floor to the prices and “save” the housing market (whatever that means). This means that my reasoning above is probably flawed. Can you guys point to that flaw?

No, your reasoning is spot-on.

After listening to today’s testimony the basic flaw in the bailout plan became clear and it’s exactly as you said, so I wrote to my elected officials and urged them to vote AGAINST the plan.

In today’s testimony it became clear that a major goal is to create a “recovery” in the housing market. The problem is that even after all the price drops the housing market is STILL inflated. Most economists feel that house prices need to fall another 10-20% to be in line with where they should be historically and WRT family budgets and consumer spending. But the Paulson plan hopes to RE-inflate the housing market or at least stabilize it. That’s insane.

I believe one of the best ways the highly paid CEO’s and others making over a million a year could show their concern and patriotic spirt would be to accept their compensation in finacially distressed CDO’s. By not receiving hard cash for a year they would show the world that they really cared for this country and it’s citizens and not just about making obscence incomes. To be fair the treasury could match their contribution so the little people could share equally in the pain. Note: equally not pay the whole amount as currently proposed by multi millionares Bush/Paulson. If the ultra rich wanted to show their concern they could join in and show the world that Americans work together in a time of crisis. Warren Buffet, led the way by investing 5 billion in Goldman, where is Bill Gates and all the other ultra rich? I expect everyone to come out of this making a profit, only some on the poor loans will lose money, most of us need our homes and will work hard to keep them, we know hom many homes we own/pay for ONE (1). 700 BILLION with no strings and no recourse if they screw it up AGAIN sounds like Dejevue all over again.

The only pockets deep enough…??

…Are the ones with the ones that profited from inflating the bubble in the first place.

The math behind the “bailout” seems very fuzzy, or seems to be covering much more than home mortgage defaults. Assuming a high number of 3.5 million mortgages in trouble, a 700 billion bailout comes to 200,000 per mortgage. Although the ongoing blame seems to revolve around the troubled mortgage, are we actually financially covering much more in the proposed bailout?

Finance the bail out of this irresponsible investing by raising taxes on the wealthy back to where it was before Ronald Reagon and George Bush did away with them.

Given the potentially nuclear fallout of this problem and the instability it brings upon our nation, consider seizing the assets of the those who created this mess while receiving obscene salaries, bonuses and golden parachute severences. Certainly, a “no oversight” solution and financially rewarding these mis-managers is utterly unacceptible.

The foxes has been guarding the hen houses for too long in the US. Greed and over-reaching on the part of the corporations and big investors are flushing this nation’s future down the toilet…that’s the only trickledown I’m hearing coming from their laissez faire brand of economic theory where markets run wild and unregulated.

Finance the bail out of this irresponsible investing by raising taxes on the wealthy back to where it was before Ronald Reagon and George Bush did away with them.

Given the potentially nuclear fallout of this problem and the instability it brings upon our nation, consider seizing the assets of the those who created this mess while receiving obscene salaries, bonuses and golden parachute severences. Certainly, a “no oversight” solution and financially rewarding these mis-managers is utterly unacceptible.

The foxes has been guarding the hen houses for too long in the US. Greed and over-reaching on the part of the corporations and big investors are flushing this nation’s future down the toilet…that’s the only trickledown I’m hearing coming from their laissez faire brand of economic theory where markets run wild and unregulated.

It seems to me that making decisions under panic situations is rarely a good idea. Everybody keeps saying “Wall Street is in a panic!” Well, shouldn’t someone tell Wall Street to calm down and think?

You know, what if we let these financial institutions that are in trouble to fold or be bought up. Instead of giving the money to them the government could funnel these funds into the economy by means of loans to businesses and people. The big concern is that the credit market may come to a complete halt if we don’t bail out bankers. Well, that’s where the $700 billion will come in. The government will play a banker for a while.

With Fanie, Fredie and AIG handled why arn’t the securties soundness restored?

It seems to me that making decisions under panic situations is rarely a good idea. Everybody keeps saying “Wall Street is in a panic!” Well, shouldn’t someone tell Wall Street to calm down and think?

No kidding.

It’s amazing how similar this is to the period leading up to the Iraq war. It was right after 9/11, right after the anthrax attacks, people were in a state of panic, and the White House was painting a scary picture of Iraq with WMD’s and Tony Balir was saying Iraq could deploy WMD’s “in 48 hours” and we have to act NOW!

So Congress allowed itself to be stampeded just like they’re doing NOW. Right into a big expensive disaster.

Way to go.

Has anyone else noticed that the same lobbyists who pushed through the bankruptcy reform law this past winter so that individuals would be held more accountable for their debts, are the same people pushing to get the $700b to Paulson with no review of his actions, and no accountability.

Seems as if accountability is only for the “little people”.

Once again Bush, in his address last night, refused to take any responsibility for the financial mess he helped create. Everyone talks about why this happened and how it happened, but no one has come right our and said it is because major corporations on wall street and any other business can buy and bribe congress to let them do what ever they want instead of doing what is good for the public. WE pay congress to do their job as watchdogs for the public good. They were bribed to look the other way. Until we ban all campaign contributions of any kind this will keep happening again and again.

Mark England
salt lake city
utah
801 359-2259

I was asked by Mark about assessing risk. I’m not smart enough to do that, but I think that there are others who can at least come close in the short term.

Barbara: We can and are holding the loans. We need to maintain a certain amount of capital on our balance sheet in relation to the loans we’ve made per federal regulations. This limits the amount we can lend. We sell loans in order to be able to lend more money. Also, writing off loans means that we show no value for them on our balance sheet. The home owner still pays us. We cannot arbitrarily foreclose on a homeowner.

Michael: I think that you are on target. A temporary reprieve from the “mark to market” rule will allow time for the market to settle and value the assets properly. Yes, investors are scared, there has been a declining trend in home value. Giving time for that trend to flatten and the overall economy to recover will create an environment where investors can open up their wallets with a bit more confidence. There will be losses on some of the existing loans in light of lower housing values and a slower economy… but investors will be able to assess the risk more accurately and value the assets with a higher degree of certainty. There is some value to these assets. It’s not as much as the original investors had hoped, but there is some.

Alex: I agree with Peter that your assessment of the law of supply and demand is accurate. Paulson’s plan to inject money is a step toward socializing the system by creating a floor. Assets do need to be valued accurately and investors will realize losses. That’s part of life in the market place. I’m sure there will be profits to be made in the future.

In my opinion, giving the market time to settle down will avoid an economic catastrophe and allow all of us to thrive in the future.

In my opinion, giving the market time to settle down will avoid an economic catastrophe and allow all of us to thrive in the future.

I have read similar statements from Robert Reich, although he does think a need for the government to give loans to help the banks.

Is the Bush government panicking?

If nothing is done will it lead to a long deep recession or a short one?

Another superlative show Tom. I *really* appreciate you holding their feet to the fire and questioning all these guests on the assumptions and statements they’re making. Many of these assumptions and statements used to be taken as truth, and many are exposed as just dumb now. Keep it up.

Peter Nelson said:

“But none of that means we have to buy into the current plan. There may be alternative plans. Or maybe we just bite the bullet, let the financial institutions fail, endure a recession, and use a few hundred billion to provide better unumployment conpensation or health care to the millions of laid-off workers. That still might be cheaper than the current $700 billion plan, and avoids the problem of bailing out rich fat cats.”

I like your plan better than the 700 billion dollars bailout, imagine what 700 billion can do!

Bush again tried to push a sell, just like selling the Iraq war, It is so absurd that the 700 B. plan is so vague and he tried to push congress to sign it. This is the biggest abuse of so called “freedom and democracy”.

What’s even more absurd is the corrupted bribery here in the States has another name for it —- the lobbyist!

“What’s even more absurd is the corrupted bribery here in the States has another name for it —- the lobbyist!”

This lobbyist thing appears to be in the 1st Amendment. The right to petition. I personally think that the right to petition should be just that: write up your petition, put it in the mail and send to your government. It should have nothing to do with how much money you got to spend or how much influence you got. I think lobbying in its current form should be outlawed. None of those dinners, private jets, trips, congressmen and government officials taking cushy jobs on K Street. But that’s me. The US Supereme Court may be of a different opinion.

Thank you to Mark and Michael for trying to explain to me. I didn’t literally think you COULD foreclose, but because of my meager understanding of accounting principles, I was having trouble figuring how you could receive payments to accounts receivable if the loans were “written off”. I guess a simple journal entry could fix that. I know it’s not your job to educate me, but thank you anyway.

I can see what you mean that the loans have real value and it does not make sense to be forced to write them down to zero.

I know I’m not the only one worried about the massive bailout President Bush is pushing through congress, but think I’ve come up with a perfect alternative. Of course, I’m no important lobbyist. I don’t represent a Washington think tank or anything. I’m just a humble worker bee with an idea.

President Bush’s plan in a nutshell is hand a bucket full of money to the banks. In exchange America would get the titles to a bunch of empty houses that the banks have already foreclosed on, which we wouldn’t be able to sell for who knows how long. 5 or 6 years, maybe longer. My plan has two parts, an emergency assistance program and a long-term solution.

I suggest setting up a hot line for people who are in financial trouble, facing foreclosure. Their mortgage would be instantly frozen. No foreclosure. You would have to get a current appraisal, and if the appraised price is lower than the loan amount the bank would have two choices. They could agree the house is worth the appraised amount and set up a new loan for the lower amount. To sweeten the pot for the banks, the government would give them a 5% or 10% down payment. Or the bank could insist that the house is worth more and foreclose, but if they foreclose the owner would have a certain amount of time, 3-6 months, to find a new house. The foreclosure wouldn’t go against the homeowner’s credit since the banker was the one who refused to accept reality.

If your house appraised for less than the loan but your problem is credit card debt or something like that, you could refinance to the assessed value of your house and get rid of as much high interest debt as possible. The government would still give the bank a 5% or 10% cherry to encourage them to let you stay in your current home.

Of course, there are going to be people who can’t reach an agreement with the bank, or who just can’t afford their house. These people, along with basically any American taxpayer with a job (under a certain income) and a house (under a certain value), would sign up for a government buyout program. It would be similar to the program used after the flood of 93 but with a twist.
Say I live 50 miles from work. I would just have to find a house I can afford 25 miles from work or less. Then the government would pay off my mortgage and help me get a loan for the house I want to buy. This would give the banks money to lend to other people, cut my transportation cost in half, reduce not only our dependence of foreign oil but emissions, too. It would even improve traffic problems for everybody. Plus the government wouldn’t have to sit on the houses it buys. It could sell them immediately. I might get the buyout and end up buying a house from the government, so basically the taxpayers would only be out the 5% or 10% down payment for that house, instead of the entire amount of the original loan.

Special categories could be made for senior citizens and people on disability. They could move wherever they wanted to since they don’t have to worry about driving back and forth to work every day. Military families would get special consideration. Houses the government buys that are close to colleges or trade schools could be set aside for people who are unemployed that want to go back to school. Houses could also be used for emergency housing for people like Hurricane Ike victims. After all, there are always hurricanes, tornadoes, floods, and fires that destroy people’s homes, not to mention just plain homeless people.

There are so many ways this idea helps the economy. It would spread the wealth to real estate agents and moving companies. Home improvement companies and hardware stores would see a jump in business. The idea of just handing over a pile of money wrapped with a bow to those greedy bankers who shouldn’t have approved so many of their loans in the first place and then kicked so many people out on the street really pisses off the average working man, but I think everybody would go for this plan. Even people who already live close to work and don’t qualify for the buyout could sell their house to somebody who does and move wherever they want. Plus the house that’s too far from my job might be right next door to someone else’s job.

As an added bonus, I think if your house appraises at $100,000 but mortgage is only $80,000 you can either use the extra money to increase the down payment for the new house or use it for home improvement or buy a new car, send your kids go college, anything. After all, shouldn’t we be rewarding the people who deserve it?

We would need somebody to cover the money aspect and somebody to handle the actual real estate side. This would give Fannie Mae and Freddy Mac something to do. After all, we own them now; we might as well get our money’s worth. HUD would be able to handle the housing side just fine. After all, it is in charge of housing and urban development, which this proposal is really all about.

I’m willing to admit I might not know what I’m talking about. This might be completely unworkable. All I know is the government already has the basic format for running a buyout. I was flooded in 93 but the flood this year was just something I watched on TV because I got the buyout from the government and moved high on a hill. Why can’t the government do something similar? After all, even if Bush’s bailout goes through, the average taxpayer will still be struggling to make their mortgage payment unless the banks let some of the bailout money trickle down to them. People just can’t afford to go to work with gas prices so high, and you know gas prices aren’t going to go down any time soon. This proposal would basically cut people’s transportation cost in half, with would free up money to spend on home improvement or increased savings or whatever.

Anyway, I think this idea is better than President Bush’s. Right now we need something new and unique, not the same old same old. While giving a butt load of money to giant Wall Street banks might keep the economy gimping along it won’t really help the average taxpayer, but this would directly improve the lives of everybody, giant Wall Street bankers included.

Listen to Scowcroft calling for “thinking carefully before we act” and “working together instead of looking back.” I think we should start by looking back and putting the blame exactly where it belongs – Republican party. Otherwise, how am I supposed to vote if I am not clear who’s been screwing up so badly. Next, I think we need to elect on the basis of who inspires the most amount of good will toward America in the rest of the world. Clearly, out of the two candidates, it is not McCain. I think, at this point in history, this is of much bigger importance than McCain’s experiences as a POW.

Sorry, my comment above about Scowcroft was meant for the different On Point thread

Anyway, I think this idea is better than President Bush’s.

There are lots of possible ideas out there. In reading the financial press, listening to interviews with economists, and perusing blogs, it becomes clear that there a ZILLIONs of ways we might go about this.

Yet somehow the White House has again manipulated Congress into following the White House narrative! Somehow they convinced the Congress that it was THIS idea – or nothing.

It’s incredible. I own cats – and we all know how cats are – very independent, and don’t like to be told what to do. But I’ve learned enough tricks so when I need to get them into their carriers to go to the vet, or put them in their room because someone afraid of cats is coming over, or get them to sit still to be brushed or clipped, they’re putty in my hands. I know the right buttons to push.

Congress is the same way – they posture and talk independence but the White House pushes their buttons and they’re meat puppets!

Sorry, my comment above about Scowcroft was meant for the different On Point thread

That’s OK – it applies to this one, too.

THE WHACK TO THE SIDE OF THE HEAD THAT WASN’T

America has survived and benefitted from previous transformative moments. The bailout may spare the few and the multitudes varying degrees of pain, but maybe the bigger reason for the bailout is we will be avoiding a necessary societal adjustment.

The bailout will dilute our responsibility and ownership of our society.

but maybe the bigger reason for the bailout is we will be avoiding a necessary societal adjustment.

This is very insightful. Leveraging the future to satisfy some short term impulse describes the bankers and homeowners who precipitated this. It also explains the Iraq war and global warming. It’s a fundamental American flaw and this crisis was an opportunity to look in the mirror and examine our cultural values.

But no. The plan is to leverage our future again to avoid the pain of self-examination. WE can’t do it forever. One of these days the future will say “enough!” and we’ll have to face ourselves.

re: suspend mark-to-market

I think we want to be VERY careful before we do this. As an investor, I don’t want to have to guess the actual value of assets on the books. Dishonest companies can already cook the books enough.

We’d only have the word of the owners of the MBS of their worth.

With respect to the mortgage broker, Mark, I can see why regulations require them to mark to market. What if they can’t sell these securities and they have an urgent need for cash? I want to know the solvency of the company as it stands for the quarter. After all, you can still go out of business (taking any stock I own too!) if that need for cash emerges.

On the other hand, I do have to agree that the system isn’t perfect.

Let’s fund this bailout by raising taxes on the rich. Let’s start by slightly increasing the taxes on people earning more than $100,000/year and up to a large increase on the super-rich.

The irony; radio broadcast sponsored by Liberty Mutual! Ha!

Let’s fund this bailout by raising taxes on the rich. Let’s start by slightly increasing the taxes on people earning more than $100,000/year and up to a large increase on the super-rich.

I agree. And I also agree with you about the shape of it. Start around $100K AGI with a small increase and have larger percentage increases as you go up. N.B. that I’m essentially imposing a tax increase on myself here.

It just shows what a couple of gutless-wonder politicians Obama and McCain are that they are discussing a $700B increase in federal spending without raising taxes to pay for it.

BTW, the headlines hit home at my house – WAMU services my mortgage and they’ve just gone belly up. JP Morgan is buying their thrift assets but as of this writing I have no clue who (if anyone) will be running their mortgage service operations! WAMU has my escrow account and my next property tax bill is due in a few weeks!

Dave, I agree with the capital punishment for the scoundrels who got us into this and that should begin with those who took the most money from Fannie and Freddie and those in Congress who encouraged this foolish lending – BARNEY FRANK!!!!