Mother Jones - Comments for "Cleaning Up the Rot"

"who would buy such a thing? no documentation at all!? it's easier to find out which chicken went into your mcnuget than which mortgages make up your CDO?"

Posted by: JABber on 10/01/08

Why'd the chicken cross the road?

To get a no-doc mortgage!

But, then he ended up in a deep fryer and we're expected to bail him out.

The American people have said very clearly they don't want the $700B Bush-Paulson plan! The Senate should drop their like a hot McNugget.

We need a plan with no serious cost to the taxpayers.

Force people with ARMs and upside-down mortgages to refinance, perhaps with help from the HOPE program or through normal means. Let that process reset the value of each home!

The Fed can bail out failing firms that are "too big to fail" and send the bill to Wall Street.

"So I agree to pass the bailout bill, ... ."

Posted by: John Hansen on 09/30/08

But, the public said NO NO NO.

Much of the bill is good, but the sequestering of mortgages must be put aside as nobody wants to pay $700B to do it.

I say, let the Fed and private capital help failing firms & banks and tax financial industry transactions to pay for it. Make the whole industry into an insurance company for firms "too big to fail".

And, let the government force holders of ARMs and upside-down mortgages refinance to fixed-rate, current market price mortgages.

In the meantime ban foreclosures of those kinds of mortgages and fix the sudden interest rate jumps by limiting them to no more than say 3% per year. Let people stay in their homes and fix the problem as quick as they can.

fafner1: Those who argue "let them fail" don't seem to grasp credit is being cut off for everyone.

Jasper: Perhaps they don't "grasp" this because it's not true.

My wife works at a small university, and today she had the pleasure of sitting through a conference call where a bank explained why they could only allow withdrawals of 10%. This is a serious inconvenience for her school, but her situation paled compared to the representatives of smaller schools who asked: "How are we going to make payroll?" The account in question is backed by high grade securities, but lack of market demand means it will take a long time for the bank to unwind its position.

I don't think anyone can calculate the depth and amount of outrage the average voter feels about this bailout. There's NO evidence that the bailout will accomplish ANYTHING for the taxpayer. There WILL be a recession maybe a depression, with or without this bailout.

This is because our whole society has been built on cheap oil and transportation. The cheapness is gone and with it our way of life. The foundation of the house of cards has been shaken and we're all watching the slow motion fall travel through the economy. The $700 billion would be better spent on cheap public transportation. So we don't lose what we have built out in the suburbs.

Rot. Shitpile. Sludge. Toxic sludge. Crap.

The bailout as Dual-Action Cleanse. Maybe we can get Klee Irwin to be the new Secretary of the Treasury, after we indict Paulson.

rational @ 2:06,
Understood.

Locally, the cohort that came into employment in the 1990's is referred to as "the lost generation". I think anyone in-country that you ask will tell you that this problem, at the current scale, originates from the Bubble Economy -- "working poor" is a loan word that has entered the vocabulary only in the last decade. The onset of sharp American-style income differentials and the failure of the social safety net for this category of the workforce are considered major social issues. Different priorities, I guess.

Carl Nyberg asks: Scientists, pollsters and economists all use sampling to evaluate things where counting everything/everybody is impractical.

What's so hard about sampling the Big Shitpile?

Damned good question. I'm extremely suspicious of these claims that we'll get most of our $700 billion back in the end, until we've got some data.

I want to see a sample of these MBS, and from them, I want to see a sample of the assets underlying them.

For these assets to be worth anything, either the houses themselves have to have value, or the people living in them must continue to live in them and be able to make payments.

I'm worried about the houses because I suspect a lot of them were in new developments on the far fringes of our urban areas, and if gas prices continue to increase, we may see a permanent and serious drop in demand for houses that are way out there.

I'm worried about the ability or willingness of those in the houses to make the payments, because unless the loans are restructured down to what the borrowers can pay, they'll continue to find the payments intolerably high, and will continue to send 'jingle mail' to their banks.

And I continue to think a 'bottom-up' rescue, where the Treasury is given the across-the-board authority to restructure mortgages down to the level borrowers can pay, is the best way to keep people in their houses and making the payments, which would put a floor under the value of the toxic MBS.

Banks would then have assets that weren't worth their original face value, but they'd be worth a lot more than their fire-sale prices.

Can someone explain to me just how this would fail to fix the Shitpile?

I agree with one caveat. The equity guarantees in the bill as voted down by the House are vague. I certainly support the Dodd proposal which included a formula to calculate the shares to be created and "vested" in the Treasury as a function of losses on toxic sludge. The bill as voted did not. As far as I can tell, it left the equity stake up to the discretion of the secretary of the Treasury. Paulson was opposed to equity stakes (although he really nailed AIG). I don't trust him. I want the Dodd formula back.

Jassalasca, thanks for the link. Reading through the article, it is not clear if that is a result of the burst bubble. Workers in the US haven't been faring any better the last few years, when the economy was doing fine. I don't know if Japanese workers would be faring any better if their economy wasn't in an official recession.

Japan, in aggregate, is doing just fine. Strong currency, no problems borrowing and lending, low unemployment rate (less than 5%) etc.

Anyway, I stop here lest I violate my resolution (previous post) :-)

Whatever rate the two parties agree to.

The whole bailout is now an emotional issue. I understand that we are all hurting in the stock market and that there is considerable fear and uncertainty. I don't intend to be an ass and push my rational arguments.

Last post on this matter.

Hope the bailout, whatever form it passes, works out for all of us in the long term. I have my doubts, but it is gonna pass one way or another. I'd rather focus on figuring out how to benefit from that bailout package.

rational,
Oops. Miss-cued on the link. This post has it.

rational,
Are the Japanese unhappy and unproductive?

Like everywhere else, the rich folk are having a grand old time. But there's an item in English linked below that will give you a flavour of what we might call "the new way" for many Japanese workers. Japan has a rich history and a vibrant culture, but the scars of the Bubble run deep.

And Hilzoy has a an excellent post on real time effects of the credit crunch. Yeah, there will always be some one ready to make a loan to worthy borrowers, right Rational? But, at what cost?

David Leonhardt has a nice explanatory piece for anyone wondering what all the worry is about. Anyone that assumes that credit will always be available for the deserving is engaged in wishful thinking.

This is only two weeks into the crisis; think fast, you might be voting on this before the end of the year.

Beg to disagree. This crisis has been building up quietly for several years. Some of us were tracking it and wondered why no one cared. Credit, Derivatives etc were exploding off the charts. The Fed tracks and publishes these numbers, but they turned a blind eye to these excesses. The Fed finally acknowledged the problem in summer 2007 and started taking action by lowering interest rates and pumping huge amounts of liquidity. Even if someone didn't pay attention to this crisis until summer 2007, the Fed has acted loud enough to announce to the world that there is a problem. They took extraordinary steps starting summer 2007.

Banks that were in trouble could have sold themselves or raised additional funds by selling additional shares. They had a full year to do just that, but their egos prevented them from acknowledging their problems and seeking help.