Like what? I didn't read any between lines in the email. He is even bashing attached typical democrats spending as pointless.
"I want reforms of the industry, and I want it to be as punitive as possible." Punish an entire industry (banks, brokerages, traders?) for the actions of certain firms, who have mostly collapsed anyway? Reform (read: regulate) it to make it as punitive as possible? The market (and those "evil shorts") were already doing the punitive work. The so-called reforms will have all sorts of unintended consequences as they try to correct something that's now a non-issue. As for the blank check, I don't like it either.
Alright, I am for fair punitive reform. IE, not a flat tax increase on the whole industry or something BS like that. Also, I agree with you that banning shorts are INSANE. That's just WRONG. Banning naked short is something they should do a long time though. However, all derivatives or options need to go with reserve. IE like typical insurance companies. CDS is the root of this problem and I do expect some regulation on it. Stated income mortgage obviously need to be regulated too. No liar loans. Paulson's request addresses none of the problem listed above. It just might solved the credit crunch problem but it sticks a 700B bill to you and me. If it is a credit crunch problem, send 700B to you and me and let us spend it.
I like John Mauldin's take on CDS. He's been talking about them for awhile. http://www.fool.com/investing/general/2008/01/18/10-questions-for-john-mauldin-part-2.aspx
At the root of all our problems are house prices. Can we agree on that or not? If house prices stabilized or started rising would the crisis be over or not? Yes, it would because the MBS would now be able to be valued with confidence. So why not a solution that stops house prices from falling further? Like for example have Fannie and Freddie rewrite mortgages that people can live with, either by adjusting the rate or making them interest only or extending the term. Keeping people in their houses and paying something on their note with the caveat that when prices rise sufficiently the homeowner either sells the house to pay off the note or refinances in to a mortgage at market rates. This is a simple solution that would solve everything. Why is it not being implemented? Because it would render many tranches of debt worthless and trigger all sorts of CDOs. Make no mistake, this bailout is all about bailing out bond holders and will do little to nothing to solve the crisis. This may seem as though it is the mother of all bailouts at $700 Billion but it will either not be the last or $700B will not be the full extent of the bailout. Housing is what needs to be backstopped, and until it is no amount of credit bailouts will solve the underlying problem. Are mortgages available right now? Yes they are. Maybe not the 100% no money down no doc types but those are not coming back even if the banks start lending again so how is it going to help curing the banks balance sheets? They are lending now, they won't be able to lend more even if this bailout goes through because there is a dearth of QUALIFIED borrowers. Anyone qualified can get a loan NOW. This is a bond holder bailout pure and simple and will not solve anything.
That's exactly what I mentioned above. CDS is insurance contract. You can't have Katrina come and every insurance companies go bankrupt because CEO gets all the money upfront as bonus. Smell like an insurance contract, act like an insurance contract and by golly, need to be regulated like an insurance contract. Aka, can't put up the reserve? Can't write the contract then.
But why is there a dearth of qualified buyers? Isn't it because homes are still tremendously overpriced historically relative to income? It seems to me the long term solution is to get people out of homes they fundamentally cannot afford, and into housing they can. Even if this means (gasp) renting. Anything else seems like a short term bandaid and a hope for the return of the housing bubble.
Disagree. The housing market is merely a symptom. The root of our problems: 1. Never ending budget deficits. 2. Stupidly aggressive money-pump by the Fed. 3. Too low interest rates 4. Excessive use of credit-based consumption by consumers (and Gummint too, you know) 5. Bush mandated policy of "let everyone buy a house, qualifed or not... the perpetual money pump will keep prices up so it will all work". 6. Loan underwriters don't really "underwrite".. they "process and package" loans for dumb-ass investors to buy. 7. And then there's that whole "credit derivative" sham thingy.
Saw an Economics prof on tv that pointed to Greenspan keeping rates too low for too long and the Fed not overseeing mortgages even though they had the authority to do so since the early '90's. So the "irrational exuberance" that Greenspan warned against was actually fueled by Fed policy. It would find an outlet in mal-investment somewhere, and the lack of (Fed) oversight in the mortgage lending area was, oddly enough, the weak spot where the flood of liquidity broke through. So the subprime mess would be a symptom, not a cause.