The Big Thr—er, Big Two and a Half (sorry, Chrysler, you’re not so big anymore) in Detroit are next.

well, somebody has to fix the economy—doing things like that is what government is for.  I just wish it were being done at a time when the government is run by people who are smarter, and more honest.

I’m not so sure the government CAN fix it. They can totally prevent this from happening again, but fixing it is much harder.

Not like it will mean that banks will stop foreclosing on people just because the government bailed them out.

Somebody has to take responsibility!

Not like it will mean that banks will stop foreclosing on people just because the government bailed them out.M

Probably there has to be a program to renegotiate the terms of most of the mortgages in the country, getting them down to where people can have some hope of paying on them, and the mortgage companies would be left with mortgages that are worth something, if not as much as they once were.  Nothing like that can happen until the next adminstration, though.

AWESOME!  The government is going to buy out my debt too right?

When is the government going to come pay off my student loans? Do i have to get fat?

Because then, I’ll be too big to fail.

We’ll end up with full-on nationalization of banking in the end.

Part two of the plan is to bring back debtor’s prison.

On the one hand it’s not my fault that my real estate value has fallen because Banks let illegal aliens and every clown that couldn’t pay rent buy a house. On the other hand my property values have fallen because Banks let illegal aliens and complete buffoons with no means of paying buy houses above their value and when they couldn’t pay defaulted and crashed every market in the US.

So…in the 1930’s the government HAD to step in to prevent matters getting worse. I think Treasury Secreatry Paulson is a moronic taodie but I’m glad the ignorant boob has finally settled on a strategy that allegedly will focus on the core issue: the government (sorry leftists but your boys were in charge of Sallie and Freddie) has to stop the buck for what they did. Otherwise it hurts me more.

Oh yeah maybe dipshit Joe Biden can be a patriot and cough up more than $168 this year and help me out. Worthless boob, I was infuriated when I heard that hypocrite today gibber about paying more when niether he nor that hack Obama has done anything for the poor other than ride on their backs.

Anybody want to send me a stimulus check? For some reason I didn’t get the 1st one. Who knows maybe I can get my salary raised 159% this year like Michelle Obama, oh that’s right I don’t have Barack to steer millions in graft and corruption to get me the payoff. I guess social largesse is just for the well heeled Democratic party elites. ;^)

banks let illegal aliens and complete buffoons with no means of paying buy houses above their value

Wisdom of the capitalist market, allowed by changes in regulations passed through a Republican-controlled legislative branch. Or were you asleep when that was happening?

Thanks for checking in, anyway. I was wondering if there was anyone whose plight I couldn’t sympathize with, and you’re answered that question.

It all depends on the terms we get. 

For example, there’s a decent chance that the government will make a fortune off of the AIG deal—we’re lending out 85 billion at a high interest rate and coming to own 80% of the company.  Of course, there’s also the possibility that AIG will default on the loan.

I’m tempted to call my conservative friends and ask how this exemplifies the glories of the free market.  Is this the reformed welfare in action; corporate welfare only?  Can’t say it seems like an improvement.

Who knows maybe I can get my salary raised 159% this year like Michelle Obama, oh that’s right I don’t have Barack to steer millions in graft and corruption to get me the payoff.

Didn’t happen this year, involved a promotion and a change to full time at a job she’d been at since before Obama was in a position of significant power, go fuck yourself.

Shorter neocons on this issue: Black woman is good at her job (described by U of C officials as “worth her weight in gold”) and gets promoted? The fix must be in.

Socialism is only good when it benefits the rich, guys.  That’s the take-away from this.

Come on, people, be reasonable. When we were already looking at the highest level of inequality since the Gilded Age, of course what the country needed was to engineer yet another massive drain of wealth to the top 1% from the rest of us. Why, that’s only fair!

Banks let illegal aliens… buy a house.

ZOMG!

LOL!

Is this actually the Official Republican Line on this?  That it’s all Teh Mezzkunz fault?

BTW, usually if you’re in a country illegally, the last thin you want to to is establish a paper trail by getting a mortgage.

Most of the people I know who used to be “illegal aliens” (no Latinos, mainly cute French waiters) were afraid to so much as get on a lease.

Between my mortgage and my student loans, I have a shitload of debt. I can has munies?

Is the government about to buy out every shitty loan in America?

No. Only the ones that affect very large, very rich corporations. If you personally are in trouble because of a shitty loan you got, then I’m afraid that’s just hard cheese my man.

Mmmmmmmm, hard cheeeeese.

I can haz baleout?

MikeEss, aren’t you forgetting black people and Muslims? .

Loaning money to subprime borrowerers was not a bad idea.  The higher rate of interest was there to offset the higher rate of default.  Many of those subprime borrowers were able to buy homes and then refinance into a more reasonable loan, which made $$$$$ for the banks and more than offset the defaults.

What’s fascinating is that it’s starting to come out that the loans with subprime terms were so profitable that they started giving them to prime borrowers as well, without telling them they could qualify for a regular mortgage.  So they deliberately steered people into loans that would be difficult for them to pay back instead of the loans that they could afford.

I don’t think regulation is enough.  I think we need to bring back the stocks for these guys.

“From what I read, AIG may have very little or no actual worth, if their obligations are as large or larger than their value.  80% of nothing is still nothing.”

The idea here is that AIG would go under if the stresses on the financial system caused everybody to dump assets of the same kind as they held.  Basically, if everybody sees AIG’s trouble and starts selling similar assets, AIG’s assets fall in value to where those assets are worth less than AIG’s debt. 

But suppose the feds extend AIG a big emergency loan so they don’t have to dump their assets.  With the danger of an asset-cheapening AIG dump out of the way, nobody else dumps their assets.  The crisis passes, all the assets retain their value, and we the taxpayer get interest on our loan and 80% of AIG. 

Now that you and I and every American on this blog own AIG, that’s how we hope it plays out

Shorter SPQR:  Even when the Republicans did it, it’s the Democrats’ fault.

sorry leftists but your boys were in charge of Sallie and Freddie

So student loans are going into default now?  Or did this troll just get his socialist programs confused?

Damn, I WISH “leftist boys” had been in charge of Sallie Mae.  Maybe then they wouldn’t have lobbied so aggressively to prevent bankruptcy from absolving student loan debt.

It’s not entirely impossible that this bailout could be a good thing. Depends entirely on the conditions under which the feds will take the bad loans over, and what they’ll do with them. Let’s just hope that RTC II is staffed by a democratic administration.

“Also feminists, Democrats, LGBTs, and any other group that can be “othered”…”

I thought they fit under “San Francisco Values”!

That’s right, paul. 

The thing that strikes me as really nuts is the ban on short-selling.  WTF?  When I saw that I bought a crapload of Nasdaq 100 tracking stock.  If the government is going to do absolutely ludicrous stuff to keep the markets from falling, I might as well make some money off of it.

At least this bailout is going to make the Iraq war look relatively cheap in comparison.

Silver linings people.

http://thesebastards.blogspot.com/

The ironic thing is that the economy crashing will largely “solve” illegal immigration. Because unlike the fantasies wingnuts have in their heads, illegal immigrants come here to *work*. No jobs, no immigration.

Neil:

I can think of a bunch of nefarious reasons for the ban on short-selling, but also some good ones. Here are two:

1) Traders monitor the level of short sales as a sign of market information about a stock. If you see a lot of short sales, you can usually bet that someone knows some bad news is soon to arrive, and that you might consider selling as well. So (especially with computer programs effectively making decisions for a lot of trades) a few short sales could turn into an avalanche and render a company insolvent even though there was no bad news. And the short-sellers would make out like bandits, because they could pick up the stock they never owned for pennies on the dollar when the dust settled.

2) This is a perfect time for someone to make a pile selling short after spreading a rumor of imminent insolvency or planting a fake news item or whatever other trick they can figure out to get a financial-industry stock to fall further than it otherwise might. (See 1) for piling on and insolvency to follow.)

Usually the information made available to the market by short sales counterbalance the damage that can be done, and the risk to the seller of getting caught in an upswing moderates the gambling instinct. But this is not usually. I can easily imagine the Fed and Treasury wanting to avoid as many complications as possible, just as you might tell passengers in your car to turn down the radio and stop shouting questions in your ear as you enter the local seven-way cloverleaf on the interstate in the middle of a rainstorm.

I see how all that works, paul.  But if you want to keep people from shorting the financials, there’s a much less heavy-handed way to do it.  Just… announce a bailout package like the one they just announced!  News like that will induce stock-buying and short-covering.  Once you’ve put forward a proposal like that, you’re putting some serious fear into the shorts and stiffening the spines of the longs.  It becomes a lot harder to scare stocks down. 

If short-sellers are spreading false rumors and running some kind of inverted pump & dump scam, that too should be defeated by the big bailout package, assuming that it’s as big as it looks like it’s going to be.  Investors will be a lot less skittish with this sort of thing in the works.

Neil:

I wouldn’t be surprised if the short-selling ban is lifted as soon as the details of the bailout package are known. Otherwise people can still game the uncertainties. I’m also not sure that the ban is a good idea, just that I can see reasons for doing it.

Mostly because the market can stay irrational longer than you (or any one of the bank-like objects) can stay solvent. Sure, you can announce a bailout and trust in investor savvy (ahem) to recognize that short sellers will get whipsawed. But until the bailout actually happens and ownership of the sh*tpile gets transferred to the taxpayer, many of these companies are effectively insolvent, and if their stock prices drop enough a bunch of creditors would be legally bound to demand their money (unless the Fed did more emergency indvidual bailouts), and blah blah blah.

Heavyhanded? Sure. Would they feel stupid if they didn’t do it and something went flooey? Also sure.

Work is for those who don’t know how to plunder - Savannah Georgia pirate t-shirt

The problem wasn’t so much that loans were made to sub-prime borrowers, the problem was that those loans were then packaged into “instruments” which were rated as highly as the lowest-risk loans and then sold onto other financial institutions who did not always know that they were putting their money into high-risk debt.

That’s why financial institutions have been caught in such a credit crunch since all this came to light, each corporation doesn’t know how much bad debt they *themselves* are holding, much less anyone else. That’s why the Fed making more credit available, one of their standard economy management tools, didn’t help, because the institutions are afraid to trust each other when they can’t even trust their own financial position.

The primary source of damage was the repeal of the Glass-Steagall act in 1999, pushed by Phil Gramm, which allowed Wall St. to kick off their brave new world of “collateralized debt obligations” and “structured investment vehicles” in the first place.

My commune is so excited today! We think that the great wave of nationalization has begun. All we have to do is collectively (love that word) keep shorting different segments of the economy. As each one falls, the gov’t will step in to take it over. Soon, the gov’t will own it all, and the great socialist age will begin. I can’t wait to attend my first workers council where we all get to vote on production quotas. I hope to get elected to a council position where I will get to attend meetings with other councils, where we vote on what products to make, and make sure we fit in with the new 5 year plan. Our commune is filled with joy at the prospect of meeting our pledge to greater productivity. Don’t lose hope. The current atmosphere of fear is the catalyst for a new day of collective celebration!

I’m convinced that Charlie Stross’s Economics v. 2.0 is already here: automated financial instruments become artificially intelligent and morph into Lovecraftian artificial life forms, incomprehensible by the brain of unaugmented man. They quickly destroy the economy for humans and set about dismantling the planet in order to make more of themselves.

The stock market is already highly automated—web-crawling engines trawl on-line headlines for terms that suggest confidence or lack of it, and submit bids accordingly, faster than human brokers can.

What would really make me angry is if the brokers, hedge-fund managers, investment bankers and other financial types no longer understand what they’re doing: “The computer simulation looks great and we’ll make tons of money!”

The debt actually isn’t a shitpile, at least not at the price the government will be buying it.  It’s just that various covenants, accounting standards and capital needs prevent financial institutions from hanging onto the stuff long enough to recoup the money.

Subprime securities are going for ten to fifteen cents on the dollar, but even the worst of the subprime borrowers aren’t defaulting at anything close to rates to justify such huge discounts.  The low prices are the result of a glut of the stuff in the marketplace because institutions are effectively forced to disgorge assets like this, and the prices keep tumbling because so many people are trying to sell them and far fewer are in a position to buy.  But the fact that the assets are impossible to sell under current market conditions does not mean that they’re worthless.  A lot of the mortgages are good, and they are getting sold at discounts that far outstrip the liabilities of the bad debts.

When an asset declines in value, these companies have to record that as a loss on their balance sheets, even if they haven’t realized the loss.  So if an institution believes the underlying value of an asset is sixty cents, and the market value for the security is forty cents and falling, the rational incentive is to buy the stuff up, but these accounting standards force the institution to unload the asset quickly, because, even if they believe, in the medium to long term, they’ll be able to get the sixty cents, if the market price falls to twenty-five, they’ll have to record that as a huge loss.

Even if you believe the real value of an asset is forty or fifty cents, and it’s going for ten or fifteen, and the institution believes that in three or four years, the value of the asset will triple or quadruple relative to its current market price, you can’t buy, because if it falls to seven cents before it begins to rise, the institution is going to get massacred.

The only people in the private market in a position to buy this stuff and hold it are specialized private equity funds who have expertise in distressed assets and backing from investors who are willing to accept no liquidity in the medium to long term, and who place a huge amount of trust in the managers, since these volatile assets could see a thirty to forty percent drop again in market value.  Needless to say, there aren’t a huge number of such funds.

The government can also buy this stuff.  Just because the act of buying it up is a “bailout” doesn’t necessarily mean it subsidizes the companies or that it will be a loss for the government.  The RTC, which bought junk bonds in the aftermath of the S&L;meltdown in the 80’s was ultimately profitable, and this venture is likely to be as well.  By the time the government winds down its involvement in this market in ten years or so, it could very well have raked in trillions of dollars in profits.

One less b, Eugene.  One less b.

The government can also buy this stuff.  Just because the act of buying it up is a “bailout” doesn’t necessarily mean it subsidizes the companies or that it will be a loss for the government.  The RTC, which bought junk bonds in the aftermath of the S&L;meltdown in the 80’s was ultimately profitable, and this venture is likely to be as well.  By the time the government winds down its involvement in this market in ten years or so, it could very well have raked in trillions of dollars in profits.

Except for one minor thing, mitchforth - this administration has been spectactularly unsuccessful in EVERYTHING but funnelling tax-payer money to big corporate and elite profits.

Yes, it could be a far-sighted and wise plan.  Judging by past experience, it’s a panic reaction in which many will pay and a few well connected clean up like bandits.

Alas, mitchforth doesn’t know what he’s talking about. Although the underlying mortgages may not default at a particularly high rate (say three to ten times the historical average) that still leaves a lot of mortgage-backed securities that are worth nothing at all, because other securities backed by the same pile of mortgages have prior claim to any funds coming in.

In simple terms, this is the problem with leverage: you make a lot of money when things are going your way, but it doesn’t take a very big drop in the underlying asset to wipe you out completely. (Quick example: you put down $10K to buy an asset worth $100K, and borrow the rest; the value of the asset drops to $90K, and now the value of your stake is zero.)

Alas, mitchforth doesn’t know what he’s talking about.

Raise your hand if you’re surprised.