Paulson's plan is injecting credit from : government -> banks that hold toxic waste -> general consumers and regular business. Tax cut : government -> general consumers and regular business. The net effect of injecting credit is the same. The magnitude of the credit injection is different though. Paulson's one is ~10:1 and tax cut is 1:1. What I suggest bypass valuing these asset by government. Why? No market price means someone is getting a bad deal and Paulson made a point that taxpayers will get the bad deal. If it is such a good deal, Warren Buffet will be on it already. Why we need this bail out bill then? Yes, credit frozen and no banks that hold toxic waste can lend, but banks like BB&T can lend. I wish him the best. Sure, I agree that you don't want to fight the fed or government, but we are not debating about that. We are debating what government's action should be. Ultimately, this bail out bill still has a higher chance to pass than not, but doesn't mean it is the correct thing to do or I agree with it. If you make money, great. I am more concern about the future of this country. As of today, based on intrade, you made a high probability bet. I will say, if this is such a good deal. 1) De-securitized these CDO and sold them as individual mortgage. It is tedious. It is messy, but it is the best way to value these junk. 2) Taxpayer never gets a good deal because otherwise, you, me, hedgefund or Warren buffet will be on it already. I don't buy this argument at all. Gains are always welcomed to be privatized. They are trying to socialized losses right now.
Right now, banks that will fail get the ear of the government. As of today, I know BB&T will be around and they are the 14th largest bank. There are more that are staying silent right now. I am willing to take that bet.
Agree with you OT. Thanks for lending some longer term perspective, something us younger ones have to learn from history. When people have never seen bad times before, they always say but this time is different, but it never is. Players/names/products change but it will happen the same again and again. The government now wants to take a bowl of crap, place our pretty little American financial futures in and hope it won't get soiled as well. Someone will lend money to Walmart or Nabisco to run there businesses in a seamless manner when rates for risk come up to deal with reality. Just like somebody will buy the bowl of crap from Goldman sachs and others when the price is right. It'll mean the end of them but that's the price of having an unprotected orgy over there. Maybe I'm wrong, but i think our country needs a good dose of reality, to bring things back to earth. It's going to happen soon no matter what. Do we really need to take a 700 billion dollar hit of coke before we step into the rehab center. JIM
Agree with you on most points but see the reason why nobody has stepped in yet to buy assets is because $5 billion is simply not enough to floor this thing. a 700 bazooka has got a lot more fire power and I would think it has a fair chance of being sufficient. This is not intended to bail out anyone (athough it is unfortunately termed as such by everyone). This is to get those assets some price tag attached and a floor so that others such as private equity can now step in an bid with more confidence. I believe it would work.
Not true. New Money Pouring into Funds Targeting Distressed Deals - these guys made a killing on the way up and they are trying to do the same on the way down. They are lions on safari. I have no problem with them at all. BlackRock and U.S. hedge fund form company to buy distressed mortgages Six ventures ended August reporting raising about $1.5 billion of new capital to invest in distressed assets. Why they haven't bought any yet? Price is not low enough yet. Google and search for distress asset fund. There are plenty of them.
What's kind of ironic about the risk to taxpayers of this $700b bailout. We keep hearing about the risk to taxpayers. Here's an example: If the fund spends $700B on these distressed assets yet eventually only only recoups $550B, there is a cost to taxpayers of $150B. So where did the money go, or more to the matter - who didn't fulfill their obligation? The TAXPAYERS (who didn't pay their mortgage)
See my previous post, there are lots of private money in this world. Give them a deal and they will magically show up. Also, Buffet is a smart investor. He is not blowing all his money in one shot. His has many bullets and each one is 5B.. Plus for the sweet deal he got, I want to be in too!!!!!!!!
don't catch a falling knife. do you think the stock market in 2001 would not have crashed if the government intervened with 700 billion injection of stock purchases??
But, Paulson has been talking about mortgage-related assets; derivatives. All it takes is 5% of the mortgages to go into default to kill an asset that was geared up 20:1.
What kind of logic is this? About 60% household owns a house. About half of them own their house out right. Of the people that has a mortgage, a small % of them default on their mortgage. I am all for going after those home owners that default on their mortgage, but don't socialize the loss to 100% of all taxpayers.