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  • September 30, 2008 01:05 PM EDT by Alexis Glick

    If No Bailout, What Should We Do?

    Wow. Certainly struck a chord on that bailout blog! I am thrilled to see the discussion unfold in the commentary. That is why I write this blog. I also notice that everyone who replied did not want to see a bailout. So what would you prefer to see? If we can mutually agree that something needs to happen, what would you like to see happen? Send me your ideas. I am not suggesting that any one of us doesn’t understand the issues. I am simply suggesting that the evidence each day builds in favor of something. What that something is, nobody knows for sure. I just wonder what happens if the market were to sell off another 1,000 or 2,000 points. At one point do we address the fear? Look at something that a frequent guest of mine Richard Suttmeier wrote from ValuEngine. He has been well ahead of this story and is a student of banking. He knows the intricacies of the banking infrastructure in ways that I certainly don’t.

    The Technical Line in the Sand – 10,625 Dow

    The rebound for the Dow Industrial Average needs to result in a close today above the 120-month simple moving average at 10,625 to avoid a monthly close below that average since July 1982. If we get the negative close, we confirm a multi-year BEAR MARKET.

    Dow Theory is in Bearish Mode
    Closes on Monday were below the July 15 closing lows for both the Dow Transports and the Dow Industrials: 4,657.56 Dow Transports and 10,962.54 Dow Industrials were the July closing lows.

    Suttmeier’s Fearless Prediction of the Week

    Here’s what I predicted in the VE Sector Focus: “With or without a $700 billion Wall Street Bailout Bill the Dow Industrial Average will not end September below its 120-month simple moving average at 10,625.” We need the Dow up 259 at today’s close for my prediction to be correct. I thought that the longer-term bearish call will be delayed until the end of October.

    The catalyst to confirm a multi-year BEAR MARKET will be miserable third quarter earnings from community and regional banks.

    Congratulations to FDIC Chair Sheila Bair – She gets it!

    FDIC Chair Sheila Bair successfully orchestrated the failure of WaMu, and the take-under of Wachovia by Citigroup.

    WaMu was the sixth largest US bank with $353 billion in assets at the end of the second quarter. There was a run on the bank last week, and with $60 billion in Alt-A Loans failing action was needed. The FDIC in cutting a deal with JP Morgan protected 100% of US deposits, which pushes JP Morgan’s assets to $1.8 trillion, second to Bank of America.

    Monday’s deal was a more complex. Citigroup takes over the banking operations of Wachovia on more creative thinking by Sheila Bair. Citi becomes the first $2.1 trillion bank with $782 billion of Wachovia. Wachovia has a $122 billion exposure to Alt-A mortgages. Without analyzing the details it appears that Wachovia will operate as an independent entity similar to Countrywide and for the same reason – These combo’s are above the legal limit for deposits in California.

    I credit Monday’s FDIC actions on Wachovia as a reason the Bailout Plan was defeated. In the FDIC press release Sheila Bair stated, “On the whole, the commercial banking system in the United States remains well capitalized.” “This action was necessary to maintain confidence in the banking industry given current financial market conditions.”

    Kudos to Sheila Bair!

    The FDIC Dug Deep into its Toolbox in the Citi / Wachovia Deal

    The tool is called the “systemic risk exception”. Using this exception for the first time, the FDIC covered part of Citi's cost should the loss on Wachovia's assets exceed $42 billion. In return the FDIC received $12 billion in preferred stock and warrants from Citi. This allowed all depositors to be protected.

    The FDIC completed the deal without formal failure conducting what’s called an open-bank transaction, for the first time since 1992.

    This systemic-risk exception required the approval of the Federal Reserve Board and Treasury Department and consultation with President Bush. This is what we need to avoid a $700 billion bailout bill. This cooperation between regulators to do what’s right for the American people, within the letter of the laws and lifelines available is a huge help in thawing the Credit Markets.

    The FDIC should be the centerpiece to a Housing Solution without a Bailout Bill

    The FDIC should use a provision of the 1991 law and request that all US deposits be backed by the US government. This will stop runs on the banks both through lines on Main Street, and through on-line banking. This would restart the flow of credit on Main Street as smaller banks are reluctant to lend as depositors go elsewhere.

    The FDIC has two lines of credit with the US Treasury. A $30 billion line direct to the US Treasury has never been tapped. A $40 billion line of credit to the Federal Finance Bank, which is used on occasion when the FDIC takes on illiquid assets.

    Funding for mortgage relieve through the FDIC can be funded by the Federal Finance Bank

    The US Treasury should increase the size of US Treasury auctions at these historically low rates and put the proceeds under the Federal Finance Bank, which would fund an FDIC Mortgage Relief program. In effect the FDIC would channel low interest loans through the Federal Finance Bank to give every homeowner a “Mortgage Mulligan.” This is better than bailing out Wall Street.

    What the US Treasury should be doing with Fannie & Freddie

    Let’s get the geniuses of the new Federal Housing Finance Agency to do their job and evaluate the $5.4 trillion in Fannie and Freddie mortgages that are already on the back of US taxpayers. When this agency sets a fair market value for toxic mortgages the credit markets can begin the thaw.

    The Federal Reserve should expand the use of existing tools to get credit flowing.

    The New York Federal Reserve should take the toxic collateral from commercial banks and primary dealers on a 90 day Repo in exchange for a special 90-day US Treasury bill at a value of 22 cents on the dollar for the mortgage-related collateral. The Federal Reserve should cut the discount rate to 1%, keeping the federal funds rate at 2%. This takes us through year end, and should get the credit market less stressed.

    Let’s use the tools we have, and let capitalism live on in the United States of America.

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Steven Moser

Well Alexis, It seems as if the best answers as to what the government is to do have really already been proposed. Suspend mark to market, cut capital gains(at a minimum cut the capital gain inflation tax), and lower corporate tax rates. From what I understand, it seems like the administration is pretty much unwilling to look at most of these at least for now. So now we have an administration that is proposing this bailout, the tax payers say no, and it is our fault now because we are unwilling to help this crisis. By the way, it's all because the taxpayers don't understand why we need this????? There is a serious misunderstanding in the powers that be as to what they are supposed to be doing here. If we would give these first proposals a look at. Maybe have some economist give these cuts in tax and mark to market some legs, a little bit of media push could go a long way. Even if these proposals don't make the market level back off, it seems to me that there is too many phony numbers propping the market up anyway. We will just have to suck it up and take the loss even though credit is dry, unemployment is up, and housing prices are dropping. I think everything has a balance point and the prices of most housing is overpriced anyway. If we just prop these things up, I am afraid we are just delaying the inevitable later crash in the future. The market is way too good at leveling these things out on its own. Sometimes you just have to take your blows and move on....even if they hurt EXTREMELY BAD!!

October 1, 2008 at 6:06 am

Mike Taylor

Dave Ramsey Has It Right! The Common Sense Fix Years of bad decisions and stupid mistakes have created an economic nightmare in this country, but $700 billion in new debt is not the answer. As a tax-paying American citizen, I will not support any congressperson who votes to implement such a policy. Instead, I submit the following threestep Common Sense Plan. I. INSURANCE a. Insure the subprime bonds/mortgages with an underlying FHA-type insurance. Government-insured and backed loans would have an instant market all over the world, creating immediate and needed liquidity. b. In order for a company to accept the government-backed insurance, they must do two things: 1. Rewrite any mortgage that is more than three months delinquent to a 6% fixed-rate mortgage. a. Roll all back payments with no late fees or legal costs into the balance. This brings homeowners current and allows them a chance to keep their homes. b. Cancel all prepayment penalties to encourage refinancing or the sale of the property to pay off the bad loan. In the event of foreclosure or short sale, the borrower will not be held liable for any deficit balance. FHA does this now, and that encourages mortgage companies to go the extra mile while working with the borrower—again limiting foreclosures and ruined lives. 2. Cancel ALL golden parachutes of EXISTING and FUTURE CEOs and executive team members as long as the company holds these government-insured bonds/mortgages. This keeps underperforming executives from being paid when they don’t do their jobs. c. This backstop will cost less than $50 billion—a small fraction of the current proposal. II. MARK TO MARKET a. Remove mark to market accounting rules for two years on only subprime Tier III bonds/mortgages. This keeps companies from being forced to artificially mark down bonds/mortgages below the value of the underlying mortgages and real estate. b. This move creates patience in the market and has an immediate stabilizing effect on failing and ailing banks—and it costs the taxpayer nothing. III. CAPITAL GAINS TAX a. Remove the capital gains tax completely. Investors will flood the real estate and stock market in search of tax-free profits, creating tremendous—and immediate—liquidity in the markets. Again, this costs the taxpayer nothing. b. This move will be seen as a lightning rod politically because many will say it is helping the rich. The truth is the rich will benefit, but it will be their money that stimulates the economy. This will enable all Americans to have more stable jobs and retirement investments that go up instead of down. This is not a time for envy, and it’s not a time for politics. It’s time for all of us, as Americans, to stand up, speak out, and fix this mess.

October 1, 2008 at 5:51 am

Richard P

What to do? How about firing all the employees at Freddie Mac and Fannie May that are related to senators and congressmen (now you know their reluctance to act) that would give them MORE than the $700 billion they need and it won't cost us a penny. It would also create a lot of jobs for people who know how to actually work instead of having a bunch of dead beat politcal appointee freeloaders who couldn't run an automatic copying machine if you glued their fingers to the copy button.

October 1, 2008 at 4:57 am

Frank

No bailout! I refuse to pay for othe people's stupidity! So much for personal responsibility. Here is how we can fix some of the problem. Cut capital gains tax to 5% Remove the Income Tax Cut Business tax to 5% Massive cuts in government spending get rid of all entitlements, subsidies, foreign aid, and earmarks. social security and medicare are just a tax on me anyway, their Bankrupt before I turn 65 we might as well get used to the idea now. Privatize Fanny and Freddie Fire Chris Cox Barney Frank Chris Dodd Hank Paulson and Ben Bernacke! If the government needs more tax revenue it can institute a 5% sales tax. This is a far better place to start than a trillion dollar bailout.

October 1, 2008 at 4:34 am

Eric

Dave Ramsey has a common sense proposal that I recommend: Years of bad decisions and stupid mistakes have created an economic nightmare in this country, but $700 billion in new debt is not the answer. As a tax-paying American citizen, I will not support any congressperson who votes to implement such a policy. Instead, I submit the following three steps: Common Sense Plan. I. INSURANCE A. Insure the subprime bonds/mortgages with an underlying FHA-type insurance. Government-insured and backed loans would have an instant market all over the world, creating immediate and needed liquidity. B. In order for a company to accept the government-backed insurance, they must do two things: 1. Rewrite any mortgage that is more than three months delinquent to a 6% fixed-rate mortgage. a. Roll all back payments with no late fees or legal costs into the balance. This brings homeowners current and allows them a chance to keep their homes. b. Cancel all prepayment penalties to encourage refinancing or the sale of the property to pay off the bad loan. In the event of foreclosure or short sale, the borrower will not be held liable for any deficit balance. FHA does this now, and that encourages mortgage companies to go the extra mile while working with the borrower—again limiting foreclosures and ruined lives. 2. Cancel ALL golden parachutes of EXISTING and FUTURE CEOs and executive team members as long as the company holds these government-insured bonds/mortgages. This keeps underperforming executives from being paid when they don’t do their jobs. C. This backstop will cost less than $50 billion—a small fraction of the current proposal. II. MARK TO MARKET A. Remove mark to market accounting rules for two years on only subprime Tier III bonds/mortgages. This keeps companies from being forced to artificially mark down bonds/mortgages below the value of the underlying mortgages and real estate. B. This move creates patience in the market and has an immediate stabilizing effect on failing and ailing banks—and it costs the taxpayer nothing. III. CAPITAL GAINS TAX A. Remove the capital gains tax completely. Investors will flood the real estate and stock market in search of tax-free profits, creating tremendous—and immediate—liquidity in the markets. Again, this costs the taxpayer nothing. B. This move will be seen as a lightning rod politically because many will say it is helping the rich. The truth is the rich will benefit, but it will be their money that stimulates the economy. This will enable all Americans to have more stable jobs and retirement investments that go up instead of down. This is not a time for envy, and it’s not a time for politics. It’s time for all of us, as Americans, to stand up, speak out, and fix this mess.

October 1, 2008 at 3:56 am

fstop107

For starters the $700B won't come close to solving the problem. The total mortgage in the US is $14 Trillion and say $1.8T is bad debt how does this add up? How will buying some of this bad paper infuse capital for the banks? What am I missing here? How will they price these bound together mortgages? Why use tax payers money? Where is the transparency we need? Do we really trust the government to handle this MESS? Why all of a sudden do the do-nothing politicians see this as the end of the world? Please give me a break! Let's let Barney "Clueless" Frank buy this junk and lease it to his buddy Dodd! And why we are at it, Nancy Pelosi can rent the garage apartment and learn when it is the proper time to speak. Nancy needs to control herself and check her California attitude in at the door in DC. Can we all say deal breaker? The Three Stooges could not have played this better!

October 1, 2008 at 3:14 am

Betty Harris

Raise home mortgages to 50 or more years. Payments will be lower, more money to pay other bills, spend, etc. It was done during the great depression.

October 1, 2008 at 12:37 am

EM

The reality is that, this administration is using the same "scare" tactics it used in 911 and will continue to use to manipulate the "lay" people into doing what they want. 'Lions and Tigers and Bears oh My.' Wizard of OZ [World of Babbling Idiots] If Wall Street is so financially savvy why couldn't they figure out that the creative financing they were peddling (i.e., CDO, CMBS, etc) was going to blow up in their/our faces - financial geniuses -- yeah right!!! Those idiots on Wall Street already robbed the American people with the fees charged during the subprime underwriting greed fest and now they want us to give them more $$$. I think not, they should simply rewrite the loans to reflect the real appraised value versus the inflated values that increased the points (inflated fees) they received when underwriting the loan. That way foreclosures would be taken off the books and they (Banks) would be able to lend on the monies that are currently tied up (frozen) in non-performing assets. Let's clean up the mess where it started instead of giving the idiots in Washington the okay to give the idiots on Wall Street more of our $$$. Unfortunately, this fiasco, is a nasty reality check, that the era of credit has manifested a nightmare - meaning don't buy what you can't afford (period). So much for "family values" -- how dare you use family values as a political strategy when you're allowing the families of American citizens to be thrown in the street, shelters, etc. Let Babylon Fall...

September 30, 2008 at 11:20 pm

Ted Sherman

The first was a rant now a solution. Change the accouting rules tell the market the piggybank is closed and figure this out or you too will be out of a job. Listen to Newt Gingrich fix the mark to market, and INSURE the paper ask the banks how much credit they need to lend to your qualified businsess customers, and if no other bank will help we will up to $10 billion dollars (to community or small regionals) and $100 billion to bigger banks for 30 days at .5%.I think all these MBA's can figure out a fair price for the paper and sell them to people who will hold them for a profit with 0% Capital Gains. No elimination of taxes but some defferment and a amnesty for offshore money to come back. BINGO liquidity, Credit, and Capital. Problem Solved. REMEMBER WALL STREET THE MONEY IS GONE!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

September 30, 2008 at 11:20 pm

Ted Sherman

When I saw your friends making jokes ( Buills and Bears crowd) last week at Sen. McCain and I wanted to drive the 100 miles south into Manhattan up the stairs to that studio and hit them with a 2x4 (as my grandfather use to call it a tubafour). No I wouldn't for 5,475 reasons (15 years in prison X 365 days). Do not tell me to tell my grandchildren to forego their life because you are incompetent. Yes incompetent, how do you buy all thses bad assets and not ask the government what is in these securities. I can't get past three areas. One is "we are purchasing assets." The question is if you know what the price is then we don't need the bill. If you don't then how can you fix it or get a profit when you sell it and for what price. The problem is that these are worthless because Government stuck their noses into the market. Two, Alexis please ask your friends on Wall Street that likes this what are we going to do when Social Security becomes insolvent? That right now is a two trillion dollar shortfall. Three, Chairman Bernacke was asked about the dollar at one of the hearings and he dismissed it. My question is if the 700bn dollar "RESCUE" is passed and the dollar goes to the basement how is the "PEOPLE" who we are helping will pay more for gas, more for energy (oil or electric or gas) and food. IF you think that foreclosures are bad now wait till the bottom falls on the dollar. One more more thing what happens with a terrorist attack or a huge national disaster then what do you do??????????????????????????????

September 30, 2008 at 11:10 pm

horace

9/30/08 Dear Mr. President Dear Mr. Congressman Dear Mr. Senator Problem. The sub- prim loan mess was created by the mortgage industry. They convinced the government to remove the assummability clause in FHA and VA mtg. so that they could make commission on new loans each time the property was sold. Then several years ago they convinced the regulators to let them make loans to people who did not have any down payment. Therefore nothing to loose if they did not make the payments. If some one does not have the grit to save for a down payment then they should not own a house, and will not make the mtg. payments.. It took me 8 years to save up for my first down payment. Solution Any exiting loan that is owned by Freddie Mac or Fanny may, or insured or guaranteed by the fed government should be modified now to allow the mortgage to be assumed without qualifying. This would allow seller to sell their homes to buyers that may have had bad credit in the past, but are in a position now to make payments on a loan that they could assume. These buyers can not get a new loan because of past credit problems. About70% of potential buyers is in this position. The above action would greatly reduce the foreclosure rate. It would also turn non-performing loans into performing loans and correct the balance sheets of the holder of these loans. To bail out companies that made bad decisions with money that I have to pay in the form of taxes is total wrong. If I make a bad decision no one bails me out. I have lost money in the market. Please send me a refund. I have lost money on bad mortgage no one bailed me out I just lost. Solution to credit markets If you want to infuse more funds into the credit market. Stop lowering the interest rates. If a person has $100,000.00 in banks in the form of savings, money markets, c.d.'s etc. and is only receiving 3 % interest on that deposit he/she only has $3000.00 to put back into the economy. If he was being paid 8% on his/ her deposit then $8000.00 would be put back into the economy. Now if you take all these deposit in all the banks, Money markets etc. at the higher interest rate just imagine how much more money would be available in the credit market. And by the way how much foreign money would be invested in our markets. This economy would sore. Sincerely Horace H. Skinner 407-222-1025

September 30, 2008 at 10:18 pm

solomon740

I endorse the following steps from Christopher Hayes of The Nation: No BAILOUTS Act Bringing Accounting, Increased Liquidity, Oversight and Upholding Taxpayer Security 1. Require the Securities and Exchange Commission (SEC) to require an economic value standard to measure the capital of financial institutions. 2. Require the Securities and Exchange Commission to restricting naked short sells permanently 3. Require the Securities and Exchange Commission to restore the up-tick rule permanently. 4. "Net Worth Certificate Program" In 1982, Congress approved a program, known as the Net Worth Certificate Program, that allowed banks and thrifts to apply for immediate capital assistance. From 1982 to 1993, banks with total assets of $40 billion participated in the program. The majority of these banks, 75%, required no further assistance beyond the certificate program. 5. Increase the FDIC Insurance limit from $100,000 to $250,000.

Aloha

September 30, 2008 at 9:45 pm

B Karcher

Regardless of how we arrived here (the causes are bipartisan -- the blame is shared by the U.S. government and big business because they are in bed together having a torrid affair at taxpayer expense), the current state of our declining economy is a MUCH needed course correction. Speculators, traders, brokers, bankers, etc. have been allowed to run rampant with the market for years. I saw this coming way back when the market topped 10,000. The ever upward market was destined to tumble. It couldn't continue upward forever. It was inevitable that it would eventually crash. It was BLOATED. It was a buffet free for all and now it's bursting. You can't keep over inflating the market, real estate, trading gold for straw...de-valuating the dollar, lending out more than you have in your bank, floating debt when you don't have the assets to cover the debt...you just cannot go on like this forever. Eventually the scales will tip back into negative territory. The American public has had it's head buried in the sand much too long. We've all let the ourselves believe this could go on forever. We've charged up all of our 26 credit cards, bought too many plasma HDs, Harleys, million dollar RVs, etc., super sized our McHouses, refinanced ourselves to the hilt, and taken the easy way out too many times. We live in the American dreamland. We carry too much debt as individuals and as a nation. It's time to pay the piper people! Ultimately we are to blame. The day of reckoning is upon us. Brace yourselves as this is only the beginning of the end of a propped up, superficial system that NEEDS correcting. It's about time! We need to have a depression or at the very least a very, very deep recession so we can have a much needed "correction" because when you're all the way down there's only one place to go and that's...up. The party is over!

September 30, 2008 at 9:37 pm

Julia

DJ Williams is saying what I've been thinking all day!!! Why Not give the money to the people. We're the ones hurting. Sure we can bailout the bank and move directly into socialism, but those banks are going to continue forclosing on our homes and businesses. This is certainly not helping anyone who spent their retirement fund on buying their first home and then lost it! Nothing is built from the top down! Why start with the economy? That's certainly not how it started. If we work from the top down, it's not going to reach the bottom before most of it is soaked up.Start from the foundation!! spread the wealth and the market will heal itself. Not only that, people will have homes instead of lifelong mortgages. In a nutshell our country will have more middle class, less poor, and it will remain a DEMOCRACY!!!! Most of us will be richer all around.

September 30, 2008 at 9:01 pm

Scott

The media seem to be the one’s who are supporting this “bailout”; for example, a typical headline reads: “ Stocks recover a hefty chunk of Monday’s sell-off on hopes that a congressional plan to shore up the U.S. financial system will pass.” - Marketwatch Talk about propaganda? Did these guys speak with every buyer out there to verify this? That’s not reporting, that’s the conjecture of a media that have for whatever reason been the biggest proponent of the bailout. Why not say that the stocks and the dollar rallied because the rest of the world saw that American’s, thanks to our federalist system, have a measure of control over our representatives and were able to prevent them from promulgating a system that would have been higly inflationary and destructive to their currency? Whereas, euro-socialists have no such control over the prodigality of their rulers; hence, despite the fashionabilty of verbally trashing the USA, when the world holds a currency, the greenback will be king. That’s not because of the sagacity of our elected juveniles but rather the supremacy of our constitution, checks and balances and deliberately inefficient government, our surest protection - God Bless it. The Internet is a great threat to the plans of Washington power brokers because of the speed at which opposition now reaches “critical mass”. Analysis travels to the constituents at light speed. From the time Pelosi announced that the plan was available at the Senate’s website, it was dissected into pieces within the hour and a consensus was reached overnight by THE PEOPLE. Without regard to the once powerful media trying to inculcate the virtues of the plan, by Monday morning the House phone lines and email boxes were flooded with outraged citizens demanding that the bill be stopped. If this had happened 15 years ago, before Speaker Gingrich’s rise and before the widespread usage of the Internet, the bill might have been rammed through in the dark of night. That’s why communist countries like China have been so careful to regulate the Internet and why we need to be careful to keep this crew in Washington restrained. http://www.Tableofwisdom.com

September 30, 2008 at 8:03 pm

Robert W.

I'm in agreement with the TIME article "Let Risk-Taking Financial Institutions Fail" By Ari J. Officer and Lawrence H. Officer. Why isn't the government and the media talking about other options that are available and why aren't they listening to leading economists that oppose this absurd bailout proposal. Also, I think anybody in their right mind should adamantly oppose passing a rushed bill. Why shouldn't there be a series of Congressional hearings about this crisis so that Congress can make well thought out decisions based on reason and not on dictatorial demands and strong arm tactics by Bush and his entourage. Also, if there is any tax dollars spent on this crisis it should be directed towards bolstering the SPIC & FDIC, which are underfunded. As the article that I reference above points out: "The government should not intervene. It should leave overleveraged financial institutions to default on their derivatives obligations and, if necessary, file for bankruptcy. Much of the crisis has arisen from miscalculating the risks involved in a large book of positions in these derivatives. It is only logical that these institutions pay for their poor management. Rather than bailing out Wall Street, we propose that the government should buy up the actual mortgages in question and do nothing else. The government should not touch any derivatives; that is, claims that do not directly tie into the actual mortgages. If money becomes too tight, then the Fed can certainly increase its loans to financial institutions".

September 30, 2008 at 8:01 pm

Robert W.

I'm in agreement with the TIME article "Let Risk-Taking Financial Institutions Fail" By Ari J. Officer and Lawrence H. Officer. Why isn't the government and the media talking about other options that are available and why aren't they listening to leading economists that oppose this absurd bailout proposal. Also, I think anybody in their right mind should adamantly oppose a passing a rushed bill. Why shouldn't there be a series of Congressional hearings about this crisis so that Congress can make well thought out decisions based on reason and not on dictatorial demands and strong arm tactics by Bush and his entourage. Also, if there is any tax dollars spent on this crisis it should be directed towards bolstering the SPIC & FDIC, which are underfunded. As the article that I reference above points out: "The government should not intervene. It should leave overleveraged financial institutions to default on their derivatives obligations and, if necessary, file for bankruptcy. Much of the crisis has arisen from miscalculating the risks involved in a large book of positions in these derivatives. It is only logical that these institutions pay for their poor management. Rather than bailing out Wall Street, we propose that the government should buy up the actual mortgages in question and do nothing else. The government should not touch any derivatives; that is, claims that do not directly tie into the actual mortgages. If money becomes too tight, then the Fed can certainly increase its loans to financial institutions".

September 30, 2008 at 7:54 pm

Tom H

Please do not allow the government to Buy Bad Loans ! Free market I believe in, goverment should step in to slowly let the air out of this deal so it doesn't pop..but ultimately market needs to suck it up Alternative: Give institutions 30 days to identify a class of "bad Loans" The govt will guarantee these loans ( to a certain level) the govt guarantee provides an asset that can be borrowed against, at a great rate. Liquidity is provided to the system . The loan is still the institutions problems and they will work to limit their losses. Basically letting the institution "Finance" its loss over a longer time period. Bankers don't want this because they want a clean slate so they are heros next year and will get a bonus. This way they will basically be breking even for some time until they suck up their losses Benefits: -Regulators look at this asset as now good ,boosting the stability of te bank -Cheaper money for bank to earn back the losses -For mortgages that they put in the group BANK must convert to FIXED at low rate ( why not US govt guarantees it ( With no Fees to owner..maybe a little put on the mortgage) -Management won't get their bonuses until losses sucked up -Sorry but the investors in the institutions lose out ( but the reality is that their institution was sunk anyway if it survives..they actually may get something -Govt guaranteed loans "Trump" other securred creditors. ALL bank assets go to fix the problems no selling off he good stuff at bargain basemen prices So What's wrong with this proposal

September 30, 2008 at 7:48 pm

BillPuda

It looks like we more business savvy people here than on wall street. We are the silent majority and we need to be heard. The problem started way back, when we had a mass mailing of credit cards. We had in our greedy little hands the golden egg that that stupid goose laid. I am amazed that it took so long for the trickle down economy to catch up with us. Us meaning, John Q Public, business, and government. The market will flush out the garbage and we'll all be better for it. If we leave it up the politicians we are doomed. I'm waiting for gold to become worthless. What will it mean if you have all the money in the world if you don't have anything to buy.

September 30, 2008 at 7:08 pm

Stephen P. Norman

Dear Congressman, First of all I am a real estate profeesional, attorney, and businessman whose former clients include some of the largest builders, lenders, and real estate companies in the nation. I lived through and prospered during the boom of the last Real Estate bubble and am suffering through the bust of the current economic downturn. I being a real estate professional haver had an extemely difficult time dissecting exactly what the $700,000,000,000 bail out entails. Most perplexing to me is how any layperson has any clue what the package entails. The governments line is that this is imperative in order to loosen up the frozen credit markets. While in theory I don't have a problem with loosening up the market, I do have a problem with making a bad investment. I have yet to hear on any news show, speech, or news article what we are buying. Are we paying face value for these securities? That would be a bad investment. Anyone knows that if you have $1 million dollars in real estate backed securities that were based on 100% financing and the real estate market has gone down 30% than you should pay no more than $700,000.00 for these. This does not take into account some of the additional costs for hopefully making a profit and other administrative costs. If the market is frozen and these $700,000 in securities cannot be sold or can only be sold for $200,000 than I don't have a problem with the government stepping in and unfreezing the assets closer to the $600,000 or $700,000 value. The problem that I have is that I don't know the price they are buying. If they pay face value on these assets they are basically giving these failed Wall Street companies a windfall. I don't know anyone who has looked at the details of this plan, but it's really not that difficult. It actually should be a current investment that our country is undertaking. In other words a loan that has the potential and liklihood to make a profit and while every U.S. taxpayer is paying close to $2500 they should feel that they likely will get this back. I have only heard this addressed in vagueries. That being said as a real estate professional I know there are certain things that can be done NOW that should assist in bringing order and maintaining property values all around the country. Currently, short sales are occurring throughout our country. They occur when someone owes more on their home than it is worth. It is a very viable option to outright foreclosure and is typically set by market factors. While it is not a process that anyone would choose to go through it is a useful tool to loosening up the real estate market and allowing property values to correct itself. The short sale process requires lender approval and that is where the problem lies. There are no regulations that regulate how a lender handles these transactions. Having been through the process myself I can tell you that the lender is not responsive and tends to drag the process out not for days, or weeks, but for months. In the meantime homeowners with viable contracts based on market values have prospective purchasers frustrated with the process walk away from the deal. The end result more often than not is that a lower contact is ultimately accepted or the property goes into foreclosure at a much lower price devastating the homeowner's credit for up to ten years. A real world and inexpensive solution that could have a dramatic effect on our real estate market would be to require the lenders to implement a process for dealing with these short sales. The lender would not have to promote the fact that they are supporting short sales, but only need to get back to the prospective Seller or their agent within a reasonable amount of time. This would lead to a systematic process where both the Buyer and Seller could rely on when they were getting an answer. Likewise if the lender rejected a Short sale contract presented in good faith they could be precluded from going after the Seller for more than the amount of their proceeds from the sale if the property ultimately sold at foreclosure for less. Trust me, measures like this would have an enormous effect on clearing out homes where the Sellers want out and allow our country to come to a real value market quicker and more orderly than the current option. I don't believe there is a federal pre-emption issue, but if there is this should be brought up at the federal level. The biggest complaint I hear these days from Realtors, Prospective Sellers and Buyers, and Real Estate Attorneys is that these lenders are non-responsive and you have no idea what they are going to do. If they were forced to follow set requirements much like they are on their good faith estimate than it would do wonders for our market. It's not a complete solution, but it is an inexpensive partial one that could be extended to short refinances and loan modifications. If all of these issues were addressed and the Seller/Borrower knew what they were dealing with our market would correct itself in a much more expedited manner. Please let me know if you are interested in discussing this matter further. Thank you. Stephen P. Norman, Attorney at Law SPN Title Services/Law Offices of Stephen P. Norman 29 Atlantic Avenue, Suite E Ocean View, Delaware 19970 302-537-1540 f-302-258-0705

September 30, 2008 at 6:53 pm

jazznut

My understanding of a recession is two consecutive quarters of negative growth. Is it probable that the quarterly growth for the past 4 years plus has been over stated because of this cooking of the books by these banking institutions? If we are to Assume that our growth was over stated, would we expect, should we expect the same drop in growth down the road as we did in the drop in the stock market and the failure of so many banks?

September 30, 2008 at 6:27 pm

Mac Stevens

DON'Ts 1. Don't trust proven liars (Bush). Don't trust those who caused the problem (Bernanke, Greenspan giving out the low interest money). 2. Don't steal. Don't steal from citizens (taxes). Don't steal from future generations (debt). DO 1. [citizens] At local levels, prepare for the worst. Contact neighbors, friends, family. Let them know you'll support them. Support the Red Cross, your local police, etc. Store food & water. Find another source of income, in case you lose your job. Assume that the bankers and corrupt politicians will keep causing problems while they can. This all probably won't be necessary, but at least you'll not be acting out of fear. 2. [government] Place responsibility where it belongs. This didn't happen without fraud -- a lot of it. Find the biggest fraudsters and prosecute. Follow the money. Who's profiting from this chaos? 3. [government] Place responsibility where it belongs. People who defaulted on their loans must not be let off the hook. If they were the victim of fraud or predatory lending, then investigate and correct THAT. If they deserve some help, set up a charity for them. If you promised to pay, you need to do your best to do it. 4. [government] Place responsibility where it belongs. Eliminate limited liability. Any corporation is owned by people -- shareholders. They are responsible. When the corporation goes bankrupt, the shareholders must pay. What right does anyone have to share in the profit, but run away when it goes bad? You, the investor, don't want to be held responsible for the companies you invest in? Why? You think that's your right? Limited liability is not your right. No. But demanding that others fulfill their obligations is your right. 5. [government] Allow competing currencies: Euros, privately minted gold & silver, whatever. Reduce the power of the Federal Reserve Bank to inflate the dollar by providing competition. 6. [government] Bring the Federal Reserve Bank under control of the Congress, or eliminate it. 7. [government] Eliminate Income Tax. Replace it by a tax based on the services provided. The government provides armed defense, roads, etc. Every citizen pays according to the portion of services he receives. 8. [citizens] Buy local products. Avoid Wal-Mart. You, the consumer, are the one sending jobs to China, when you buy MADE IN CHINA. Pay the price, buy American and/or local goods.

September 30, 2008 at 5:57 pm

Charles Pirozzi

This Rescue Bill is like trying to put a band aid on an injury that requires a tourniquet. Let these businesses fail, sure we might limp for a while but we’ll learn how to walk on one leg, hell this is America in a few years we will create a stronger leg to run on.

September 30, 2008 at 5:39 pm

chuck

Every angle of the problem needs a severe look: congressional free market real estaste mortgage lending moral hazard question brought up some more. To reward the bad in this case including soem of the bad wall street actors,lenders,speculators would be dangerous. At least the failed bailout bill has opened our eyes. The moral hazard question should be address by the NYC constutients of thier senators of the why. All over the financial sector. We came real close to socialism which would've made Kruschev smile. Also Senator McCain and Senator Obama need to come clearer on handling this problems. Both party VPS should think long hard on the problem. But the real villian here is the depressed real estate market. THe subprime mortgage and credit crunch spurn unexpectly from this monster. But the economic monsters can be corraled back into the corral. But most important confidence has to be restored in the markets. Confidence in leadership too. Yesterday the congress displayed poor leadership in crisis. It's like they was '29 panic in the congress. The private sector can solve this problem let the market work things out...hey we all have different ideas on solving this. Let's keep this one going. One more thing those that went along on the failed bailout yesterday in house should be punished at the ballet box. No letting politician off the hook. Consequences of a bad lousy descion shouldn't go unwarranted. Accountability to Congress and all conflict intrests should be addressed.

September 30, 2008 at 5:35 pm

Cheyenne

Do we think a failed Congress, failed Wall Street and a failed President is capable of comming up with a solution to a failed fiscal policy? Give me a break. These people think the American people are stupid. We understand that not supporting the bailout will effect mainstreet. What Wall Street, Congress, and the President do not understand is that America is finally ready to own up to living beyond our means and prepared to at long last live with the consequences.

September 30, 2008 at 5:26 pm

about this blog

  • Alexis Glick is an anchor for FOX Business Network. Prior to joining FOX, Glick served as a correspondent for the Today Show and co-anchored the third hour of that program. Before her stint at NBC News, she was the senior trading correspondent for CNBC and reported from the floor of the New York Stock Exchange.

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