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President says he'll sign. (http://www.businessweek.com/election/2008/blog/archives/2008/10/house_passes_70.html?chan=top+news_top+news+index+-+temp_news+%2B+analysis)

http://www.cleanmpg.com/photos/data/501/US_Capitol1.jpgTheo Francis – Business Week – Oct. 3, 2008

US Capital where all the action took place.

From the sounds of it, the add-on insurance vs. purchase amendment leaves us on the hook for default but we receive none of the upside (if there is an upside?), thus leaving the Exec’s of the companies holding the mortgages sitting fat, dumb and happy 5-years down the road no matter which way it works out. Thank you House Republicans! -- Ed.

In an about-face after a week of market turmoil and legislative maneuvering, the House of Representatives gave the Bush Administration broad authority to invest as much as $700 billion in the troubled market for mortgages and related securities.

The bill passed 263 to 171 without amendment, meaning it will go to President George W. Bush, who has said he will sign it. Both Barack Obama and John McCain had urged the bill’s passage.

The bill received 91 votes from Republicans and 172 from Democrats, up from 65 Republicans and 140 Democrats in a failed vote Monday. Faced with substantial public disapproval — albeit less than it seemed earlier in the week — Democratic leaders had insisted throughout the process that they needed a bipartisan bill; otherwise, they feared, they would be seen as joining the administration in a Wall Street bailout.

Lawmakers supporting the bill cited a rapidly worsening credit market that had left constituents unable to get financing to buy cars or bank loans to expand small businesses…

By the time the bill reached the House — after passing by a three-to-one margin in the Senate on Wednesday — it had long ceased to be the spartan, three-page document Treasury Secretary Henry Paulson sent to lawmakers two weeks ago, which gave him almost unfettered power to wade into the markets with $700 billion…

But two major rounds of negotiations since then, intended to make the bill more palatable to a wider range of lawmakers, layered on several other provisions, ranging from an alternative plan to insure assets instead of buying them — insisted upon by House Republicans but called unnecessary by Paulson — to a requirement that, if the buy-up program fails to break even in five years, Congress will come up with a plan to recoup losses from the financial industry. http://www.businessweek.com/election/2008/blog/archives/2008/10/house_pa sses_70.html?chan=top+news_top+news+index+-+temp_news+%2B+analysis

WTF. Can we get a Democratic House, Senate, and White House yet?!?!

Hilarious that you guys think the Dems are any less behind this bill than the Repubs. Did you not see Pelosi and Reid acting like they'd just won the Nobel Prize?
News Flash: The vast majority of politicians on BOTH sides of the aisle are corrupt and beholden to special interests. Our system of government has devolved from a democracy into an aristocracy. If you 're waiting on St. Barack to "fix" things you're going to be waiting a long, long time.

Hi Trun10:

___And the party that changed the design so instead of taking the toxic mortgages in at the Fed's low interest rate at market rather than just insuring the downside was who again :mad: :mad: :mad:

___So much for saving anyone other than the Republican supporting Wall Street CEO's that put the country at risk in the first place :(

___And Bush just signed it as expected...

___Did you enjoy the $10,000 check you just wrote to the government to cover your families portion of the bailout covering the CEO's and their companies? God how I loved it :rolleyes:

___Good Luck

___Wayne

Wayne, to answer your flippant rhetorical question: No, I'm not happy one bit about "writing that $10,000 check."

But how on earth can you only blame the Repubs when over 140 House Dems voted yes for the bill in its current version? Barack Obama personally called several House Dems to get them to vote yes. Did you not watch Reid, Pelosi and Barney Frank talking about how great it was that all their hard work paid off and that they've "saved" us all?

Your comments strike me as a prime example of how the partisanship in this country is out of control. People think "their" party is alway right and the other is always wrong. Personally I think BOTH parties are full of crap. You'll be happy to know that I think Bush/Cheney has been the biggest contributor to today's overwhelming division/partisanship, starting withthe 2000 Supreme Court ruling and followed by numerous autocratic actions by the administration - but I don't think that excuses it for Dems.

Back to the bill, I'm not smart enough to understand all the nunaces of the credit market. But I do know what rewarding bad behavior gets you: more of it! I would go so far as to say that even if I knew it would lead to a depression, I'd have voted against the bill. Maybe it's time we Americans "took our medicine" and learned a lesson instead of constantly pretending like we can do whatever we want and suffer no consequences.

Sorry for the diatribe. Can you guess I feel strongly that's there plenty of blame to go around on this one?

Does my ten grand at least buy a little K-Y?

Hi TRun10:

___The Dem's are just as much at fault as many here have pointed out but its this last second change that really ticks me off and it was a republican only deal that screwed us if what was reported is the case. The Democrat Frank in particular over saw this crap from the get go along with plenty of Republicans. Clinton and Greenspan allowed some of the shenanigans with passage of "stuff" long ago.

___What pisses me off is the current Administration was not doing anything about this until four weeks ago and now here we are with another $10,000 added to our debt that will not be paid off until hell freezes over.

___If we would have been allowed to take on the toxic mortgages at market and hold onto it while paying 0 to 5%, the US Government stood a chance to make a profit. With the Insurance only language, we take all the risk with little upside and the same people that bundled this crap stand to gain Billions as this 30 and 40:1 leverage is unwound over the next 3 to 5 years. Again, no risk for those directly involved with the creation of this disaster and all the risk with no reward for us who are putting up 10 percent of the GDP to cover this mess.

___Good Luck

___Wayne

On a positive note there was almost a 1 billion dollar tax credit added for certain EVs, PHEVs, and other hybrids. However, I've been against this bill from the beginning. I believe we will look back as a Country in the not so distant future and regret this decision.

Fair enough Wayne, I appreciate your perspective. And I defintely agree with you that the additions made an already horrible bill even worse.

The below email was received from the cheif economist of an investment bank:

I hope this explains to you where we are on the bailout:

"Disorderly conduct". Despite over $1 trillion of credit extended by the Fed to the private sector (see chart 1) and the House passage of the TARP (by 92 votes), the confidence collapse in credit markets is spreading.

History books will judge the unwinding of the credit boom as excessively disorderly; whether there was another way will be left to posterity.

There's little reason to rush to put cash to work, unless you are significantly underweight your long-term allocations to any asset class.

If we sound concerned even at today's levels, it's because credit markets are suffering longer-term damage as time passes, and as evidence of an OECD recession rises. Earlier this summer, we thought several hundred billion dollars of Fed liquidity would allow financial institutions to work through their problems gradually, and stem counterparty risk fears. It didn't; the Fed's emergency lending activities have more than doubled since then, and the exit strategy for the Fed as the lender of last resort becomes more difficult to achieve.

Extreme distress in credit markets. While prime money market fund outflows slowed after losing more than $400 billion since early September, credit markets are far from normal:

* One month Libor inter-bank rates rose over 4%. They should be closer to 2% given where Fed Funds rates are, and are likely to go (lower). GNMA spreads, despite being full faith and credit of the U.S., trade 2.5% over Treasuries.

* The commercial paper market for banks has shrunk by 20% since August.

Even more of a concern: the weighted average maturity of new CP issuance has fallen to 5 days; pretty soon we will have reverted to a cash economy.

* Investment-grade spreads are at all-time highs at 4.6% over Treasuries.

Investment-grade companies are scheduled to raise $655 billion next year, which will be a problem if credit markets are still impaired.

* As a result, corporations are calling on undrawn credit lines offered to them over the last 2 years (see chart 2), another example of how banks aggressively expanded their balance sheets. A $2.7 billion "bid list" appeared this week out of an institution looking to reduce its revolving credit exposure, but they did not appear to get any takers. The knock-on effect of bank lines being drawn will likely be a reduction in credit extended to everyone else.

* In Europe, banks across the continent require daily triage by governments, either through nationalization or blanket deposit guarantees (Fortis, Dexia, Glitnir, IKB, B&B, Hypo RE, Irish and Greek banks, etc.)

* Add to this California's funding challenge, given the lack of demand from tax-free money market funds for 9 to 12 month paper, and the sky-rocketing cost of funding in municipal cash markets (5% or more). Will there be a new Fed facility for municipalities?

Today, the TARP was passed, with an eye towrads fixing these problems.

Combined with all the other Fed programs announced, will it work?

Tarp shooter (Troubled Asset Relief Program)

The chances for success are mixed. I'm not going to occupy your time going through the mechanics of the TARP bill (although we can have a conference call on it if needed). It has two primary shortfalls: (a) it does not address the need for more bank capital to absorb losses and protect creditors, and (b) the process failed to engage the American public on the risks to their well-being if the best solution is not executed.

On (a), the September 22 EOTM reviewed how prior banking crises typically were resolved through public sector equity injections. In the days following the failed passage of TARP in the House, such plans emerged, one from former FDIC Chairman William Isaac, and another from Nobel Prize economist Edmund Phelps of Columbia University. Current estimates of required bank capital additions range from $400-$600 billion (to restore the level of capital adequacy that existed before the crisis began).

Public sector equity injections could be reduced by "bailing in" the private sector by allowing co-participation with the government. But the TARP, with its highly complicated and still-to-be determined auction mechanics, is a train that has left the station. I am hopeful for its success, while skeptical of its effectiveness (it's more about liquidity than capital), and timeliness (it will take weeks/months to get the auctions up and running). What cemented its chances of passage is an (allegedly) temporary increase in the FDIC deposit ceiling from $100k to $250k, with a provision that it does not have to be paid for via higher bank insurance premiums (i). Wow; the FDIC insurance fund is already below its statutory minimum level, the safety net just got increased by 2.5 times, and there's no plan to pay for it. What about Congressmen worried about protecting taxpayers? The cost of future bank failures will be more expensive, and taxpayers will be on the hook for it.

On (b), I remember reading what Thomas Jefferson said on the drafting of a simple 4-page Constitution; its purpose was "to place before mankind the common sense of the subject, in terms so plain and firm as to command their assent". TARP failed miserably on that front. Its 110-page length (before the addition of another 340 pages of tax legislation tacked on for the ride) highlights its flaw: it's long on disclosure rules, taxpayer clawbacks and CEO compensation limits, but lacks a coherent and clear vision as to how it's going to solve the problems at hand in the financial system. Including 2 pages on travel and maintenance reimbursements for bicycle commuters is not a great way to engage citizens on spending $700 billion. The lack of public consensus is a problem, as it may reduce the government's ability to get decisive policy implemented. WaMu deposits are greater in 2008 dollars than the deposits of all 9,000 banks that failed during the Depression; Lehman and WaMu assets combined are greater in 2008 dollars than all the RTC assets from the 1990s (ii). This is a big problem and needs big solutions, particularly as employment and other economic indicators are showing very sharp declines.

Why so much forced selling?

In the absence of more equity raised by financials (now that public equity investors and sovereign wealth funds have lost 30%-40%), asset sales are the next step. One of our more thoughtful hedge fund managers sent us their analysis on this. The concept was simple: they rounded up institutions likely to be forced sellers, a function of declining stock prices, rising credit spreads and increasing leverage. These institutions have a combined asset base of $29 trillion, and a market cap-to-assets ratio of only 2.5%. As a result, there's going to be a lot of stuff for sale as leverage is wound down. By the way, only 15% of these assets reside on U.S. balance sheets; this is actually more of a global problem.

Another source of selling may be hedge funds whose "basis trades" go awry; they are long illiquid assets, and short more liquid indices and ETFs. As these trades are unwound, more assets get sold, and you get temporary short-covering rallies in the indices.

Bottom-fishing

In every market crisis, there are opportunities created from the distress.

Leveraged loans and convertible bonds are trading at levels similar or lower to those prevailing in March of this year, and opportunities in mezzanine debt are much more attractive in both yield and terms/conditions than 2 years ago. Assets may get cheaper still, since there's no way to know who might be forced out of a highly leveraged position. But for cash buyers and those using low amounts of leverage (1-2 times), and for those with the staying power to see things through, there are plenty of opportunities to establish positions. On public equities, given the rising evidence of a recession across the OECD, we believe they could fall another 5%-10% before bottoming, depending on whether a more aggressive solution is adopted to reverse the contraction of credit, and the declining confidence in the financial system. The wall of cash will likely be just window-shopping until the banks are fixed.

Notes

A New York Times article last week reported that the Swiss government is cooperating with U.S. Federal officials in ways that alter Swiss secrecy rules going back to the Middle Ages. Using data obtained from UBS, the Swiss government will provide information on account names, assets, contact information and records of foreign entities. Why the shift? No one knows, but consider this: UBS assets are 400% of Swiss GDP. It's too big for the Swiss to rescue on their own, should they need to do so during European "bailout" season. I wonder whether Swiss government cooperation is influenced by the notion that they may need help from the Fed and ECB down the road.

(i) The history of FDIC insurance premiums does not instill confidence. In 1991, in the wake of the S&L crisis, the FDICIA ruling was supposed to usher in risk-based deposit premiums for banks, which didn't get legislated into effect until 2005. Even as of 2001, a prior FDIC Chairwoman testified to Congress that over 92 percent of banks and thrifts got the benefit of deposit insurance and paid no premiums at all (the free-rider problem).

Expanding the FDIC guarantee should take place only after the fund is replenished, and after risk based premiums are in place and paid by the vast majority of banks.

(ii) "The Financial Crisis of 2008:what needs to happen after TARP", Campbell R. Harvey, Professor of Finance, The Fuqua School of Business, Duke University.

TARP = Troubled Asset Relief Program

CP = Commercial Paper

GSE = Government Sponsored Enterprise (Fannie Mae and Freddie Mac) FDIC = Federal Deposit Insurance Corporation ETF = Exchange-Traded Fund FDICIA = Federal Deposit Insurance Corporation Improvement Act ISDA = International Swaps and Derivatives Association RTC = Resolution Trust Company OECD = Organization for Economic Co-operation and Development

That clears it all up!

Are they going to take this $10,000 out of my SS checks?

Or, do I have to give up retirement and go back to work?:Banane37:

Oh, nothing that straightforward...

They'll just inflate a little more and make all your dollars worth that much less. We The People tend to fuss less when they do it that way.

Welcome to Europe folks...soon we too will be paying 10 a gallon as the dollar plummets just a litte farther...

^^oh BUT don't worry the gov't will give you a tax break if you choose to ride a bicycle :)

Hi Reid:

___Thank you for the excellent post!

___Xringer, it’s only a $10,000 mortgage (this weeks additional $10,000 mortgage) added to the $120,000 mortgage you already owe for your families contribution to our great country. Also, there is no chance of every paying it off :ccry:

___Good Luck

___Wayne

Let's not forget about our other future obligations such as our continued spending in Iraq and the babyboomres' Social Security, etc. . . What happened to the surplus Clinton left for Bush, what happened to Republicans' less government model? I'm afraid we are on a long road to get out of this mess.

what happened to Republicans' less government model?
That's what I'm wondering. The party I thought I voted for, and still want to vote for, doesn't exist. :(:mad:

Welcome to Europe folks...soon we too will be paying 10 a gallon as the dollar plummets just a litte farther...Yep... checked a few countries for work Visas. Looks like I'll pass muster for the UK since they are still putting Engineers to work their.

My family came stateside when the homeland ran out of potatos. Sounds like they got that little bug fixed so may be time to call up my 3rd cousins. If were gonna get taxed like Europe, might as well go for the good schools and free stuff.

I don't know if Europe or anyone will be able to dodge this bullet but I fear the Dollar in the next decade could go the way of the Peso back in the 80's. If that happens were all screwed. I can diversify, but I'm not a Model, no-one will pay me in Euros. I'm still payed in greenbacks, and every day my paycheck shrinks and grocery bill balloons.

Crazy... just nuts.

I used to humor immigration because I thought it would be fun, now I'm looking to it as a Finance Refugee.

11011011

-Dan (4 hire)
-Kernel Driver Developer
-Hypermiling Advocate and Educator
-Small Business Owner

May I politely point out that the Dow fell 1% after the bill was passed? Can this really lead to good things?

On the topic of emigration, I hardly think it's going to help. Our mess has impacted the world market almost as much as it has screwed up our own. While we were generating bad debt, Europe and Asia were buying it up. While we were busy using credit to inflate property values, others said "Hey, that's bloody brilliant!" and followed suit. If it really hits the fan here, (which is still a possibility, though I don't recommend losing sleep over it), it will hit the fan there, too. Otherwise Ireland and Greece wouldn't be stirring things up in the EU by offering to guarantee all deposits in their banks without limit, an incentive primarily to improve their own liquidity.

Mind you I wouldn't be stopped from leaving...as far as the Canadian government is concerned, I **am** a citizen born abroad. But I'm staying here come hell or high water. As much as I hate our politics, I love this country. A taste of hell wouldn't be fun but I believe we can handle it. In some ways I think we need it in order to re-acquaint ourselves with reality. Corporate and political culture (basically the same thing) have spawned some really absurd ways of thinking that need to be quashed. "If it sounds good it must be good, regardless of the physical reality" needs to go. The credit crisis is exhibit A.

Stand up straight, stand up for your own, and stand up with your neighbors. We will all soon learn that a good life has nothing to do with a giant house with a green lawn, and patriotism is far divorced from a flag on a shiny new FSP. If we re-evaluate what is important then we will wind up just fine.

I've been against this bill from the beginning. The government has no business bailing out Wall Street and providing golden parachutes for the elites who caused the mess in the first place, all on Joe Sixpack's dime (what's left of it.)

I don't even care who wins the presidency now. Either way, we're ****ed.

Mitch McConnell has just lost my vote.


http://www.cleanmpg.com/photos/data/500/700bil.gif

I've been against this bill from the beginning. The government has no business bailing out Wall Street and providing golden parachutes for the elites who caused the mess in the first place, all on Joe Sixpack's dime (what's left of it.)

I don't even care who wins the presidency now. Either way, we're ****ed.

Mitch McConnell has just lost my vote.


http://www.cleanmpg.com/photos/data/500/700bil.gif

This has to be the most in-depth analysis of the bill I have seen to date...

:rolleyes:

Hi Chief302:

___Probably the only factual one to date anyways :D :D :D

___Good Luck

___Wayne

A human side to this: Foreclosure forgiven after 90-yr old shoots herself prior to eviction (http://www.cnn.com/2008/US/10/03/eviction.suicide.attempt/index.html)

That is sad, but how did she get approved for a 30yr mortgage at age 86?!?!

A human side to this: Foreclosure forgiven after 90-yr old shoots herself prior to eviction (http://www.cnn.com/2008/US/10/03/eviction.suicide.attempt/index.html)

It's a horrible story, but I think it sets a bad precedent to wave off loans for suicide attempts. As foreclosures increase, I think we may see more and more of this.

That is sad, but how did she get approved for a 30yr mortgage at age 86?!?!It really is criminal that no one suggested a reverse mortgage. Sounds like the mortgage broker was pretty damn predatory. From what I've read on reverse mortgages, they are the way to go for seniors.

11011011

It really is criminal that no one suggested a reverse mortgage. Sounds like the mortgage broker was pretty damn predatory. From what I've read on reverse mortgages, they are the way to go for seniors.

11011011

Countrywide was the originator and they collapsed and are now under indictment for sevveral related offenses IIRC.

It really is criminal that no one suggested a reverse mortgage. Sounds like the mortgage broker was pretty damn predatory. From what I've read on reverse mortgages, they are the way to go for seniors.

11011011

I've always had a negative connotation with reverse mortgages.

Per wikipedia:

A significant drawback to reverse mortgages are the high upfront costs. This upfront cost is tempered by the lower interest rate over time, but some seniors choose other options to draw on their home equity, particularly if they don't plan to remain at the property more than five years.

We don't have any information about what was offered to her and how it was offered. There is always the chance of shenanigans, but I don't see anything too predatory about a 6.375% fixed loan. It is very similar to the rate I got at about the same time. Unfortunately, the article does not explain why she began to miss payments. Obviously I hope the best for her, and her family.