The details of RTC II are emerging, and it's pretty simple: give Hank Paulson $700 billion, let him buy up mortgage-related toxic waste, and thereby rescue the banks and save the global financial system.
Henry Blodget asks one key question: how on earth will these things be priced? All we know so far is that it's going to be set up as a reverse auction, but that raises more questions than it answers. Reverse auctions are easy if you're dealing with something fungible. But CDOs and MBSs and the like are all unique, and I have a feeling that Paulson will have to hire a large number of highly-qualified bond-market professionals to look very carefully at every instrument on a case-by-case basis. My guess is that there will be some kind of performance-related pay, which will be an interesting development as far as the civil service is concerned.
The good news is that there are probably a lot of those highly-qualified bond-market professionals looking for work right now. The bad news, of course, is that they are the people who created the problem in the first place: is there any particular reason to believe that they'll be a particularly effective solution?
One thing does need to be cleared up: this, from the NYT, is confusing, and pretty much false.
The ambitious effort to transfer the bad debts of Wall Street, at least temporarily, into the obligations of American taxpayers, was first put forward by the administration late last week.
I'm pretty certain that Paulson is not going to buy up the obligations of Wall Street banks, let alone guarantee them. If you hold bonds issued by Goldman Sachs or Wells Fargo, they're going to remain obligations of Goldman Sachs and Wells Fargo. Instead, the government is going to buy bonds owned by Goldman Sachs or Wells Fargo -- bonds which, at heart, pay through to bondholders the income from millions of Americans' mortgage payments.
American taxpayers will have new obligations: in order to buy those bonds, the government is going to have to borrow hundreds of billions of dollars. That's new debt, and government debt. But there's no government guarantee on anything. And if you own a CDO or some other mortgage obligation, the government is definitively not going to step in and make sure you get paid in full.
They are buying discounted paper. Its an old real estate trick. You buy distressed mortgages for 50- 60 cents of full value. Mortgage is secured by our own homes and dwellings in our land with our own people!
When the market turns its worth full value in 2-3 years plus interest and penalties and other good stuff... I bet you wont call it toxic waste than.
Poltically, it means the end of the McCain candidacy and the GOP because of its treasonous maladminstration of the US government , and its criminal neglect while bankers , hedge fund managers and other thieves fleeced the "system". Not to mention the American people and their economy.
Mayor Mike Bloomberg can be as sanguine about New York City's ability to weather this mess as he wants to be, but the the truth is the financial hegemony of New York City as the money center of the universe is now history. It ended once and for all this past week.
I agree, NYC will soon suffer a really ugly decline in real estate values, as well as employment. I realize that many jobs went away months ago - but there are tens of thousand more yet to disappear.
Let's face it, about half-a-million people there have been employed in what was just a huge, mostly valueless gambling game, taking large salaries and bonuses out of the economy, and adding almost no value to anything or anyone, except themselves. That is all melting down now, and these parasites need to find other jobs.
I'm not shedding any tears for these people - CDS's are the bane of the capital markets, if you ask me. Only the lawyers will have steady work going forward.
Foreign banks may get help
By MIKE ALLEN | 9/21/08 7:24 AM EDT
In a change from the original proposal sent to Capitol Hill, foreign-based banks with big U.S. operations could qualify for the Treasury Department’s mortgage bailout, according to the fine print of an administration statement Saturday night.
The theory...
www.politico.com/news/...
If this GSGC (Government Sponsored Garbage Can) scheme does start to look wobbly then picking up the tab for LEH and AIG would have been a bargain for the taxpayer
Thank God. Looks like the banksters just got "offshored". Can we do politicians next?
a definite answer -- also weither this "bailout" will be
good in the longrun.
I'll be ready to pull the trigger and get out of the market
if things look to be falling apart in the next 1-2 weeks.
I'm letting my gold and energy mutual funds ride this
comfusing period -- I expect them to do OK for the
rest of this year -- but common stocks are on very
shaky territory.
Our economy is a stacked poker deck. Cronyism is pushing all of our chips to the corrupt.
Paulson and Goldman Scams represent everything that is wrong with the U.S. economy. Disgusting. Under the table handshakes lead to more bailouts for the little guy to pay out. Nothing will change.
the junk is already on the Feds balance sheet anyways at almost face value. they can simply extend the term of the 'facility'.
....or maybe hunky paulson wants to pay more than fair value for it.
Another idiot in denial. 1929-1953. Is that 2 or 3 years?
King Henry Treasury Secretary Paulson on Taxpayer Bailout: 'It's Very Unpleasant for Me, But It's a Lot More Attractive Than the Alternative' The Former CEO of Goldman Sachs has Emerged as Investment Banker in Chief; Says There Will be Housing and Mortgage Issues for Years; 'The Key is to Get Stability'
www.marketwatch.com/ne...
I think the after affects are at least partially known. "There Will be Housing and Mortgage Issues for Years" . If we get through the next couple of weeks without a total meltdown housing is still screwed - cause interest rates will be heading north (didn't someone say that housing has to be fixed before the economy can start to heal). Paulson said anything was better than the alternative - lets hope we don't get both.
This is going to cost TRILLIONS FOLKS!
Please think about every single lie that this administration is responsible for before you consider the accuracy of $700B.
I STRONGLY encourage everyone who reads this to notify their congressional representative to vote AGAINST any and all bailouts on this matter.
Think about how strong the market will become after the crash!!!! Thats the market I want, not some sucker move that Congress is considering.