URGENT Smart people pls read-Will save free world

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Feb 25, 2009 9:12 pm

Why cant the government just insure the loans in the troubled CDO's,CMO's etc?

(or say insure to 70%)



bac,c etc balance sheet become so much stronger instantly.



s and p's open limit up



government only pays on ACTUAL homeowner defaults.



simple.   problem solved. confidence back



banks pay into insurance fund or something to pay tax payers back.



WTF am I missing?    

Feb 25, 2009 9:16 pm
CDO Squared:

Why cant the government just insure the loans in the troubled CDO's,CMO's etc?

(or say insure to 70%)



bac,c etc balance sheet become so much stronger instantly.



s and p's open limit up



government only pays on ACTUAL homeowner defaults.



simple.   problem solved. confidence back



banks pay into insurance fund or something to pay tax payers back.



WTF am I missing?    





Your plan isn't complex enough. How, for example, could any pork be slipped in if the accounting were to become that simple?

Feb 25, 2009 9:26 pm

insure the loans.   end of story   ala fdic,fnm,fre etc.



if people pay off loan govt pays nothing.



"tarp insured loans"



free world saved

Feb 25, 2009 9:28 pm

How about the government go with unlimited FDIC insurance?  Big hitters get the guarantee anyway by buying treasuries.  Then offer no cap gains on any real estate bought this year or next.  Money flows into banks.  Long line of borrowers.  Capital ratios cease to be an issue.  Problem solved.  Of course it does not come with a price tag of billions so it will not happen.  Side affect, treasuries will sell off immediately, and with a little bit of time, the government could actually start buying back at discounts with the new found tax revenue, lowering the national debt.

Feb 25, 2009 9:39 pm
Philo Kvetch:
CDO Squared:

Why cant the government just insure the loans in the troubled CDO's,CMO's etc?

(or say insure to 70%)



bac,c etc balance sheet become so much stronger instantly.



s and p's open limit up



government only pays on ACTUAL homeowner defaults.



simple.   problem solved. confidence back



banks pay into insurance fund or something to pay tax payers back.



WTF am I missing?    





Your plan isn't complex enough. How, for example, could any pork be slipped in if the accounting were to become that simple?



Similar to the reasons why I am not very optimistic that we will ever see true tax reform.

Feb 25, 2009 9:45 pm

suspend mark to market...done.

 
it's just that simple, but 'bamer wouldn't have as much control...hmmm...the real problem is...
Feb 25, 2009 9:52 pm
HymanRoth:
Philo Kvetch:
CDO Squared:

Why cant the government just insure the loans in the troubled CDO's,CMO's etc?

(or say insure to 70%)



bac,c etc balance sheet become so much stronger instantly.



s and p's open limit up



government only pays on ACTUAL homeowner defaults.



simple.   problem solved. confidence back



banks pay into insurance fund or something to pay tax payers back.



WTF am I missing?    





Your plan isn't complex enough. How, for example, could any pork be slipped in if the accounting were to become that simple?

Similar to the reasons why I am not very optimistic that we will ever see true tax reform.





Amen, Brother!



How have you been keeping Hyman?

Feb 25, 2009 9:54 pm
CDO Squared:

Why cant the government just insure the loans in the troubled CDO's,CMO's etc?

(or say insure to 70%)



bac,c etc balance sheet become so much stronger instantly.



s and p's open limit up



government only pays on ACTUAL homeowner defaults.



simple.   problem solved. confidence back



banks pay into insurance fund or something to pay tax payers back.



WTF am I missing?    











how many trillions would they be insuring?   mortgage market is 12 trillion, derivative market is 50+ trillio



idea is still very interesting though.

Feb 25, 2009 9:59 pm

just insure crap that is not priced right.



and they ONLY pay on loans that default.







Feb 25, 2009 10:06 pm
Philo Kvetch:
HymanRoth:
Philo Kvetch:
CDO Squared:

Why cant the government just insure the loans in the troubled CDO's,CMO's etc?

(or say insure to 70%)



bac,c etc balance sheet become so much stronger instantly.



s and p's open limit up



government only pays on ACTUAL homeowner defaults.



simple.   problem solved. confidence back



banks pay into insurance fund or something to pay tax payers back.



WTF am I missing?    





Your plan isn't complex enough. How, for example, could any pork be slipped in if the accounting were to become that simple?

Similar to the reasons why I am not very optimistic that we will ever see true tax reform.





Amen, Brother!



How have you been keeping Hyman?



Battered and bruised, but not beaten.  One day at a time, flipping rocks and seeing what I find under them.  Opportunities abound, but one must be a little more patient these days to get them across the finish line...that is unless you want to cave in and sell them safety, which IMO is the next bubble in many forms.

Put off some discretionary purchases, not so much out of fear but because there are too many things to buy that pay coupons or dividends and will eventually appreciate, rather than depreciate.  I'll stimulate the economy by entertaining new clients in locally owned restuarants and advertising in local publications....and save that kickin' new entertainment system for next year.

All in all I'm just happy to be the owner of a debt free company associated with a b/d that isnt' in the headlines every day.  In that sense, life is good compared to what it could have been like.

How are you?  Been flying at all?  Staying out of  trouble?  (apologize for the slight hijack...)

Feb 25, 2009 10:07 pm

I think that Paulson and company had something like that as one of their original ideas.



Insure the toxic loans



It got side-tracked when that circus in congress started. I think it is an incredibly good idea. It actually seems like the perfect answer.   Simple.

will give the market confidence it lacks.   The government only pays on bad loans.

I know a big dog analyst/economist at BAC. Ill run it by him.   

Feb 25, 2009 10:08 pm
go_huskies:

suspend mark to market...done.

 
it's just that simple, but 'bamer wouldn't have as much control...hmmm...the real problem is...



Inded...the real problem is that is a solution that would destroy their underlying thesis...that more government is the solution....

Feb 25, 2009 10:52 pm

suspending mark to market would be just putting off the problems just like Japan has done for the last 20 years. (there stock market is over 80% lower than it was then)



Japan never wanted to deal with their bad loans.



If you suspended mark to market, some firms would go bankrupt out of nowhere. They'd get a capital call from a counterparty and wouldn't be able to deliver liquid securities or liquid assets.



This would be a huge step backwards

Feb 26, 2009 9:01 am

The flaw is that it shouldn't be the American taxpayer who's on the hook for insuring bad loans, just like it shouldn't be the American taxpayer on the hook to rebuild mega-mansions in Malibu or Palm Beach when the storms come.

Suppose Citi has $800 billion in bad loans and mortgages on their books.  It's all being held up by about $14 billion in common stock equity and twice that again in preferred stock.  When Citi declares bankruptcy, the $800 billion gets wiped away when the equity and bondholders get wiped out.  Whoosh!  Almost magic the way bankruptcy paves to way to find out what the real value of these crummy assets are.  The government steps in, sells off the lousy loans, and that's what brings private capital in off the sidelines, snapping up mortgages at 15 cents on the dollar, then renegotiating the terms with the original borrowers.

There's only one institution on planet earth more stupid an dysfunctional than these once-giant Wall Street banks who wrote all this toxic paper, and that's the United States Congress and our new tax-dodgin' Cabinet.  There is absolutely no way that you can get the two working together to solve this problem, and not have 300 million honest Americans getting screwed.

The big banks are bankrupt.  Time we realized it, and quit pumping new blood into a dead carcass.

Feb 26, 2009 9:39 am

I agree with bodysurf, some of the major banks are really bankrupt. They have no real liquidity. The reason the Gov't has not proposed some of these simple fixes talked about here is that the problems are not that simple. It is not just delinquent mortgages. These brilliant banks and thier traders have entered themselves into so many complex trades that nobody can figure out where the bottom of the pile is, Certainly not Uncle Sam.


 
Feb 26, 2009 10:01 am

I briefly read an old piece about the Brady solution to the massive Latin American defaults back in the 80's.  The Treas issued "Brady Bonds" to securitize some of this, and make it tradable, and it was fully backed by the US (I think).  Seemed to get the debt of the bal sheets, and disperse the debt out into the private market where there was demand for it, obviously because of the gov't guarantee.

 
I thought it sounded applicable to this situation.  Someone on this thread probably knows alot more about it than I do.  Would be interested in hearing. 
Feb 26, 2009 10:38 am

The Brady Bonds sent a very loud and clear message to Wall Street:  there is not a thing you can do, not a single bad loan you can make, that the American taxpayer won't swoop in and bail you out of.  It was moral hazard then to tell Citi that they could lend to bankrupt governments in Latin America, with a US government guarantee on the repayment.  Now we're trying to do the same thing again.

When "too big to fail" becomes rewarded, don't be surprised when everyone does.  It has to stop, NOW.

Feb 26, 2009 10:47 am

Body, ditto on that, as well as the S&L fiasco.  Although from what I understand the RTC solution helped keep costs down.

 
I guess the banks are just going to blow themselves up every 30 years or so.
Feb 26, 2009 11:54 am
Bodysurf:

The flaw is that it shouldn't be the American taxpayer who's on the hook for insuring bad loans, just like it shouldn't be the American taxpayer on the hook to rebuild mega-mansions in Malibu or Palm Beach when the storms come.

Suppose Citi has $800 billion in bad loans and mortgages on their books.  It's all being held up by about $14 billion in common stock equity and twice that again in preferred stock.  When Citi declares bankruptcy, the $800 billion gets wiped away when the equity and bondholders get wiped out.  Whoosh!  Almost magic the way bankruptcy paves to way to find out what the real value of these crummy assets are.  The government steps in, sells off the lousy loans, and that's what brings private capital in off the sidelines, snapping up mortgages at 15 cents on the dollar, then renegotiating the terms with the original borrowers.

There's only one institution on planet earth more stupid an dysfunctional than these once-giant Wall Street banks who wrote all this toxic paper, and that's the United States Congress and our new tax-dodgin' Cabinet.  There is absolutely no way that you can get the two working together to solve this problem, and not have 300 million honest Americans getting screwed.

The big banks are bankrupt.  Time we realized it, and quit pumping new blood into a dead carcass.

 
i understand and agree
but the reality is obama nation IS gonna get govt invovled.
 
it seems to me that the insurance route is the simplist and cleanest 
and more importantly, people can understand it and it would improve confidence
 
vs. paulson/geitner bs that no one gets and thus leads to more MF fear.
Feb 26, 2009 11:59 am

It might be simple, but it sure wouldn't be cheap.  That's what PMI is for.  And for the lenders that didn't require PMI, they should suffer the loss, not me.

Under your plan, a guy who borrows the limit to buy a $750,000 house that gets foreclosed on, and then sold for $400,000--the taxpayer makes up $350,000?  Payable to whom?  The bank that made the loan in the first place?

That's lunacy.  Sure, it saves the bank.  And it might also encourage them to foreclose on every property they have on their books, just to get them back to breakeven.  What do you do then?

Bankrupt 'em.