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Author: Subject: Think Bank Bailouts Were Really Bad? Think Again.

True Peach





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  posted on 10/4/2010 at 08:08 PM
As the TARP program expires, look at what the actual cost to taxpayers may be out of the original $700 billion commitment. I admit when the program was first proposed by Pres Bush in the fall of '08 that it went against everything I had ever thought about capitalism. But apparently many experts thought there would be a complete breakdown in the banking system w/o it.

Seems to have been reasonably successful, and it goes to show that preconceived ideas (beliefs) are sometimes wrong.

http://www.nytimes.com/2010/10/01/business/01tarp.html?_r=1

 
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Zen Peach



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  posted on 10/4/2010 at 08:17 PM
I was also dead set against it but I admit, after some of the figures coming out lately, maybe it is actually working after all.

 

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Maximum Peach



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  posted on 10/5/2010 at 06:44 AM
I have not read this article yet, but it seems with the exception of AIG, Fannie and Freddie and some of the car companies, the plan was a success. I think I read a while back where Goldman and Morgan Stanley gave the taxpayer something like a >20% return.
 

Zen Peach



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  posted on 10/5/2010 at 06:52 AM
It was clearly necessary but the thing that needs to be explored is how the economy got into a position where the failure of a single firm would mean catastrophe.

 

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Maximum Peach



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  posted on 10/5/2010 at 07:42 AM
I know this is our govt, where billions now seem meaningless and people only get interested when we start talking trillions, but shouting that TARP isn't as bad as once thought seems a bit premature.

The banks - who for the most part weren't asking for a bailout but had one forced upon them - have mostly paid back what was given. Along with that forced "gift", they were forced to repay with billions in interest. You think they're just taking a loss on that? Doubtful. I'm sure there's a hundred little ways where they've jacked up fees to cover this, meaning that the taxpayers will just pay in another form.

But between AIG, GM, Chrysler, and Fannie & Freddie, there has to be what.... another $200 billion we may never see back? Think of all the productive labor and activity that has to go on to produce $200 billion in tax revenue. That still seems like a heck of a lot of money to me.

 

Maximum Peach



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  posted on 10/5/2010 at 07:54 AM
quote:
But between AIG, GM, Chrysler, and Fannie & Freddie, there has to be what.... another $200 billion we may never see back? Think of all the productive labor and activity that has to go on to produce $200 billion in tax revenue. That still seems like a heck of a lot of money to me.


I might even say you are underestimating with respect to Fannie and Freddie. Those seem to be bottomless pits.

 

Maximum Peach



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  posted on 10/5/2010 at 08:19 AM
quote:
quote:
But between AIG, GM, Chrysler, and Fannie & Freddie, there has to be what.... another $200 billion we may never see back? Think of all the productive labor and activity that has to go on to produce $200 billion in tax revenue. That still seems like a heck of a lot of money to me.
I might even say you are underestimating with respect to Fannie and Freddie. Those seem to be bottomless pits.
Exactly Jim. Unless those to GSE's are spun off into private hands - highly unlikely by any measure - the US taxpayer is essentially on the hook for all that mortgage debt. Only a very serious downturn would expose all that risk, nonetheless we're talking trillions. As it is, Fannie & Freddie keep coming back to the well on a regular basis for more to prop them up.

 

Maximum Peach



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  posted on 10/5/2010 at 08:27 AM
Actually, the more I think about this, the more this story seems politically timed to try and put a little good news out before the election. I know, that's a cynical view. But as the article points out; if only $387 billion were distributed, and we can easily identify half or more at serious risk of repayment (AIG, GM, et al...), then how is that such great news?
 

Zen Peach



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  posted on 10/5/2010 at 09:53 AM
quote:
quote:
quote:
But between AIG, GM, Chrysler, and Fannie & Freddie, there has to be what.... another $200 billion we may never see back? Think of all the productive labor and activity that has to go on to produce $200 billion in tax revenue. That still seems like a heck of a lot of money to me.
I might even say you are underestimating with respect to Fannie and Freddie. Those seem to be bottomless pits.
Exactly Jim. Unless those to GSE's are spun off into private hands - highly unlikely by any measure - the US taxpayer is essentially on the hook for all that mortgage debt. Only a very serious downturn would expose all that risk, nonetheless we're talking trillions. As it is, Fannie & Freddie keep coming back to the well on a regular basis for more to prop them up.


Yes, the private sector track record in the mortgage business is just sterling...

A huge factor in the GSEs taking such huge losses in the midst of the rest of the crash were the direct result of business decisons that were not made by politicians or bureaucrats, they were made by businessmen acting in the best interests of their shareholders. It's easy to blame one or two Democratic Congressmen for the lowering of their standards, but they also accepted weaker paper to make more money. Add in accounting irregularities which were undertaken by a few individuals...such behavior is not limited to a government-connected agency by any means.

Make the right rules and enforce them about types of loan products lenders can make and sell and enforce the rules about borrower education and the mortgage business would be better than ever before. The real weakness in the mortgage regulation world is at the state level, not the Federal.

 

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Maximum Peach



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  posted on 10/5/2010 at 10:26 AM
quote:
quote:
quote:
quote:
But between AIG, GM, Chrysler, and Fannie & Freddie, there has to be what.... another $200 billion we may never see back? Think of all the productive labor and activity that has to go on to produce $200 billion in tax revenue. That still seems like a heck of a lot of money to me.
I might even say you are underestimating with respect to Fannie and Freddie. Those seem to be bottomless pits.
Exactly Jim. Unless those to GSE's are spun off into private hands - highly unlikely by any measure - the US taxpayer is essentially on the hook for all that mortgage debt. Only a very serious downturn would expose all that risk, nonetheless we're talking trillions. As it is, Fannie & Freddie keep coming back to the well on a regular basis for more to prop them up.
Yes, the private sector track record in the mortgage business is just sterling...

A huge factor in the GSEs taking such huge losses in the midst of the rest of the crash were the direct result of business decisons that were not made by politicians or bureaucrats, they were made by businessmen acting in the best interests of their shareholders. It's easy to blame one or two Democratic Congressmen for the lowering of their standards, but they also accepted weaker paper to make more money. Add in accounting irregularities which were undertaken by a few individuals...such behavior is not limited to a government-connected agency by any means.

Make the right rules and enforce them about types of loan products lenders can make and sell and enforce the rules about borrower education and the mortgage business would be better than ever before. The real weakness in the mortgage regulation world is at the state level, not the Federal.
With more than half the loans backed by Freddie or Fannie, it generated an attitude that there's a safety net below these lenders, encouraging lax management of the whole process. My point is that the if the lenders knew that they were risking their own or their investor's money with no option of backstop or safety net via the GSE's, they'd be a lot more careful from the outset. Getting govt out of the mortgage business (other than regulation) by privatizing the GSE's would make the whole industry more responsible, and remove the temptation of politicians to seek modifications for groups or classes they wish to pander to.

 

Zen Peach



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  posted on 10/5/2010 at 10:53 AM
quote:
quote:
quote:
quote:
quote:
But between AIG, GM, Chrysler, and Fannie & Freddie, there has to be what.... another $200 billion we may never see back? Think of all the productive labor and activity that has to go on to produce $200 billion in tax revenue. That still seems like a heck of a lot of money to me.
I might even say you are underestimating with respect to Fannie and Freddie. Those seem to be bottomless pits.
Exactly Jim. Unless those to GSE's are spun off into private hands - highly unlikely by any measure - the US taxpayer is essentially on the hook for all that mortgage debt. Only a very serious downturn would expose all that risk, nonetheless we're talking trillions. As it is, Fannie & Freddie keep coming back to the well on a regular basis for more to prop them up.
Yes, the private sector track record in the mortgage business is just sterling...

A huge factor in the GSEs taking such huge losses in the midst of the rest of the crash were the direct result of business decisons that were not made by politicians or bureaucrats, they were made by businessmen acting in the best interests of their shareholders. It's easy to blame one or two Democratic Congressmen for the lowering of their standards, but they also accepted weaker paper to make more money. Add in accounting irregularities which were undertaken by a few individuals...such behavior is not limited to a government-connected agency by any means.

Make the right rules and enforce them about types of loan products lenders can make and sell and enforce the rules about borrower education and the mortgage business would be better than ever before. The real weakness in the mortgage regulation world is at the state level, not the Federal.
With more than half the loans backed by Freddie or Fannie, it generated an attitude that there's a safety net below these lenders, encouraging lax management of the whole process. My point is that the if the lenders knew that they were risking their own or their investor's money with no option of backstop or safety net via the GSE's, they'd be a lot more careful from the outset. Getting govt out of the mortgage business (other than regulation) by privatizing the GSE's would make the whole industry more responsible, and remove the temptation of politicians to seek modifications for groups or classes they wish to pander to.


Again, the GSEs were publicly traded companies and they did not directly lend money. All the GSEs do is purchase and sell loans in order to assist in facilitating the secondary market. They got into subprime ARMs because there was more money to be made and it was in the best interest of their shareholders. The constant inferrence that the GSEs were some government controlled mortgage cabal is just not true.

I worked on the side where lenders did have to answer to investors. That didn't change behaviors one whit. As a matter of fact, we quit dealing with the GSEs early on because their standards were...too strict! What does that tell you?

 

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Maximum Peach



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  posted on 10/5/2010 at 11:29 AM
quote:
What does that tell you?


You are the reason for the collapse?

 

Zen Peach



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  posted on 10/5/2010 at 11:33 AM
quote:
quote:
What does that tell you?


You are the reason for the collapse?


Hey now, when they introduced the new Payment Option ARM in the Compliance meeting, I laughed the loudest. I had some conscience, you know.

 

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Universal Peach



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  posted on 10/5/2010 at 11:58 AM
Just as bad now as before. Fannie and Freddie still as corrupt and a bottomless pit.

 

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Maximum Peach



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  posted on 10/5/2010 at 12:13 PM
quote:
Hey now, when they introduced the new Payment Option ARM in the Compliance meeting, I laughed the loudest. I had some conscience, you know.


I work on the securities end of the business, and when I first heard of the Option ARM, I almost fell out of my seat. You mean, people can essentially play "pick a payment"? Oy vey!! Then I learned about loans that were 125 LTV. Oh,you have no money, let me give you 125% of the value of the home. Here's some rope, go kill yourself.

 

True Peach



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  posted on 10/5/2010 at 01:03 PM
quote:
Actually, the more I think about this, the more this story seems politically timed to try and put a little good news out before the election. I know, that's a cynical view.


Oh come on now Rich, this article was written on the eve of the expiration of the legislation. How could a newspaper NOT do a post-mortem on this very significant bill? So there's some good news; we can all use some.

I don't recall, but I thought the lion's share of the auto bailouts came from the stimulus, not TARP. I seem to remember Pres Bush giving about $13 billion to GM and Chrysler at the end of 08, when congress failed to act, as a stopgap measure until the new president could deal w/ it.

 

Maximum Peach



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  posted on 10/5/2010 at 07:17 PM
quote:
quote:
Actually, the more I think about this, the more this story seems politically timed to try and put a little good news out before the election. I know, that's a cynical view.
Oh come on now Rich, this article was written on the eve of the expiration of the legislation. How could a newspaper NOT do a post-mortem on this very significant bill? So there's some good news; we can all use some.

I don't recall, but I thought the lion's share of the auto bailouts came from the stimulus, not TARP. I seem to remember Pres Bush giving about $13 billion to GM and Chrysler at the end of 08, when congress failed to act, as a stopgap measure until the new president could deal w/ it.
As you say Brock, its entirely right for any news source to report on this transition of TARP. But the story is more than that, with a positive spin and Geithner talking payback and how everything's looking better. I don't know how you look at less than 50% payback of the dispersed funds, with the balance seriously doubtful, and spin that to a rosy scenario to the taxpayers. You better be hoping those taxpayers aren't looking too closely.

You're right about funds going to GM (& Chrysler) during the end of Bush's term. That was about $18 million, all told. But the big save was the $50+ billion in June of '09, and that part did come from TARP.

 

True Peach



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  posted on 10/5/2010 at 07:32 PM
quote:
quote:
quote:
Actually, the more I think about this, the more this story seems politically timed to try and put a little good news out before the election. I know, that's a cynical view.
Oh come on now Rich, this article was written on the eve of the expiration of the legislation. How could a newspaper NOT do a post-mortem on this very significant bill? So there's some good news; we can all use some.

I don't recall, but I thought the lion's share of the auto bailouts came from the stimulus, not TARP. I seem to remember Pres Bush giving about $13 billion to GM and Chrysler at the end of 08, when congress failed to act, as a stopgap measure until the new president could deal w/ it.
As you say Brock, its entirely right for any news source to report on this transition of TARP. But the story is more than that, with a positive spin and Geithner talking payback and how everything's looking better. I don't know how you look at less than 50% payback of the dispersed funds, with the balance seriously doubtful, and spin that to a rosy scenario to the taxpayers. You better be hoping those taxpayers aren't looking too closely.

You're right about funds going to GM (& Chrysler) during the end of Bush's term. That was about $18 million, all told. But the big save was the $50+ billion in June of '09, and that part did come from TARP.


The article quotes Geithner as estimating losses now at $50 billion (w/ a possible break-even as a best case) and the nonpartisan Congressional Budget Office saying (as of August), $66 billion. So I do not know where your half of the $387 billion disbursed lost comes from.

If as you say, a total of $68 billion went to the autos from TARP, that makes these predictions all the more rosy. I never expected much back from the auto bailouts, as those two have some serious problems.

 
 


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