Someone please explain me this about the bailout plan

[SmallDaddy]

Now what I have read could be wrong but here it goes anyways.

I was reading somewhere that the mortgages in default total about to 135 billion yet the plan calls for about 700 billion.

If that is true that how will the gov't get back most of the money, like they are saying. What is the other 565 billion for? Isnt it just pure garbage, or what is there something behind it?

 

[xpanda]

My best guess is that it's much like the paper market in commodities, where there is more paper afloat than there is underlying hard assets.

 

[SmallDaddy]

That is what I think also.

I heard it more than once that those securitized mortgages kept getting sold/transferred. But then how did it balloon so much?
And if it did balloon like that, then there is no way the govt gets back anything other than most of that 135 billion, which is backed up by actual homes. The rest is gone, no?

And how come the media is not talking about this aspect of the whole thing?

 

[DarrylParsons]

The gov't is buying highly leveraged securities which means they stand to gain a lot more than the value of the underlying assets if the housing market goes back up to its previous highs. Just how they plan to make that happen I have no idea. I suppose rampant hyperinflation could make everything go up, including housing, but then you're looking at grand theft GDP just by creating the inflation.

Indeed, much of those securities were bought for speculation purposes, yet the media lies and says they were mainly bought as insurance.

My best theory = media is in cahoots with big bankers.

 

[tiznow]

there is a 600 trillion (yeah you read it right) dollar derivative zombie market that is a tangled web of nobody knows who owns what etc.....out there

basically it is locked up and the stuff related to mortgages is imploding so therefore the US needs to step in to make a market for this crap that they can't get off the books and is currently going for pennies on the dollar in the marketplace

 

[Willie99]

Becomes mortgages that are not in default are still required to be written off based on government regulations.

For example, if market values and /or some other financial ratio falls below some regulatory standard, loans without a single late payment become bad loans.

Because they were forced to write down assets and takes losses, their ability to obtain credit became impossible forcing businesses that are still profitable out of business because of cash flow issues.

Now, some banks deserved to be closed, but many others don't.

 

[tiznow]

its not really about the mortgages themselves willie

its about the leverage they threw on top of it

if all this shit wasn't leveraged this wouldn't be as big an issue and this step we are taking (the bailout bill) wouldn't be necessary

 

[Willie99]

tizdoom, there are 1,001 variables in play here, and writing off performing assets is one of them

 

[tiznow]

plus its about containing all the ripple effects that go along with default

like lehman going down rippled to the leveraged CDS markets as far as bondholders so made some "safe" money market funds get in trouble

AIG for example would be a much much bigger deal on the CDS markets and as far as the ripple effects and is why they had to be taken over

with WM the way they manufactered the transaction and changed the rules with a JPM transation vs. FDIC takeover helped in minimizing alot of the CDS related issues....for the near term at least....

what they did isn't in the rules...these guys change the rules as we go along.....the FDIC basically took over WM and sold a part of it to JPM....i think the shareholders and such will eventually sue over that one......

 

[jeffry22]

This bailout has nothing to do with buying bad mortgages, they will be buying these "pools" of thousands of sub-prime and non sub-prime mortgages that were created and traded like stocks.
Right now because of the crises and lack of confidence no one will buy them from the banks that own them and they have become illiquid.
Thus, even though only a relatively small number of them will go under the market is treating these pools as if they are completely worthless, and if you can't sell these pools to raise money when necessary to do business(even though they have value) the banks are forced under.
This is why it is stated that the govt. will end up making money on the bailout in the long run. They will buy these "pools" for maybe 50 cents on the dollar and when only 20-30% go bad the govt will have a profit.

 

[tiznow]

making money on this shit all depends on reflating the housing bubble

regardless of what got us here

home price to income ratios are way outta wack and need to come down and not go back to peak levels for a long long long time.....they should only get back there when people are making enough income to put down 10-20% on a house at a home price that corresponds to historical levels in relation to their income......

only way to get them back up to peak levels anytime soon will be to go back to what got us into trouble in the first place....low standards on lending....no money down loans....liar loans....home flipping and tapping home equity as ATM etc...i've read that FHA is now being considered the new subprime for many mortgage brokers......

which will lead to continued inflation in gas, groceries, insurance, the necessities.....while wages will stay flat in relation to them....

and if we do that we will be back in this position again another day down the road only this time it'll be worse as we will have an even bigger debt problem at that point.....

its like it always is with our statist/socialist government controlled economy.....

when we get in trouble attempt to reflate the bubbles which in the end is only delaying the inevitable pain/bust just might buy us a little more time near term.....and the more you reflate the bigger the problems become

 

[jeffry22]

making money on this shit all depends on reflating the housing bubble

regardless of what got us here

home price to income ratios are way outta wack and need to come down and not go back to peak levels for a long long long time.....they should only get back there when people are making enough income to put down 10-20% on a house at a home price that corresponds to historical levels in relation to their income......

only way to get them back up will be to go back to what got us into trouble in the first place....low standards on lending....no money down loans....liar loans....home flipping and tapping home equity as ATM etc...

and if we do that we will be back in this position again another day down the road only this time it'll be worse

its like it always is

when we get in trouble attempt to reflate the bubbles which in the end is only delaying the inevitable pain/bust just might buy us a little more time near term.....and the more you reflate the bigger the problems become

Of course part of the root cause was the fact that the liberals forced lenders to lower their lending standards to be more "inclusive" of lower and middle income people( ie - people who don't have enough money and probably shouldn't be buying houses because they really can't afford them).
This was made worse by the fact that since they had bad credit they had to pay higher interest rates(the creation of sub-prime loans) and since they couldn't afford the house to begin with, they certainly couldn't afford it at these higher rates.

 

[tiznow]

well its a combo dems wanting more people to own a home

while GOP deregulated the system

both left and right to blame they just do different things to screw over the average joe...we are a one party system of statists and socialists....they just play different roles in the grand scheme of things

deregulation is fine by me....but not under a federal reserve system which allows banksters to come up with all these fancy instruments and such creating this massive amount of leverage and zombie market

in the near term more regulation will be the push both parties will give as you saw last night in the debate in the early stages with both mccain and obama agreeing that more regulation and oversight is what needed

but with that all you are doing is having criminals oversee criminals....so in the end you aren't gonna have regulations that are protecting the taxpayer.....and will be trying to give corporations the better part of the deal.....

long term what is needed is to end the federal reserve system that allows government, corporations, and banks the ability to do all this stuff in the first place

 

[cussin'it]

Fox watching the henhouse. Can't let that happen anymore

 

[tiznow]

Fox watching the henhouse. Can't let that happen anymore

exactly

only problem is it will stay that way until we get all these career politicians in the pockets of big corporations and banks outta washington and get more average joes looking our for you and me like ron paul in

 

[cussin'it]

My state Rep is running unopposed this cycle.

Sux, no one wants to challenge him, with the exception of a young guy working on his Doctorate (Green party candidate). All of the other 3 House Reps are Dems....Our guy is a gigantic Bush sac-suckker. Probably voted 100% lock step with Dubya.

Gonna give the Green guy a vote, might as well.

 

[tiznow]

yeah around my area the average joe's running are anti pauls the liberal democrat type that thinks big government and more oversight is the solution

there's a pretty good one running on the GOP ticket running against the incumbent dem who is a big government whore for congress though she's a eye doctor and an average joe that seems to mean well i'm behind that one......

alot of this change will have to happen at the local level.....so much focus put on the president but that isn't gonna change much.......

just hoping by 2010 or 2012 people wake the fuck up and we can get a massive amount of average joes that are going to washington to serve the people vs. become a career politician to make lots of money start coming outta the woodwork......

 

[tiznow]

the ultimate problem with politics and politicians in general is it has become a career for most of people in there now until that changes nothing will really change

its all about getting reelected and saying whatever will get the most votes that day

politicians of old were there to serve the people they saw themselves as public servants like someone would see them serving in the military...and they made tough decisions that could cost them their job.....but to them they are doing what was right and what needed to be done in order to get our country moving in the right direction long term.....

its should be a sacrifice you are making in order to make your country better.....

not a career.....