Senate hearing on the bailout

[wayneL]

OK. But if you were a US Senator and had the opportunity to write in that fine print, perhaps including some regulatory changes for the future, and including also some sort of responsibility being placed at the door of the wealthy CEO's who have engineered this remarkable feat of incompetence, what would you include?

Oh Lord! On this I admit to suffering extreme cognitive dissonance.

To achieve these aims within the framework of the bail-out plan is tantamount to socialism. I would prefer a more free market solution, but that would dis-include the bail-out.

But as the bail-out is a massive intervention of the state in the free market, we will have to have a state solution to repercussions. No less than the wisdom of Solomon is required to structure that.

Some things that been suggested:

*Some sort of oversight on how the funds are distributed.
*Capping of executive remuneration at $400k p/a whilst any bail-out funds are in use.
*Restructuring of bonuses to reflect medium term outcomes rather than very short term ones.
*Punitive interest rates on the bail-out funds.
*Restructuring of financial regulation (not more but better) to keep pace with finance "innovations".
*Public lynching of CEOs :

Whatever form it takes, someone has to be keeping an eye on a Goldman Sachs CEO who engineered a great deal of this mess, on what he does with the better part of a trillion dollars. That is for sure and certain.

 

[dhukka]

What should be done now? Well unfortunately, to avoid the complete meltdown of the whole financial system, a bail-out is imperative. But as with all radical solutions, it is the fine print that matters. The devil is in the detail.

I'm surprised to see you say that wayne. It seems that a false ultimatum has now become fact. From day one we've been told by Bernanke and Paulson that this bailout, which is basically a blank cheque to buy toxic crap of any flavour they want with a $700 billion revolving credit line, is better than the alternative. The alternative we are left to guess is a total freeze of credit markets, bank runs and bankruptcies, soaring unemployment or more generally a great depression like scenario.

Remember that these two clueless fools have been dead wrong over the last 12 months and now we are expected to believe that they have the solution and further, we are expected to believe that they know what will happen if they don't do it. I have read at least 3 other proposals, one which doesn't even involve public money and then read twice as many articles laying out reasons why Paulson and bernanke's plan won't work.

I don't pretend to know what the result would be in the event of no intervention but I can't just buy that doing nothing will result in armageddon because Paulson and Bernanke say so. And so what if it does? I for one say let the chips fall where they may, this process will happen sooner or later. The US is just pushing the day of reckoning further into the future by propping up a system that is broken.

Anyway, seems I'm tilting at windmills, the deal is all but done.

 

[wayneL]

I'm surprised to see you say that wayne. It seems that a false ultimatum has now become fact. From day one we've been told by Bernanke and Paulson that this bailout, which is basically a blank cheque to buy toxic crap of any flavour they want with a $700 billion revolving credit line, is better than the alternative. The alternative we are left to guess is a total freeze of credit markets, bank runs and bankruptcies, soaring unemployment or more generally a great depression like scenario.

Remember that these two clueless fools have been dead wrong over the last 12 months and now we are expected to believe that they have the solution and further, we are expected to believe that they know what will happen if they don't do it. I have read at least 3 other proposals, one which doesn't even involve public money and then read twice as many articles laying out reasons why Paulson and bernanke's plan won't work.

I don't pretend to know what the result would be in the event of no intervention but I can't just buy that doing nothing will result in armageddon because Paulson and Bernanke say so. And so what if it does? I for one say let the chips fall where they may, this process will happen sooner or later. The US is just pushing the day of reckoning further into the future by propping up a system that is broken.

Anyway, seems I'm tilting at windmills, the deal is all but done.

Yeah good points Dhukka. Sucked in.

Totally agree with your last comment.

 

[gfresh]

Question is.. if it is broken, when did it start to be broken? When did it ever work properly anyway?

After the devastation of WWI, we had the roaring 20's, then Depression in the 30's, and then the US muddled along until the 40's, where there was another big world war, then there was the 50's, where the US tried to "fight off" communism, and fight a proxy war against communism in Korea, and then in the 60's, they decided they would like to take it to Vietnam, which continued into the 70's, which they lost.. whilst nearly causing WWIII along the way. By the 70's they were nearly broke, and their economy muddled along paying back the debts until the early 80's, and then in the 80's they grew until 1987 when their stock market crashed, and then in the early 90's whilst in a recession, they decided to take on Iraq.. Then they had some good times until the late 90's, when dot con pushed them into another recession. Then slightly after they declared another war against "Terrorism", whilst the Fed slashed interest rates too low, and this grew into a housing bubble, and then...

Really when we look back at these events, it all seems quite bad at every step along the way. They really do quite well at getting into a war most decades don't they...

 

[refined silver]

Today in London, the ailing Bradford & Bingley mortgage lender – down 90% on the stock market since Sept. '07 – said it's written off or sold all "toxic" assets at zero, sparking a £133 million ($246m) charge against profits.

There we go. Don't need any bodgy reverse auction now. We know the true value of many of these "troubled assets" - ZERO!!!. Sort of like my Macmin options.

 

[wayneL]

Senate dissent.

Rep. Marcy Kaptur - Bugger The Barracuda, let this woman be VP, nay, PRESIDENT.

 

[wayneL]

Yowza, this Ms Kaptur is one angry lady... Kaptur for Pres.

This one from a few days ago. :whip:chainsaw::bigun2::rocketwho:rippergun

 

[cuttlefish]

I think its interesting that wall street cops ALL of the blame for this. The actual reality is that the toxic debt exists because the private individuals that took out the loans often had no means or intention of actually paying them back.

Quite a lot of the sub-prime debt was created when greedy individuals borrowed money to buy properties that they were intending to on-sell for a profit a year or less later and thus they didn't care whether they were going to be able to pay off the loan or not, because they only had eyes for the quick windfall profits they would make. When the music stopped a lot of them ended up with mortgages they wouldn't be able to repay.

Is this not greed and irresponsible behaviour?

But individuals taking responsibilities for their own actions in the land of the law suit - pretty unlikely. Far easier to blame it on someone else.

Its way too easy to blame it all on one camp imo.

The wall street bankers definitely need to carry a lot of the responsibility for the situation because they have failed in their own risk management strategies - in particular maintaining independent credit assessments and independant audit of brokered mortgages.

Blame also needs to be born by the mortgage brokers themselves that helped people to lie and cheat about their assets and incomes in order to get loans. Again the mortgage brokers were also motivated by greed - greed for easy commissions.

The government and regulators also need to share the blame for failing to recognise and address the obvious and growing problem far earlier - in fact the Reserve and Treasury were probably the best equipped to both recognise the sheer size of the housing bubble earlier and to take measures to address it aggressively earlier.

But it shouldn't be forgotten that individuals greed was also a key driver in the creation of the current problem that the US is facing.

 

[It's Snake Pliskin]

I think its interesting that wall street cops ALL of the blame for this. The actual reality is that the toxic debt exists because the private individuals that took out the loans often had no means or intention of actually paying them back.

Quite a lot of the sub-prime debt was created when greedy individuals borrowed money to buy properties that they were intending to on-sell for a profit a year or less later and thus they didn't care whether they were going to be able to pay off the loan or not, because they only had eyes for the quick windfall profits they would make. When the music stopped a lot of them ended up with mortgages they wouldn't be able to repay.

Is this not greed and irresponsible behaviour?

But individuals taking responsibilities for their own actions in the land of the law suit - pretty unlikely. Far easier to blame it on someone else.

Its way too easy to blame it all on one camp imo.

The wall street bankers definitely need to carry a lot of the responsibility for the situation because they have failed in their own risk management strategies - in particular maintaining independent credit assessments and independant audit of brokered mortgages.

Blame also needs to be born by the mortgage brokers themselves that helped people to lie and cheat about their assets and incomes in order to get loans. Again the mortgage brokers were also motivated by greed - greed for easy commissions.

The government and regulators also need to share the blame for failing to recognise and address the obvious and growing problem far earlier - in fact the Reserve and Treasury were probably the best equipped to both recognise the sheer size of the housing bubble earlier and to take measures to address it aggressively earlier.

But it shouldn't be forgotten that individuals greed was also a key driver in the creation of the current problem that the US is facing.

Good point Cuttlefish.
In Australia there was a whole culture of buying, renovating and flipping for profit.

 

[cuttlefish]

Her speech in the second video is very good - its hard not to agree with her assessment. The bailout money would be better directed at working with stressed mortgage holders to try to come to a workable compromise and if necessary reduce the level of debt in some cases to make it work.

I disagreed with the Bear Sterns bailout when it occured and don't think any wall street banks should be bailed out. I think fannie, freddie and AIG are a different situation because their instruments are so pervasive through the financial environment that it would have caused systemic issues to let them fold.

Its certainly an emotive situation.

 

[cuttlefish]

Though purist economic theory (I'm guessing as I'm not an economist) would say that waiving some of the outstanding debt on a mortgage in order to prevent the individual from going bankrupt is only serving to encourage/reward the malinvestment of taking out the mortgage in the first place. By not triggering the sell off of the non-productive investment at true market prices it is only causing an ongoing wastage of productivity on the malinvestment rather than allowing the productivity to be redirected to a socially productive investment.

In summary - is it better for a homeowner to spend 10 years working to pay off a $500k debt on a house that has a true market value of $300k in order to 'save face' and not have them lose their home. Or is it better to have the debt written off - the home that is reposessed will get sold at true market value ($300k) and the $200k of productivity that would normally have been directed to a $200k black hole would instead get directed to a socially productive investment (possibly developing a business, an invention, an idea, or even just productive labour in an area where it is in demand - e.g. constructing a new home in an area that is actually facing a housing shortage).

 

[wayneL]

Though purist economic theory (I'm guessing as I'm not an economist) would say that waiving some of the outstanding debt on a mortgage in order to prevent the individual from going bankrupt is only serving to encourage/reward the malinvestment of taking out the mortgage in the first place. By not triggering the sell off of the non-productive investment at true market prices it is only causing an ongoing wastage of productivity on the malinvestment rather than allwing the productivity to be redirected to a socially productive investment.

In summary - is it better for a homeowner to spend 10 years working to pay off a $500k debt on a house that has a true market value of $300k in order to 'save face' and not have them lose their home. Or is it better to have the debt written off - the home that is reposessed will get sold at true market value ($300k) and the $200k of productivity that would normally have been directed to a $200k black hole would instead get directed to a socially productive investment (possibly developing a business, an invention, an idea, or even just productive labour in an area where it is in demand - e.g. constructing a new home in an area that is actually facing a housing shortage).

Seems obvious to me, write it off.

 

[cuttlefish]

Seems obvious to me, write it off.

Which is why

Kaptur for Pres.

is probably not really a good idea!

Though Paulson in control bailing out his wall street investment bank mates bad investments isn't going to help things either.

(and the longer Paulson directs US productivity toward paying off the debt on bad investments, rather than allowing the free market to write it off and redirect labour and capital to productive investments ,the worse off and more prolonged the US recession is going to be imo).

 

[wayneL]

Which is why is probably not really a good idea!

Though Paulson in control bailing out his wall street investment bank mates bad investments isn't going to help things either.

(and the longer Paulson directs US productivity toward paying off the debt on bad investments, rather than allowing the free market to write it off and redirect labour and capital to productive investments ,the worse off and more prolonged the US recession is going to be imo).

Yeah agree about Kaptur. It was just nice to see a legislator giving the system a serve. It is actually quite surprising the number of otherwise savvy folk with this attitude... politics over prudence?

 

[cuttlefish]

Yeah agree about Kaptur. It was just nice to see a legislator giving the system a serve. It is actually quite surprising the number of otherwise savvy folk with this attitude... politics over prudence?

She's got guts and eloquence - if I lived in Ohio I'd feel well served.

Looks like Paulson and Bernanke are going to get to throw a little food at the beast for a while yet.

 

[Nashezz]

I think its interesting that wall street cops ALL of the blame for this. The actual reality is that the toxic debt exists because the private individuals that took out the loans often had no means or intention of actually paying them back.

Quite a lot of the sub-prime debt was created when greedy individuals borrowed money to buy properties that they were intending to on-sell for a profit a year or less later and thus they didn't care whether they were going to be able to pay off the loan or not, because they only had eyes for the quick windfall profits they would make. When the music stopped a lot of them ended up with mortgages they wouldn't be able to repay.

Is this not greed and irresponsible behaviour?

But individuals taking responsibilities for their own actions in the land of the law suit - pretty unlikely. Far easier to blame it on someone else.

Its way too easy to blame it all on one camp imo.

The wall street bankers definitely need to carry a lot of the responsibility for the situation because they have failed in their own risk management strategies - in particular maintaining independent credit assessments and independant audit of brokered mortgages.

Blame also needs to be born by the mortgage brokers themselves that helped people to lie and cheat about their assets and incomes in order to get loans. Again the mortgage brokers were also motivated by greed - greed for easy commissions.

The government and regulators also need to share the blame for failing to recognise and address the obvious and growing problem far earlier - in fact the Reserve and Treasury were probably the best equipped to both recognise the sheer size of the housing bubble earlier and to take measures to address it aggressively earlier.

But it shouldn't be forgotten that individuals greed was also a key driver in the creation of the current problem that the US is facing.

I see what you are saying Cuttlefish but the essence of a mortgage is that fiduciary responsibility rests with the bank/lender until the mortgage is repaid. If a lender is lending money to someone that can't pay I believe that is a problem with the lender (and their check system) not the person. The majority of regulation and law is made on the assumption that people are stupid - not far from the truth I think, but particularly true when it comes to any kind of financial instruments. Banks and lenders can't be afforded this same grace, even if it is true.

 

[fimmwolf]

Cant imagine why Mrs Kaptor might be upset with the bankers.

As we all know, it's the borrowers fault.

Why would a low income earner accept a 300K loan, no money down, no questions asked, when they are told that they will profit just from re-selling the property they can't afford in the booming property market.

I mean how were the banks to know interest rates might go up?

Surely they couldn't have seen the property bubble bursting either.

no no, definitely the borrowers fault!

 

[Macquack]

Senate dissent.

Rep. Marcy Kaptur - Bugger The Barracuda, let this woman be VP, nay, PRESIDENT.

.....Yowza, this Ms Kaptur is one angry lady... Kaptur for Pres.

Give it to them, Marcy Kaptur.

She is angry for the people (taxpayers) who are sick and tired of picking up the bill for somebody elses excesses.

Love this quote -
"Those who created and profited from this game of games must be brought to justice. The assets that they stole must be returned to the american taxpayers, right down to the tyres on their mercedes." Marcy Kaptur.

 

[Buddy]

I think its interesting that wall street cops ALL of the blame for this. The actual reality is that the toxic debt exists because the private individuals that took out the loans often had no means or intention of actually paying them back.

Quite a lot of the sub-prime debt was created when greedy individuals borrowed money to buy properties that they were intending to on-sell for a profit a year or less later and thus they didn't care whether they were going to be able to pay off the loan or not, because they only had eyes for the quick windfall profits they would make. When the music stopped a lot of them ended up with mortgages they wouldn't be able to repay.

Is this not greed and irresponsible behaviour?

But individuals taking responsibilities for their own actions in the land of the law suit - pretty unlikely. Far easier to blame it on someone else.

Its way too easy to blame it all on one camp imo.

The wall street bankers definitely need to carry a lot of the responsibility for the situation because they have failed in their own risk management strategies - in particular maintaining independent credit assessments and independant audit of brokered mortgages.

Blame also needs to be born by the mortgage brokers themselves that helped people to lie and cheat about their assets and incomes in order to get loans. Again the mortgage brokers were also motivated by greed - greed for easy commissions.

The government and regulators also need to share the blame for failing to recognise and address the obvious and growing problem far earlier - in fact the Reserve and Treasury were probably the best equipped to both recognise the sheer size of the housing bubble earlier and to take measures to address it aggressively earlier.

But it shouldn't be forgotten that individuals greed was also a key driver in the creation of the current problem that the US is facing.

Maybe you are right cut fish.
However, when I was a lad, or so it goes................
I can actually remember when banks checked your credentials before offering a loan. And you actually had to pay a (substantial) deposit on, say a house or land! If you didnt have a (substantial) deposit, and the ability to pay the loan back, you were told f off - there's the door, sir! As for women taking out loans...........well.........that's another matter..........we dont do that.

I think the word they used in that system was prudential financing, or something like that.

Let 'em sink I say. The whole useless lot of 'em. It's a race to the bottom.

 

[robert toms]

I heard the Swedish finance minister (at the time) speak about how they bailed out their insolvent banks in the nineties.I hope that I understood him .
He stressed that first the shareholders had to lose their money,then the government stepped in and paid the banks' debts etc...and then the bank was refloated if possible.
The Swede said that the Americans would never do this.
The profligate and incompetent are going to rewarded under the US scheme it seems.