Obama and Geither are Shockingly Clueless
Duncan Black nails it:
Overthinking
People are spending too much time trying to make sense of a plan which doesn’t make much sense, certainly not as advertised.
1) Funnel more government money to the banksters.
2) Allow the banksters to pretend for a bit longer that their hunks of big shitpile aren’t quite as shitty as we thought by using the bullshit price that this process comes up with, allowing too big to fail businesses to stay in business for a bit longer.This might make sense if you truly believe the magic market you believe in fervently is genuinely incorrectly pricing the assets, perhaps because you genuinely believe that if you could turn around the economy fast enough that you could massively reduce expected foreclosures.
But if you genuinely believe that, I don’t think you’ve been paying too much attention to just what’s been going on in the housing market. I don’t think you paid too much attention 3 years ago when you didn’t realize that it didn’t quite make sense that so many people could afford $700,000+ homes in Orange County. I don’t think you paid too much attention to the degree of speculation and outright fraud that was happening in parts of the country.
Emphasis added.
I remember talking to Al Mascitti about this on the air prior to the election. There are NO ASSETS troubled or otherwise. He said, “Well there are still houses, but they are not worth much.”
No. There are some worthless houses around – but we are talking about loans taken out to build vast delevelopments to be built on man made islands. Think 1,000’s of little Dubias all over the place.
Even the worthless houses cluttereing up the place don’t have value because thier mortgages we spit into funds 40 times over. You can slice a pizza into eight slices and those slices still have value. You can’t slice it into 1,000 slices and try to reassemble the pizza. It is nothing but worthless mush. That’s what those mortgages are now. Mush.
It still looks like fans, feathers and balloons to me.
Did I hear that the hedgers get to put up 3% and we taxpayers come up with the other 97% to buy this toxic waste? I think I did but maybe somebody here heard something different?
These assets aren’t so much about houses as they are about mortgages and the (presumably) reliable revenue streams that made these derivatives attractive in the first place. No one wants to unwind these things to see what their real value is. The banks want to sell them at a price no one wants to buy.
Whether you nationalize these banks or attempt to create a market for these assets, American taxpayers are paying. What no one knows — really — is what the cost of both options would be in order to analyze the tradeoffs. Nationalization , for me, had the benefits of getting the worst over with relatively quickly. And those who are direct participants in the problem would be forced into haircuts and the industry has a new cautionary chapter written for it.
In addition to that, nationalization would have had 500 years of economic theory backing it up. Unlike this program which has a few months of economic theory underpinning it.
But HEY! the markets went up today. Geithner is a genius!! SUCK IT FOX NEWS!!
Jason hits on my biggest problem with the Geithner plan. I don’t think bankers and their shareholders should be rescued, I think they need to take a bath. I hope that we will some people going to jail, because someone needs to.
Gee — I’ve been making that argument since January (before then, actually).
But HEY! the markets went up today. Geithner is a genius!! SUCK IT RYMEY!!
Rymey is back link spamming for his for-profit right wing texas blog.
However there is a hole in his argument… one the kavipsian theory of economics fills.
He states in the link….
At the moment, those businesses that ought to be expanding and hiring cannot profitably expand and hire because the terms on which they can finance expansion are so lousy.
The assumption being made here is that firms are foregoing expansion because the price of borrowing has soared… In truth, they are afraid to expand, because they have no customers… Why do they have no customers? Their customers are broke too…..
The kavipsian theory tackles this problem by fixing the asset problem very similar to what Geithner did, while simultaneously flooding the arena of retail markets with cash available for purchasing…
This creates a need to build inventories, which creates a need for manufacturing, which creates a need for loans to get that investment started…
Since the economy is starting to fire consistently, the way a recalcitrant car engine does finally on a cold morning, the banks return of confidence that the loans will be repaid, opens the doors to lending and voila: we are on our way to recovery…
The problem is that you need to get spending started on the household level… before you ever can expect businesses to even seek loans in order to expand….
The three month moratorium on mortgages does just that….. in a very big way…
So although this plan can theoritically work, it is like Mike Tyson fighting with only one hand… It will not be effective.
lol
And to clarify Jason’s last paragraph….
Lets say a mortgage from the mid nineties was worth $100,000… Yes, it is part of several different hedge funds… Now if that value drops to zero… where it is because no one will buy it, the house cannot be sold to pay back the money advanced… so all the funds suffer.
But… if that value returns or goes above $100,000 again, then…. all those funds, or pieces of them, all gain that value towards their accounts… So in essence… it is a confidence game as money always is…. But… buying these funds at bargain rates now, can… make one (including the Treasury) extremely wealthy when the economy returns and people can again afford to buy housing again… Even if the home value rises to only $50,000, buying in at zero can make one a lot of money…
We have to take that risk… The Economic team hopes that the future sell off of all these assets will drop our soaring deficit to a level below that inherited from the Bush years…
When Republicans moan that deficits are soaring, they fail to see these costs as investments that pay off in the future… They are just the moaning of a primadonna who doesn’t understand how putting her bling bling money in a 401K plan, will ever benefit her…
What I do like, is that the Obama team has taken this brash approach, like a team down 30 points at the half… They have taken the attitude of playing to win, instead of just making a showing…
Their criticism received, is similar to that thrown at a coach who by ramping up the level of gamesmanship early on in the second half, has cause fouls to be levied against his star players… The critics are crying “this is foolishness.”
But… what those critics fail to realize, is that the other side will be losing players to fouls as well..
I do like that this teams aggressiveness and their realization that extraordinary times, require extraordinary measures….
Like a good basketball coach, who realizes he has only one option available and that is to go full court press the entire second half…. keeping to the plan is the only option…
We may have lost the game already… That was done by the Republican administration over 8 years… But.. to win, we have to play hard… We are getting what we voted for… Our best bet would be to show some support so they can concentrate on the game at hand, without having to look over their shoulders for cups of beer being thrown at their heads..
lol.
Shorter kavips: clap harder.
Lol… My answer is now leading my page… lol…
Kavips was a fan of the failed TARP too. Which kicked the real problem six months down the road with no real resolution.
At base, these assets are not so much in hedge funds as they are being held by the banks themselves as assets. They CAN sell some of them — they won’t sell them at the prices that they are going for (around 20 cents on the dollar), because that sale will wipe out their capitalization and they will, finally, be dead. As long as these banks can hold out for a higher price, they continue being zombies.
It may work. But if this created market for MBS fails, taxpayers pay. But the banks are scot free to crank this stuff up again because they have no risk. American taxpayers do.
The new plan looks like a transfer of wealth from taxpayers to banks and hedge funds (you know, the people who ruined the economy while being very well-paid).
Slightly longer kavips:
When being robbed, hand over your money quickly and quietly, and be happy that it is going to people that already have more money than you.
Shorter anonone:
Start winding up your cup of beer.
It is a transfer if the assets end up really being worth less than the price the investor bought it for. Because we are on the hook for whatever was loaned to the investor AND for the loss beyond what the investor put into the pot.
So…
The banks have “assets.” If you just take those assets away without getting something for them the banks will be bankrupt. Everything goes ka-plooey.
So the government has decided to pretend that the assets have value in order to help banks get rid of them.
Once the government has them it does not matter if we find out that these “assets” are worthless because they just disappear and become regular debt to be paid off by future tax payers. Everything does not go ka-plooey.
We’ll see.