BenBurch
Gatekeeper of The Left
When does the bailing out stop? If this goes as I think it will, this is just the first round.
Dan O.
Banned
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- Feb 14, 2007
- Messages
- 13,594
What happens if instead of an infusion we try to stop the hemorrhaging?
It seams that one of the driving factors in this crisis is that the bank that deals with the homeowner has their hands tied and cannot strike a compromise to prevent foreclosures because of their obligation to follow terms specified for the bundled security. I think the first step would be to require that an individual mortgage must be removed from any bundled package by selling it at auction before it can be foreclosed. This would allow the bank to find alternatives to foreclosure that could be better for both the bank and the homeowner.
It seams that one of the driving factors in this crisis is that the bank that deals with the homeowner has their hands tied and cannot strike a compromise to prevent foreclosures because of their obligation to follow terms specified for the bundled security. I think the first step would be to require that an individual mortgage must be removed from any bundled package by selling it at auction before it can be foreclosed. This would allow the bank to find alternatives to foreclosure that could be better for both the bank and the homeowner.
RPG Advocate
Critical Thinker
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- Sep 19, 2002
- Messages
- 281
As I said on the election subforum, why not simply ban securitization completely? The loans should be treated as individual units and not allowed to be modified in the course of transferring them through sale. That way, if foreclosure is immiment, both the borrower and loan servicer have the same rights and responsibilities as agreed to in the original contract.
One other thing I think would also help is if some way could be found to penalize firms that systematically originate bad loans. One thing that led to this crisis is that you had (and still have) a bunch of fly-by-night firms whose sole business was to originate questionable loans and sell them as quickly as possible. When the inevitable foreclosures happen, the firm doesn't care; it's already made its profit. The risk falls to someone else.
Ichneumonwasp
Unregistered
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- Feb 2, 2006
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- 6,240
Yeah. What is the point of the bailout if we should really just use the same money to support the banking industry? Why not put all that money into FDIC so that no runs on banks will occur and let the financial institutions who created this fiasco die their natural death, as those folks who argue against regulations would have it?
Francesca R
Girl
Well the money could also be used to re-forest the Amazon. The powers that are identify that the most effective target destination for it is to put a floor under dodgy securitised loan values and facilitate shrinking of banks' balance sheets.
The FDIC may then not need any extra funding
Central bank open market operations happen anyway and are not a drain on the taxpayer unless borrowers go belly up.
The FDIC may then not need any extra funding
Central bank open market operations happen anyway and are not a drain on the taxpayer unless borrowers go belly up.
Ichneumonwasp
Unregistered
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But why give these institutions a free ride (essentially) when they made such horrible decisions when our primary concern is a collapse of the banking industry? If we could avoid that, then there should be no huge problem.
Sure, a recession is going to hit no matter what. Personally, I don't see how this sort of bailout is going to change that fact, but, again I don't know that much about this stuff. Is there actually a way that such a bailout could completely avert a slowdown in the economy?
I'm sort of with Beth on this. I don't see how saving these companies helps us. The debt is still going to be bad, and I think it also looks like throwing good money after bad.
Why not simply insure the fluidity of the banking industry and let the losers lose? Isn't that what a free market is supposed to do?
I get the impression that there are political and not economic motivations behind this bailout.
I don't pretend to understand a small fraction of what is going on with these markets but the idea that the government (either lib or neo-con) is going to penalize the guilty seems unrealistic. Wasn't it government guarantees and subsidies which allowed, maybe even encouraged, Fannie Mae and Freddie Mac to go corrupt? I am asking that as a real question, not a rhetorical statement. I understand "quasi governmental agency" about as well as I understand quantum psychics.
Are you saying that just because a bank is small and made a bunch of bad local loans and investments that they should not be allowed to fail? How is that free market? Isn't insuring the fluidity the same as artificially propping up at taxpayer expense?
Francesca R
Girl
"These institutions" are the banking industry.
There already has been a slowdown in the economy, which would have been steeper without the interest rate cuts since Aug 07 and the one-off tax cut in Q2 08. There is also no question that had FNMA and FHLMC defaulted on the motgage bonds that they guarantee, the US and then much of the world economy certainly would have cratered. Some slowdowns are worse than others.
Not necessarily. The debt is not all "bad", but nobody wants (or is able) to buy it. W Buffet Esq thinks you'll make money on it. Which is easy to say, of course, but he did pony up $5 billion for a chunk of Goldman Sachs to corroborate this.
If there are too many losers, you can't necessarily insure the fluidity of the system.
For sure, a taxpayer-funded plan is by definition a political decision. You'd need to say what you *really* mean.
Francesca R
Girl
Shareholders of Fannie and Freddie lost virtually everything, and the management were dismissed. Bondholders (creditors) were the ones that have been bailed out, but they don't own the company nor do they have a say in appointing the people who run it. Shareholders of AIG also have almost nothing and management was replaced. The shareholders of Lehman are *not* going to get anything back (trust me).
In what way was this "not penalising the guilty"?
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Francesca R
Girl
(Actually it is quite likely that Buffett hopes to do a quick "repo" on toxic waste by buying some of it at the rubbish Goldmans stock price then benefiting when the TARP shortly takes it away at better levels. No wonder he says the bailout is both of "really needed" and "probably good value for taxpayers") </cynic>
I get that the shareholders have been punished. Are the shareholders the guilty parties? Didn't they invest in what they thought had the backing & blessings of the government?
I don't know the answers to these questions which is why I ask but if I had to take a guess at who was most guilty I would say the heads of these organizations who made millions/year, in some case 10s of millions, and knew that the gov. was looking out for their back sides.
Francesca R
Girl
Which shareholders thought that? They certainly should not have. Even Fannie and Freddie shareholders had absolutely no reason to think their equity was backed by the government. The business the company wrote was.
As I said, the heads of the organisations have mostly all been fired. Of course they earned millions before then, but that is a matter for the companies they served to have decided on, and it is company boards and ultimately shareholders who are accountable for what they pay their leaders. The list of investment bank CEOs who have walked the plank is getting lengthy
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But that's part of the problem -- at least, part of the political problem. The "scandal" of CEO pay has been brewing for the better part of a decade, and the shareholders who are "ultimately" accountable for the mismanagement of the company have in practical terms almost no say in who the leaders are, what they are paid, or how the company is actually run.
In practical terms, CEO-ship is a closed oligarchy; the board of a major corporation is made up of other top executives or similar financial titians who are (perceived to have been) enriching themselves at the expense both of the corporate drones and the individual shareholders. (No less a titian than Buffett has written extensively about this, for example, how the stock options granted to top executives and board members are almost a deliberate accounting trick to keep earnings per share high while diluting the actual money paid to the outsiders.)
Francesca R
Girl
They have the same say as you do in how this forum is run. If they don't like it they exit the stock. If nobody likes it, the stock tanks.
I would give the same response again. If shareholders "perceived this" they would flee. (I agree that there are incentives for executives to enrich themselves at the expense of shareholders, and that they often do this if they can (without it being illegal). I don't think that CEO compensation falls into this category, given the disclosure requirements.)
Yes, stock options were an accounting "trick" which is why the Sarbanes-Oxley Act (2002) changed the rules on companies expensing options.
Beth
Philosopher
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- Dec 6, 2004
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- 5,598
I just want to say thanks for all the responses. It has been an illuminating and educational thread for me. The news media has had a lot more to say about as well. At this point, it looks like some sort of bailout will be passed, but with a lot of controls and oversight, a staggered payout and possibly even some benchmark requirements. All of which seems like an improvement to me.
Prometheus
Acolyte of Víðarr
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How many retirees know the salaries of top management in all the companies in their mutual funds' portfolios? Should everyone with a savings account have to figure out where the bank is investing their savings and whether or not those investments are in companies with dishonest management?
Francesca R
Girl
Most of them don't really care. If they want to find out, the information is not hard to find, but rational ignorance usually prevails.
Now, what would be a better alternative? For laws to set a ceiling on compensation?
No, that's why deposit insurance exists.
Wrong again. Open market activity is where perhaps the most looting of all takes place - via the monetization of debt. The non-stop monetary inflation functions as a flat-tax on anyone who holds dollars, or the currency in question.
Since you're a statist, I wouldn't be surprised if you supported this, but denying that it's a surreptitious form of taxation is just abject ignorance.