For The ET Bailout Mumblers

Little sloppy but it will do in a pinch:


Past # of years teaser borrowers that are really up Shits Creek - 2

Past # of years teaser borrowers the plan is really targeted at – 2

Estimated # of teaser borrowers in millions 1.2

Estimated # of new foreclosures next year in millions 1.2

Years that most loans would be frozen for – 5

Generally accepted in the industry number of years that a mortgage loan takes to become profitable - 7

Generally accepted in the industry number of years it takes a mortgage loan payment stream to make a collateral value decline irrelevant - 7

What 5 + 2 equals - 7

What 5 years interest per 100K written on 30 years @ 5% is in thousands 32,160

What 5 years interest per 100K written on 30 years @ 7%is in thousands 39,900

What 39,900 – 32, 160 equals in thousands 7,740

What 7,740 X 1.2M equals - 9,288,000,000

Size of Goldman Sachs 2007 employee bonus fund - 16,000,000,000

Cost estimate of Iraq War through 09 – 1,600,000,000,000

Number of internal industry bailout plan cost estimates released - 0

Percent chance of an Eter being a free market mumbler - 90

Percentage of ET mumblers against the bailout - 100

Percentage of developed world markets that rose this week on news of the plan - 100

Percentage of ET mumblers that believe bailout is bad for dollar - 100

Rough number of pips dollar has moved up on yen since plan was rumored - 450

 

FT Home > Comment & analysis > Editorial comment

A rescue plan that is worth the price
Published: December 7 2007 19:33 | Last updated: December 7 2007 19:33

The US government’s attempt to stem the growing housing crisis by getting lenders to freeze loans to troubled subprime borrowers is a far from perfect scheme. It involves arbitrary judgments, rewards for reckless behaviour and variations of contracts. But it is justified by the extreme circumstances.

The package negotiated with lenders by Hank Paulson, the US Treasury secretary, is aimed at preventing a further wave of foreclosures over the next two to three years as floating-rate mortgages taken out by subprime borrowers reset to higher rates. Some 1.8m Americans who bought houses they could not afford fall into this category.

Of these people, some 600,000 are already well behind on mortgage payments and are thought to be beyond help, and perhaps another 600,000 can refinance their mortgages without assistance. The package will apply to those of the remaining 600,000 who have particularly poor credit scores and are likely to default on loans.

There are various criticisms of the plan, some with merit and some without. One criticism is that the US government should go further and use public funds to bail out delinquent borrowers. This is wrong: many people chose not to borrow recklessly to buy a home and those who did should not be rescued by taxpayers.

A criticism with more weight is that investors in mortgage-backed securities face a fall in the value of their investments because the terms are being unilaterally varied. There are concerns that investor lawsuits protesting at breach of contract could derail the plan.

Sanctity of contract is indeed an important principle. But variations to individual mortgages when borrowers cannot afford the payments are common as a method of avoiding foreclosure. This plan simply introduces standard terms and increases the number of debt workouts rather than introducing a novel breach of contract.

A third criticism is that the people whose payments will be frozen at the “teaser” rates should not have taken out these loans in the first place. There is moral hazard in rewarding foolish borrowing and it is exacerbated by a design flaw in the plan. The generosity of the aid will be determined by how low borrowers’ credit scores are, which is a further malign incentive.

But the US government is caught between the devil and the deep blue sea. The sheer scale of subprime borrowing in recent years makes it unlikely that lenders can negotiate enough individual mortgage variations in time to prevent the next wave of foreclosure. And, without action on a sufficient scale, the US housing crisis will deepen.

The US Treasury’s initiative is not perfect. It involves compromises and unfortunate precedents. But authorities around the world have already found that this crisis demands extreme measures.

http://www.ft.com/cms/s/0/27d5b238-a4f9-11dc-a93b-0000779fd2ac.html

 

LOL, 87. Actually I think it's a bull item for the dollar.

Here's the problemo though. The real estate crisis is only in the top of the second inning. AS WE SPEAK the home market is hitting sell stops. Hard. I've seen offers in Ft. Lauderdale move down 20% in just the past few WEEKS! I don't think there's much of a bid underneath, particularly if the dollar rallies. Then again you know how hard W, Paulson, Bernanke and the rest of the Boyz are hoping for a dollar collapse. It would be nice if a night's work at Mickey D's would pay as much in worthless dollars as the amount owed on those mortgages......

 

My RE related biz internals are telling me the crash in revenues is now over. It has been falling for 4 straight years although from once in a lifetime levels. My top was the fall of 03 which was the blowoff in the volume of all refi and sales activity. To curve fit this data to something a techinical trader could visualize you'd need a Nasdaq bubble chart falling not from 5,500 but from around 20-25,000 :eek: Or think of the sad fact about your most outrageous trading profit ever -- you cant repeat it - ever The blowoff top that the public and realtors see is really a top in the sales component of my stuff - the reason being that refis will have been falling due to rates. So anyway, the realtors and the public got their blowoff top in the falll of 05. They've been dying since then. The real question everybody is trying to answer is - When will the misery end?

I can't tell you where price will go but I can tell you where my model says volume will go. The bottom in volume of sales should be in the fall of 09 - essentially a 4 year crash starting from 2005. From there out, the realtors and public will see a level of sales activity that looks a lot like the period from late 90s through 02 which is absolutely fine with me as by then most of my upstart competitors will have long since gone to the undertaker.