The Bailout... are you watching?

[Billster]

We're all very well educated and all, but it's still very difficult to get a grasp on all the issues involved with this.

It is very complicated, which is also part of the problem.

I think the basic problem is that there are "paper" assets not backed by any tangible asset. Step one is these zero-down and/or interest only mortgage loans. The idea was that with rising home values, after a few years paying interest only, the homeowner could do a cash-out refinance and use the equity from market appreciation to qualify a standard loan. Then housing prices went the wrong way Now you have a $300K loan on a $200K house.

To make matters worse, the derivatives of these subprime mortgages ended up getting overvalued in their trading blocs, so now there are overvalued derivatives of defaulted mortgages, mortgages in turn that are not able to recoup through foreclosure because of the lower real estate value.



When the value of paper assets more closely resemble the value of tangible assets we'll be better off.

The "bailout" plan is to buy time for home values to stabilize, but there's no guarantee that they will reach the level of the over-sold mortgages of a few years ago any time soon.

[Will Chen]

The "bailout" plan is to buy time for home values to stabilize, but there's no guarantee that they will reach the level of the over-sold mortgages of a few years ago any time soon.

 

Well, that's the gov hope in order to recuperate the capital to cover the purchase. The purpose of the bailout is to take these assets off the books of banks.

 

Banks lend each other money every night in short term investment funds (STIFS) in the form of Time Deposits and Repurchase Agreements in order to cover daily liquidity needs and operational expenses. Now, these banks only want to do business with other banks who have solid financials as the lenders want to ensure they will be paid back the next day with interest.

 

There is a valuation rule called "mark-to-market" stating that banks must value held assets at the daily market rate on their balance sheet. Now, these "toxic loans" are on many banks books increasing the risk to lend to that bank and problem is these assets have been sliced and diced and repackaged so many times and the market is so unstable that there isn't a 100% accurate way to value these assets.

 

So now we have a scenario in which banks can not trust the stated balance sheets of other banks which makes it risky to lend money out. The current key rate is around 2% however the actual rate being charged by banks is around 7%. Since the interbank rate is so much higher than the fed rate, banks are going directly to the Fed to try and borrow the funds they need and hoarding it.

 

As a result, the lending banks now do not earn the interest they would normally receive on these loans which impacts their balance sheets negatively. Now these banks need to tighten their lending policies to small businesses and middle class individuals. This in turn results in less consumer spending.

 

The theory is once these bad assets are removed from bank balance sheets, the interbank credit market will be relaxed.

[Music Calgary]

A taste of the new [passed] bill:

 

* Sec. 105. Energy credit for geothermal heat pump systems.

* Sec. 111. Expansion and modification of advanced coal project investment credit.

* Sec. 113. Temporary increase in coal excise tax; funding of Black Lung Disability Trust Fund.

* Sec. 115. Tax credit for carbon dioxide sequestration.

* Sec. 205. Credit for new qualified plug-in electric drive motor vehicles.

* Sec. 405. Increase and extension of Oil Spill Liability Trust Fund tax.

* Sec. 309. Extension of economic development credit for American Samoa.

* Sec. 317. Seven-year cost recovery period for motorsports racing track facility.

* Sec. 501. $8,500 income threshold used to calculate refundable portion of child tax credit.

* Sec. 503 Exemption from excise tax for certain wooden arrows designed for use by children.

 

http://www.salon.com/tech/htww/2008/10/01/senate_bailout_extravaganza/index.html

 

Business as usual. Another bubble, coming up!

[Will Chen]

 

bill: * Sec. 105. Energy credit for geothermal heat pump systems. * Sec. 111. Expansion and modification of advanced coal project investment credit. * Sec. 113. Temporary increase in coal excise tax; funding of Black Lung Disability Trust Fund. * Sec. 115. Tax credit for carbon dioxide sequestration. * Sec. 205. Credit for new qualified plug-in electric drive motor vehicles. * Sec. 405. Increase and extension of Oil Spill Liability Trust Fund tax. * Sec. 309. Extension of economic development credit for American Samoa. * Sec. 317. Seven-year cost recovery period for motorsports racing track facility. * Sec. 501. $8,500 income threshold used to calculate refundable portion of child tax credit. * Sec. 503 Exemption from excise tax for certain wooden arrows designed for use by children. http://www.salon.com/tech/htww/2008/10/01/senate_bailout_extravaganza/index.html Business as usual. Another bubble, coming up!

 

 

The senators grafted the bailout to a previously passed (93-2) tax bill hoping to force the votes in the house from both parties.

[Music Calgary]

 

The senators grafted the bailout to a previously passed (93-2) tax bill hoping to force the votes in the house from both parties.

 

 

Those adorable scamps...

 

 

 

 

 

 

 

Sec. 317. Seven-year cost recovery period for motorsports racing track facility!!!

[Billster]

Here's a few more "added incentives"

 

 

The revised bill contains provisions ... The sweeteners include renewable energy tax incentives - for individuals and businesses alike - that have been on the table for several months and had a chance of passing at some point anyway. The bill also includes relief from the Alternative Minimum Tax, without which millions of Americans would have to pay the so-called "wealth tax." The revised bailout bill also includes a "Mental Health Parity" provision, which would require health insurance companies to cover mental illness at parity with physical illness.

 

 

And here's a letter from a banker detailing some of the issues WBC raised. (link in pdf)

 

 

It is extremely unclear how the government will price the problem real estate assets. Priced too low, the real estate markets will be worse off than if the bailout did not exist. Priced too high, the taxpayers will take huge losses. Without a market price, how can you rationally determine value?

 

[MichaelSaulnier]

The "Mental Health Parity" act is ironic.

Considering it comes from the Congress.

I love the tax break for the makers of wooden shafts for toy arrows.

THAT will certainly require that I seek some newly insured "Mental Health".

M

[amplayer]

And here's a letter from a banker detailing some of the issues WBC raised. (link in pdf)

Good link!

The government is massively expanding, and we are going to get the bill for it. Fixing bad government with more bad government is stupid!

For any other conservatives here on HC, consider this: The big spending GWB administration is shoving this down our throats. At this point, it doesn't surprise me that GWB is desperately trying to spend tons of our money, and it is primarily Demorcrats that are agreeing with him. However, John McCain is also fully onboard with this.
They're going to drive our country bankrupt. Let's just elect Barack Obama and allow him to tax and spend us into a final bankruptcy.

[philbo]

Amplayer,

 

Well... You might be right. Government tax & spend, regardless of how you feel about it on a ethical or philosophical basis, is and has been approximately 1/3 to 1/2 of our national economy for many decades.

 

What Rove/Cheney made their puppet Bush do (yes I admit a little bias) was to funnel a large portion of that money away from the domestic economy in favor of 'defense' - - Blackwater Corp. moving to Qatar (or wherever) is the visible part of that iceberg. Certainly a large number of American defense contractors (and their empoyees) saw a huge benefit.

 

This was all done on a blank check credit card funded by a flood Arab and Chinese money buying up US government securities. So... my grandchildren will be paying interest on this fools errand spending spree for the next 60 years. It sound soooo much like what Reagan did... but on a much vaster scale. ..... sigh ....

 

In the long run, we get the government we deserve. As long as the populace lives like spoiled children, it (we) will be manipulated by these and similar people.

[Will Chen]

Back to the topic at hand. We can not absolutely blame Republicans nor Democrats for this problem as both are at fault. Since the Regan years, Republicans are no longer fiscally conservative and the Democratic trickle-up economics do not force people to take responsibility for their actions. Both on far too many ocasions choose to squabble along partisan lines rather than collaborate on what is best for the people of America.

 

Interestingly, I heard a story this morning on NPR which covered a Swedish bailout plan in the early 90's which on the service sounds strikingly similar to the current US proposal.

 

http://www.nytimes.com/2008/09/23/business/worldbusiness/23krona.html?em

 

In the end, it took them close to 15 years to fully recover...

[John Sayers]

here's a good video expalining how it all came about.

http://www.nytimes.com/interactive/2008/09/28/business/20080928-SEC-multimedia/index.html?adxnnl=1&adxnnlx=1223053258-sP5pNZ8/k1Gsp7Z7bR/w5w#

[Music Calgary]

Sec. 101: Extension of alternative minimum tax relief for nonrefundable personal credits.
Sec. 102: Extension of increased alternative minimum tax exemption amount.
Sec. 201: Deduction for state and local sales taxes.
Sec. 202: Deduction of qualified tuition and related expenses.
Sec. 203: Deduction for certain expenses of elementary and secondary school teachers.
Sec. 204: Additional standard deduction for real property taxes for nonitemizers.
Sec. 205: Tax-free distributions from individual retirement plans for charitable purposes.
Sec. 304: Extension of look-thru rule for related controlled foreign corporations.
Sec. 305: Extension of 15-year straight-line cost recovery for qualified leasehold improvements and qualified restaurant improvements; 15-year straight-line cost recovery for certain improvements to retail space.
Sec. 307: Basis adjustment to stock of S corporations making charitable contributions of property.
Sec. 308: Increase in limit on cover over of rum excise tax to Puerto Rico and the Virgin Islands.
Sec. 309: Extension of economic development credit for American Samoa.
Sec. 310: Extension of mine rescue team training credit.
Sec. 311: Extension of election to expense advanced mine safety equipment.
Sec. 312: Deduction allowable with respect to income attributable to domestic production activities in Puerto Rico.
Sec. 314: Indian employment credit.
Sec. 315: Accelerated depreciation for business property on Indian reservations.
Sec. 316: Railroad track maintenance.
Sec. 317: Seven-year cost recovery period for motorsports racing track facility.
Sec. 318: Expensing of environmental remediation costs.
Sec. 319: Extension of work opportunity tax credit for Hurricane Katrina employees.
Sec. 320: Extension of increased rehabilitation credit for structures in the Gulf Opportunity Zone.
Sec. 321: Enhanced deduction for qualified computer contributions.
Sec. 322: Tax incentives for investment in the District of Columbia.
Sec. 323: Enhanced charitable deductions for contributions of food inventory.
Sec. 324: Extension of enhanced charitable deduction for contributions of book inventory.
Sec. 325: Extension and modification of duty suspension on wool products; wool research fund; wool duty refunds.
Sec. 401: Permanent authority for undercover operations [as related to tax provisions].
Sec. 402: Permanent authority for disclosure of information relating to terrorist activities [as related to tax provisions].
Sec. 501: $8,500 income threshold used to calculate refundable portion of child tax credit.
Sec. 502: Provisions related to film and television productions.
Sec. 503: Exemption from excise tax for certain wooden arrows designed for use by children.
Sec. 504: Income averaging for amounts received in connection with the Exxon Valdez litigation.
Sec. 505: Certain farming business machinery and equipment treated as five-year property.
Sec. 506: Modification of penalty on understatement of taxpayer

[sventvkg]

Top 10 Reasons NOT to Bail out Wall Street. By Catherine Austin Fitts

 

If you don't know who she is google her name.

[Ernest Buckley]

As if the $750 billion weren`t enough... they added another $100 billion or so to it.

[the stranger]

Sheesh, just look at all those bull{censored} riders.

 

They need an law that says any bill that is going to be voted on will be posted in a place for public viewing at least two weeks before the vote.

[Ernest Buckley]

Can you say, "Special Interests"?

 

Many a lobbyist was very happy the other day.

[sventvkg]

As predicted the Bailout is having no effect. Markets are tumbling. ALL paper investments are gone other then Government backed securities but they ain't gonna be worth jack in a deflationary Depression that is most certainly imminent. This is global boys and girls and we need to get local to make sure there is food, shelter water near us that can be gotten on a local level. The bastards have taken us down and it's much worse the the last one. At least this time the people KNOW EXACTLY WHO CAUSED THIS and heads will roll for certain. I'm scared for my family.

[amplayer]

Read here to see how the Magic Mr. Obama will give everything to everyone and make somebody that isn't you pay for it.

[Billster]

As predicted the Bailout is having no effect. Markets are tumbling. ALL paper investments are gone other then Government backed securities but they ain't gonna be worth jack in a deflationary Depression that is most certainly imminent. This is global boys and girls and we need to get local to make sure there is food, shelter water near us that can be gotten on a local level. The bastards have taken us down and it's much worse the the last one. At least this time the people KNOW EXACTLY WHO CAUSED THIS and heads will roll for certain. I'm scared for my family.

Dude.

The stock market is not the economy. The economy functions on many levels, levels which may or may not be interpreted correctly by stock traders.

[sventvkg]

Bill Are you serious Man? Do you really think this is all about the stock market? Oh man, I would suggest you start reading up about what's entailed here man because it's the entire financial system, all retirement, all mutual funds, all municipal bonds..All the paper. Everyone's net worth, that's going down the drain. Credit has dried up so since our failed economic system operates on cheap credit and debt banks and businesses can't get the funds they need to operate so they cease to be able to operate, people lose jobs, there is less spending, retail and service industries come to a halt, they go out of business, it all spirals down from there. Bill, if you seriously want to understand the ramifications of all of this I will send you many many links to Nobel prized economists and many many other top experts articles explaining what is happening and how and why it's going to get so bad. I'll be happy to do that man.

[Billster]

Sean, I'll send you articles from Nobel Prize economists explaining how this will be resolved. Do you really believe that within the next two years people in developed nations will be eating squirrels and hardtack? Call me when the Dow hits ~0~

[sventvkg]

Dude. The stock market is not the economy. The economy functions on many levels, levels which may or may not be interpreted correctly by stock traders.

here. http://market-ticker.denninger.net/

[BlueStrat]

 

Credit has dried up

Not entirely true. I know some loan officers who represent banks not part of the current bail-out scheme, who never took part in risky lending or lowered their standards and who have lots of money to lend. The problem they are facing is panic, fueled largely by an economically ignorant media, confusing the finance market with the over all economy and an economically ignorant public. Simply put, people who have never been educated in any way about money, markets or finance are now being put in a position of having to form opinions about it and demand action. THAT is what scares the crap out of me. They are demanding solutions to a problem for which they don't have an iota of understanding. Is it any wonder no one can accurately assess blame? Or that the people who helped created it are now put in charge of 'fixing' it?

 

This is what happens when we rely on experts and government to take care of everything.

[Billster]

To Sean: Why is that man shouting? He's inciting a social panic the same way over-zealous stock traders incite market panic.

 

To BlueStrat: What also scares me is that the majority of congressmen meddling in this also appear to have no understanding of economics, and are just as prone to the panicky reactions of the un-educated constituents you mention.

 

As for a fix, we can start by shooting Jim Cramer.

[sventvkg]

Why is that man shouting? He's inciting a social panic the same way over-zealous stock traders incite market panic.

 

 

Bill..He's pointing out the events he had no part in creating. He's NOT inciting panic. Bad {censored} is going down buddy but you can't see it. I'm not going to argue with you. Good luck. I posted and those that have the eyes to see will see it. Thats all I can do man. Over and out.