[Rhodes22-list] Bush Speech and warnings and whisker pole post script

[Andrew Collins]

Brad

A Mt Gay induced typo or a Freudian slip. Anyway I am just wishing they
could do an Enron on the CEOs and all the rest of the financial wiz kids who
failed at their core competency. I am an engineer and if my firm makes even
the slightest error or omission on anything in a project, the clients
immediately start yelling about us compensating them. But not on the Street,
oh no.

Off to work.

Andrew
sv Carmen

On Wed, Sep 24, 2008 at 10:17 PM, Brad Haslett <flybrad at gmail.com> wrote:

> Andrew,
>
> Your cost numbers are way too high (hopefully).  If you appropriate
> 1.3 Trillion you can bet your ass that 1.3 Trillion will be spent.
> You used 'Billion' which is, uh, slightly off the mark.  But, what the
> hell, my former Senator growing-up in Illinois, Senator Everet
> Dirkson, used to say, "a billion here, a billion there, soon enough
> you're talking about real money".
>
> There's value in these "toxic" assets and taxpayers should get some of
> their money back.  I'm including an article that explains it well.
> Yeah, yeah, it's partisan, but look beyond that for the "meat".  We
> can discuss who's responsible later.
>
> Pass a damn bill before Monday you idiots or everything we say about
> you is true!
>
> Brad
>
> ---------------------
>
> September 22, 2008
> Democrats Try to Hijack the So-Called "Bailout"
> Congressional Corruption
> Hatched by Dafydd
>
> Republicans see the collapse of the mortgage market as a potential
> catastrophe that requires emergency measures... but an aberration
> caused by government intrusion into the market, not an indictment of
> capitalism and free markets.
>
> Democrats see it as proof positive that capitalism has been proven to
> be a fad that will soon pass away, like pet rocks... and a golden
> opportunity to reintroduce failed liberal fascist economic policies
> straight out of the platforms of Woodrow Wilson, Franklin Roosevelt,
> and Jimmy Carter.
>
> Which George W. Bush will show up... the veto-wielding Bush with a
> spine that we've seen in Democratic spending legislation after the
> 2006 elections -- or the wimpy, appeasing Bush that we've seen in
> legislation on racial preferences, Israeli-Palestinian "negotiations,"
> and Republican spending prior to the 2006 elections? The choice will
> spell the difference between a small-footprint intervention or a
> massive repudiation of decades of progress on free-market economics.
>
> But first, let's again talk about how we got into this mess.
> Subprime mortgages, securitization, and toxic assets
>
> This is the crux of the crisis: Back in the cretaceous period, when a
> bank or S&L issued a mortgage, it held that mortgage until the
> borrower paid it off. But in the contemporary era, what starts out as
> a mortgage is typically bundled with other mortgages into a
> "mortgage-backed securitie" (MBS) -- essentially bonds that can be
> traded on the open market. Bizarrely, in the process, bad debt
> automagically becomes good investment.
>
> How are MBSs created? Let me quote from an excellent sumary in a
> newsletter by John Maudlin (free registration required):
>
>    Let's jump back 18 months. I spent several letters going over how
> subprime mortgages were sold and then securitized. Let's quickly
> review. Huge Investment Bank (HIB) would encourage mortgage banks all
> over the country to make home loans, often providing the capital, and
> then HIB would purchase these loans and package them into large
> securities called Residential Mortgage Backed Securities or RMBS. They
> would take loans from different mortgage banks and different regions.
> They generally grouped the loans together as to their initial quality
> as in prime mortgages, ALT-A and the now infamous subprime mortgages.
> They also grouped together second lien loans, which were the loans
> generally made to get 100% financing or cash-out financing as home
> owners borrowed against the equity in their homes.
>
>    Typically, a RMBS would be sliced into anywhere from 5 to 15
> different pieces called tranches. They would go to the ratings
> agencies, who would give them a series of ratings on the various
> tranches, and who actually had a hand in saying what the size of each
> tranche could be. The top or senior level tranche had the rights to
> get paid back first in the event there was a problem with some of the
> underlying loans. That tranche was typically rated AAA. Then the next
> tranche would be rated AA and so on down to junk level. The lowest
> level was called the equity level, and this lowest level would take
> the first losses. For that risk, they also got any residual funds if
> everyone paid. The lower levels paid very high yields for the risk
> they took.
>
>    Then, since it was hard to sell some of the lower levels of these
> securities, HIB would take a lot of the lower level tranches and put
> them into another security called a Collateralized Debt Obligation or
> CDO. And yes, they sliced them up into tranches and went to the rating
> agencies and got them rated. The highest tranche was typically again
> AAA. Through the alchemy of finance, HIB took subprime mortgages and
> turned 96% (give or take a few points depending on the CDO) of them
> into AAA bonds. At the time, I compared it with taking nuclear waste
> and turning it into gold. Clever trick when you can do it, and
> everyone, from mortgage broker to investment bankers was paid
> handsomely to dance at the party.
>
> So what started as mortgages -- ranging from very secure prime
> mortgages, which are doing fine, to lousy subprime mortgages for too
> much money to borrowers who really didn't have either the credit
> history or income to justify such loans, many of which are currently
> in default 60 days or more -- were, by the magic of "securitization,"
> turned into bond-like securities; and in the process, many of the bad
> and even defaulted loans were transmaugrified into AAA-rated
> investments.
>
> The banks and other financial institutions that securitized mortgages
> (and resecuritized already securitized MBSs) would make their nut by
> skimming some percent, typically fifty basis points (0.5%), off the
> loan rate; thus, if they began with a package of mortgages at 6.5%
> (they tried to bundle like with like), they would securitize them into
> an MBS that paid 6%, keeping the difference -- and hoping there would
> be few enough defaults that the mortgages would produce more than 6%
> net.
>
> What happens when loans are defaulted is very complicated and not
> really germane to this post; they created different tiers, or
> "tranches," with different ratings -- AAA down to junk -- for
> different prices, that distributed the losses from worst tranch up to
> best. Not important here.
>
> But defaults, of course, are where the whole pyramid scheme broke
> down. While housing prices continued to rise, everybody was happy and
> there were few defaults. But starting a couple of years ago, when the
> housing bubble burst and the mortgage default rate shot up, a bunch of
> banks found themselves holding very insecure securities, losing money
> hand over teakettle. The crash began among the lenders and spread to
> secondary markets (the MBSs and CDOs) and even tertiary markets
> (insurance underwriters like AIG). In short order, institutions all
> over the world found themselves holding pieces of paper whose value
> was impossible to determine -- which are referred to as toxic assets.
>
> Toxic assets are illiquid, meaning they cannot be bought or sold
> because nobody knows how much to offer for them; they are frozen. If
> you hang onto them, they might regain some value later... or they
> could disappear completely. Worse, illiquid securities see their
> ratings drop; and current law forbids some types of funds from holding
> anything but AAAs... which means they may be forced by law to sell --
> but unable to sell because of illiquidity!
>
> Not only that, but current law also requires that such securities be
> "marked to market," meaning they must be valued at the last price
> offered by some institution that was desperate to sell -- because of
> the law in the previous paragraph. Thus, even institutions that didn't
> have to sell their toxic assets had to reprice them; this meant that a
> number of financial institutions suddenly did not have sufficient
> reserves for the amount of loans or leveraging they had out. That
> meant they needed to get hard cash and fast... which meant they would
> have to panic-sell a bunch of securities, precipitating a new round of
> re-rating and re-valuating.
>
> Eventually, nobody had a clue what anything was worth anymore; and
> nearly every financial institution in the world, it seems, was
> involved up to the fourth cervical vertebra in this mess.
>
> It was that uncertainty that caused the mortgage market to collapse.
> It's like trying to buy a car when all you can see is a grainy photo
> in a newspaper: You can't test-drive it, inspect it, or even kick the
> tires. You don't even know whether it contains an engine... how can
> you possibly make any kind of offer whatsoever?
>
> Worse yet, the seller has never seen the car either, and he knows no
> more about it than you!
>
> So what is to be done? Obviously, since the problem is the inability
> to set a value for these instruments, which makes them impossible to
> buy or sell (illiquid), the solution is to find a way to value them.
> Enter the Paulson-Bernanke emergency rescue plan.
> Treasury presses the reset button
>
> As proposed by Secretary of the Treasury Henry Paulson and Chairman of
> the Federal Reserve Ben Bernanke, the putative "$700 billion"
> "bailout" is actually neither: It will neither cost that much, nor
> will it bail out those financial institutions that wrote bad loans for
> people they knew were not likely to be able to pay them off.
>
> As I understand it, here is the basic plan. Note that I'm drawing this
> from many sources, it's not yet written in stone -- or even in ink --
> and I can't give you sources. If you want more information, you're on
> your own! But here is what I've been able to glean:
>
>   1. The Treasury is given authority to spend up to $700 billion
> (outstanding at any particular moment) to buy MBSs, CDOs, and related
> instruments that have become "illiquid." These "toxic assets" will be
> purchased from their current owners at a huge discount... meaning the
> banks and other investors who purchased these pigs in pokes will, in
> fact, take a significant financial hit... they're not being "bailed
> out."
>
> So the Treasury can buy up these toxic assets; what do they do with them?
>
>   2. I believe the plan (which has not yet been formalized in
> legislation) is to create a Treasury owned and managed resolution
> corporation that will take ownership of these toxic assets. Analysts
> will then pore through each MBS, determining the status of all the
> underlying mortgages and making a report publicly available. This will
> make the opaque assets completely transparent. All the financial
> fundamentals will be visible, so analysts at private companies can
> examine all of the securities and decide how much they would pay for
> each.
>
>   3. The resolution corporation will then auction off each of the the
> now-transparent MBSs, selling it to the highest bidder; that very
> action allows the market to reset the value of the security.
>
> That is why I characterize this rescue operation as "pressing the reset
> button."
>
> Once some corporation has examined the fundamentals of the security
> and offered the winning bid for it, the MBS becomes (by definition)
> liquid; it is no longer a toxic asset. Its value has been reset... and
> it can go up or down after that point based upon subsequent,
> well-understood events (defaults, repayments, prepayments) in the
> underlying mortgages and reevaluations based upon other, market-based
> criteria. In other words, it becomes just like a mutual fund.
>
> The crisis was the inability to value MBSs; the solution is to reset
> their values. The beauty of the Paulson-Bernanke plan is that this
> resetting is done by the free market, not by government decree.
>
> Finally, note this point:
>
>   4. When the Treasury-owned resolution corporation auctions off the
> now-transparent MBSs, it can use that money as income. Since the asset
> is now much more valuable than before (having been scrubbed into
> transparency), if it becomes saleable, then it will certainly sell for
> more than the discounted rate at which the corporation bought it. In
> other words, the resolution corporation will make a profit on every
> security it resells -- so the program will not actually cost $700
> billion... it may even end up completely in the black.
>
> That's why the Paulson-Bernanke plan is neither a bailout -- the
> so-called beneficiaries in fact must pay dearly for their folly -- nor
> massively expensive, since it resells most of the securities it
> bought, and at a profit. It could still end up costing money,
> depending on how many of the MBSs end up still toxic even after the
> complete report (if too many of the underlying mortgages are in
> default, for example); but the losses won't be anywhere near $700
> billion, and they may be less than the profits.
> Democrats: fingers in the pie, finger in your eye
>
> But the loyal opposition is not content to use the Paulson-Bernanke
> emergency mortgage-market rescue plan to rescue the mortgage market
> from the current emergency; how dull that would be, especially in an
> election year. Rather, they see America's crisis as their opportunity
> to enact or re-enact by extortion every awful, failed, thoroughly
> discredited, socialist-populist scheme they have tried, or always
> wanted to try, over the past century. Senate Democrats demand:
>
>    * Contingent stock in every, single company that sells its toxic
> assets to the resolution corporation; this would give the federal
> government a degree of ownership of virtually every bank, savings and
> loan, or other financial institution in the entire country. It is
> liberal fascism at its purest, and it would lead directly to much
> greater government control of private capital.
>
>    * They demand that bankruptcy judges be allowed to rewrite the
> terms of the underlying mortgages, in order to "provide direct
> assistance to homeowners caught in the foreclosure crisis"... in other
> words, to allow people who took out loans much too big for houses they
> could not afford to nevertheless keep those houses, even though they
> cannot make the payments. All at the expense of financial institutions
> that are teetering at the brink as it is.
>
>    * Democrats demand "limits on the pay of top executives whose
> firms seek help." That is, Congress would set the salaries and bonuses
> of executives working at companies that are in serious trouble because
> of the mortgage meltdown... and that's always worked out so well in
> the past!
>
>    *
>
>      They also have structural demands:
>
>      The 44-page Senate proposal, pulled together by Senator
> Christopher J. Dodd, Democrat of Connecticut and the chairman of the
> banking committee, would require the Treasury to run the rescue plan
> through a new "Office of Financial Stability" to be headed by an
> assistant treasury secretary. It would also establish an "Emergency
> Oversight Board" to monitor the bailout effort, made up of the Fed
> Chairman, the chairman of the Federal Deposit Insurance Corporation,
> the chairman of the Securities and Exchange Commission; and two
> non-government employees with "financial expertise" in the public and
> private sectors, one each appointed by the majority and minority
> leadership in Congress.
>
>      In addition, the Senate proposal would require monthly reports
> to Congress, rather than the biannual reports that would be required
> under the Bush administration's proposal.
>
>      This sounds like an invitation to micromanagement -- and unless
> I miss my guess, the "Emergency Oversight Board" will somehow end up
> stuffed with former members of the Clinton administration and/or
> Barack H. Obama's campaign, like Franklin Delano Raines, James
> Johnson, and Jamie Gorelick... the same people who ran Fannie Mae and
> Freddie Mac into the ground and ran many of the very multinationals
> that offered subprime loans, hedge-funds and other derivatives, or
> that insured these toxic assets, thus creating the crisis in the first
> place.
>
>    *
>
>      While former Clintonista (and now Charlie "Tax Ducker" Rangel's
> lawyer) wants the Democrats to go even further:
>      Barack Obama has tried to run as a unifying centrist. Now it may
> be time for him to clear the fog and talk, walk and sound like a true
> FDR liberal -- reminding the American people that at times like this,
> the government is a friend, not an enemy, contrary to conservative
> theology. Indeed, now may be the time for him and the Democratic
> Congress -- urged on as recently as Thursday by Treasury Secretary
> Henry Paulson -- to take the next 30 days to enact something
> reminiscent of FDR's first 100 days. It should be more than just a
> $700 billion bailout. It should also include billions to help
> homeowners avoid foreclosure, to assist the auto industry, to upgrade
> the nation's infrastructure, and to spur development of alternative
> energy sources.
>
> One can always trust Democrats to find a way, in any crisis, to throw
> gasoline at the bull.
>
> President Bush (and the upcoming President John S. McCain) must remain
> stalwart and demand an up or down vote on a clean version of the
> Paulson-Bernanke rescue plan... no add-in spending, no wage and price
> controls or upgrading the nation's infrastructure, and specifically,
> no damned earmarks.
>
> Anything less than this standard of rectitude and disinterested
> statesmanship would be an economic betrayal of America... and must
> lead to electoral ruin for any party which puts immediate
> self-gratification ahead of national economic survival.
>
> On Wed, Sep 24, 2008 at 8:58 PM, Andrew Collins
> <sailingvesselcarmen at gmail.com> wrote:
> > rad
> >
> > As Tootle pointedly pointed out the current administration warned about
> all
> > this repeatedly over the last 5 years ... but now we are all on the verge
> of
> > becoming pinko Commie socialists when Hank P rams the ultimately $1.3
> > Billion baleout down ... or, um, up ... well you know. I can't wait to
> buy
> > the papers tomorrow.
> >
> > Andrew
> > Fallow Traveller on s/v Carmen
> >
> > PS With all this talk of whisker poles that clean the cabin carpeting, I
> > think I's going to get me one and try it out in the gales of October.
> Yeah I
> > know it's supposed to be gales of November but I have to haul her by
> > Halloween.
> >
> > On Wed, Sep 24, 2008 at 9:45 PM, Brad Haslett <flybrad at gmail.com> wrote:
> >
> >> I truly hope SOMETHING gets passed so the loan on the house I'm
> >> selling closes on schedule next week (Tip O'neil said it best - all
> >> politics is local).  Here's one summary of the Presidents speech.
> >> Brad
> >>
> >> ---------------
> >>
> >> Bush: Congress Must Act to Save Stupid People
> >>
> >> Posted By Scott Ott On September 24, 2008 @ 10:41 am In Business, U.S.
> News
> >> |
> >>
> >> (2008-09-24) — The foundation of the U.S. economy could crumble,
> >> President George Bush said today, if Congress fails to approve a U.S.
> >> Treasury plan to take over foundering financial firms, a proposal
> >> which the president called "a much-needed 21st-century civil rights
> >> act for stupid people."
> >>
> >> "To sustain this shining city on a hill," Mr. Bush said, "we need to
> >> rescue the ignorant, irresponsible folks — from Wall Street to Capitol
> >> Hill to Main Street — who got us to where we are today. We must
> >> guarantee that no American suffers the soft bigotry of being forced to
> >> live with the consequences of his bad decisions."
> >>
> >> The president, in remarks to the news media clearly aimed at reluctant
> >> Republicans in Congress, said, "Our financial system rests on a
> >> foundation of huge banks, brokerage houses and quasi-governmental
> >> agencies that followed Washington's lead by gambling on long-shot,
> >> poorly-collateralized investments. Now this glorious way of life is
> >> threatened, and we must act to preserve it."
> >>
> >> "We need to guarantee that the structures, systems, people and
> >> products that got us to this point won't be tossed on the ash heap of
> >> history," said Mr. Bush. "If these giant companies fail, then America
> >> will be left with nothing but thousands of small to mid-sized
> >> financial firms that made prudent investment decisions during the past
> >> 15 years."
> >>
> >> The president added that, "Americans value the liberty they have to
> >> buy homes they can't afford, to invest in securities backed by nothing
> >> but hope, and to draw six- and seven-figure salaries based on the
> >> courage to risk taxpayer dollars on deals that even the dealmakers
> >> don't understand."
> >>
> >> "It is a moral imperative that we guard the civil rights of these
> >> idiots," he said. "If we fail, then we face the specter of free market
> >> capitalism run amok, and millions of Americans will feel the painful
> >> lash of personal responsibility across their backs."
> >>
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