Oh please. I'm no fan of the government, but they're not in a position to just "fix" the problems with the economy, and they don't really need Joe Sixpack's crap advice piling up.
Of all the coverage I've seen on the current problems, hardly any of it actually hits the real roots of the issue. The 700,000,000,000 bailout is being pushed (hilariously) not because anyone who knows really thinks it'll solve the problem, but because the people who are pushing it know it will be perceived that way, and calm down the markets.
The whole issue revolves around the new FAS regulation from a year ago (157, if anyone cares) which required the banks to revalue their investment holdings based on the daily current market values, which, due to a current housing market glut, are tanking. In the long term most of these assets have a much higher (and more stable) value, but since they're being measured in the short term, these horrible reports are coming out and scaring the shit out of everyone.
Frankly, having the government snap up a chunk of semi-stable investments which, in all likelihood, will render an eventual profit isn't a bad deal if it will get all the goddamn market amateurs to stop having hourly shit-hemorrhages.
But all the average scmuck knows about the situation is that the government is going to "throw away" 700bil on something that will (depending on their view) save/destroy the economy. They've got no idea, no more than the better informed people who are pushing it, and their attempts to get in the way are just causing problems.
To use an IT metaphor; the mainframe has eaten itself, and you're trying to fix it, and you've got to do things that may or may not destroy data, but that have to be done regardless just to get the system running again. Is it productive to listen to all the people who have a stake in the data screaming their uninformed opinions? Not really. I think Congress is displaying a distinct lack of tact, but I've been known to tell a CFO to go fuck themselves sideways a time or two myself, and I'm finding it hard to blame them.
To use an IT metaphor; the mainframe has eaten itself, and you're trying to fix it, and you've got to do things that may or may not destroy data, but that have to be done regardless just to get the system running again.
Yup. Basically, the way I figure it, either people aren't cognizant of the fact that, like it or not, the government has to intervene in some sort of "bailout-like" scenario in order to save the economy, or they're simply choosing to cut off their noses to spite their faces. The latter is s
I'm going with the latter. Sooner or later someone has to stand up and tell Wall Street that there are consiquences for gambling wit people's money. If they make bad decisions, they will be held accountable for them. For me, that is what this comes down to. Maybe I put too much into The Creature from Jekyll Island when I read it. But based on that book, it seems like the Federal Reserve is perpetrating a huge fraud on the citizen of the United States (most of us here on/.). As long as "Wall Street" b
Actually, no. The point of a representative government is for you to elect someone you feel will do a good job in office. That does *not* mean they should unquestioningly toe the line of their constituents. It means they should use their judgement, in conjunction with feedback from their constituents, experts, colleagues, and so forth, to do what they feel is the right thing. Otherwise, you might as well just have direct democracy and be done with it.
The thing is that I'm not exactly ignorant. I've been following this issue for more than two years at this point. Economists who know what they are talking about have been warning about this for a long time now. There has been ample time to properly address the problem. Our financial system under the Federal Reserve is the problem. They inflate bubble after bubble and we pay for it in terms of market instability and inflation. If the government passes the bail out bill it will destroy the dollar becau
Well, it isn't entirely the government's fault, Federal Reserve or otherwise.
Who was buying McMansions? Who was flipping houses? Who was refinancing their mortgages to take the equity out of their properties? Who was signing for credit they knew they couldn't pay back?
That's right, the sainted American People. Surely they were enabled by our dumb government policies. Fannie Mae is one of the main employers of former Democrat congressional staff members, so it isn't entirely a Republican problem either. But
The Federal Reserve encouraged the lenders to loan to people unqualified for the loans. Alan Greenspan's grand plan to reinflate the economy after the tech bubble popped was to securitize mortgages. The government facilitated it by removing a lot of the oversight and passing regulation requiring Fannie Mae to make loans to "sub-prime" borrowers.
Although I agree with you that the fault to a certain extent lies with the people who took out the loans, it also lies with the lenders and the government for allo
I would still object. The "safeguards" are a joke - what everyone is conveniently forgetting is that the taxpayer is not paying for this money! It is getting printed up out of nothing - the fed will turn around and say, "Yep, now there's 700b more in the economy."
It won't be paid back - just look at our current debt to see the truth of that. When both candidates were cornered with the question: "What we ill you differently to offset this cost", BOTH of them hemmed and hawed and committed to changing /
I would still object. The "safeguards" are a joke - what everyone is conveniently forgetting is that the taxpayer is not paying for this money! It is getting printed up out of nothing - the fed will turn around and say, "Yep, now there's 700b more in the economy."
And what money the taxpayer does have loses value thanks to the inflation caused by this injection. So yes, we're all paying for it. And by all, I mean anyone holding $US.
No, it isn't going to be printed. It's taxpayers money (or, rather, borrowed on behalf of taxpayers), not Federal Reserve money.
If the government gets their figures right there's no offsetting of the cost required. The mortgage repayments should cover the government debt repayment. Obviously, the figures won't be right...but they won't be 700bn USD wrong.
That's the thing about the Constitution; it has a few rights that it explicitly guarantees, and it has a few rights that it specifically removes, and everything else it leaves alone.
The legislature has the power to collect revenue (Article 1, Section 8, First sentence. Income tax is specifically dealt with in the 16th Amendment), and the legislature has the power to spend revenue (Article 1, Sections 7 and 8) "to pay the Debts and provide for the common Defence an
The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.
Amendment X.
There is something unclear about this? POWERS NOT DELEGATED, the key phrase. All that is not permitted explicitly is EXPLICITLY forbidden. There MAY be arguments as to the extent of the power of Congress which could be made with regards to commerce and regulating the money, but they are at best weak arguments. The point is, your analysis is simply wrong and not only directly contravened by the 10th amendment, but also discussed at length by the authors in the Federalist Papers (in all fairness Hamilton made some arguments similar to yours, but it is a dangerous position to take).
What if Congress decides that 'the common welfare' would be served by having the FBI throw you in a pit for 30 years? Is that OK because 'hey, it is good for everyone else, and they can do whatever they think is good'. Sorry, not in my United States.
The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.
The "to the people" bit is important here. The representatives represent the people, so they exercise the rights of the people on your behalf.
If you assume that Congress has UNLIMITED AUTHORITY, then why do we have a Constitution at all? The Constitution is a compact between the people, of the comity of the people, WITH EACH OTHER which vests certain defined and limited portions of the absolute sovereignty of the people in a Congress, etc. That power is clearly and explicitly limited. What part of 'reserved to the people' is not clear here?
When Congress assumes for itself powers not vested in it they are overthrowing the authority of the people.
They WILL do so. Personally I'm not one of the rabid originalist type. I think society has to function and OK, it is true that the original intent was probably that gold and silver were the only money Congress was allowed to make. Yet our modern society could not function on that basis. Unfortunately the debate was never had as to how the authority of Congress should have been altered in order to accommodate changing circumstance.
Instead the existing terms of the document were stretched out of all recogniti
Unfortunately, your understanding of the constitution is fundamentally flawed. It has a few things that it explicitly tells the federal government it can do, and the 10th amendment says, "If we didn't explicitly say you can do it, it's none of your business." Now for the states, your analysis is closer. If it doesn't say you can't do it, the states can do it. The fact that your misconception seems to be widely held is the best indication that we've really screwed up. And guess when we started doing things like social security and federal welfare programs that were so glaringly unconstitutional the president had to threaten to stack the Court before the Supremes backed down and let him have his way? It was the last time we had a big economic crisis, and FDR decided to "fix" it. And now, we spend 2/3 of our federal budget on programs that were supposed to "fix" the economy 70 or 80 years ago. Personally, I'd rather have a couple of lousy years while we get our act together than pay for this for the next 70 or 80 years. Maybe if it's bad enough, we'll learn from our mistakes.
Unfortunately, your understanding of the constitution is fundamentally flawed. It has a few things that it explicitly tells the federal government it can do, and the 10th amendment says, "If we didn't explicitly say you can do it, it's none of your business."
As pointed out by the above poster, the federal government *was* explicitly told that this is something they can do. The articles of the Constitution that he actual cited (as opposed to your general parapharsing) are known as the Taxing and Spending Clause and the General Welfare Clause in Constitutional Law. There is absolutely nothing in the bailout plan that was unconstitutional. Unwise or unfair, maybe, but not unconstitutional.
Furthermore, the 10th Amendment is generally considered to have little ju
To quote the parent poster you so valiantly defend:
That's the thing about the Constitution; it has a few rights that it explicitly guarantees, and it has a few rights that it specifically removes, and everything else it leaves alone.
Like I said, this statement is unequivocally false. And despite your stunning ability to look up cases on the internet, the Congress still has to give lip service to a grant of authority before it passes a law. Usually it's the Commerce Clause, which after Wickard v. Filburn
Like I said, this statement is unequivocally false.
One can make an argument that it's not. It's really no different from from the analysis you gave, except for your faulty assumption that the 10th Amendment has strong teeth. The Constitution grants the government several powers to pass laws (removing some rights from you) and the Bill of Rights takes several powers away from the government (granting some rights to you). What it says nothing about is left alone, presumably to the states.
The 10th Amendment has long been viewed as little more than an affirm
Okay, congratulations, you've proved you have free Westlaw access, which means you're a student (but shame on your for not having Blue Book-correct cites; I hope you're not on Law Review), and so you deserve a little more respect that J. Random Slashdotter who thinks he knows the law. But you still have yet to refute my original point, which is that the 10th Amendment does not "just leave the rest alone." It says "the rest doesn't belong to the Federal government." Sure, you've shown that you favor a mor
Okay, congratulations, you've proved you have free Westlaw access, which means you're a student (but shame on your for not having Blue Book-correct cites; I hope you're not on Law Review), and so you deserve a little more respect that J. Random Slashdotter who thinks he knows the law.
Damnation. You're a practicing attorney, aren't you? Alright, I've got to be a little more humble and back up my arguments a little more forcefully. (And I'm not following formal style because this is just an informal internet geek fight. I'll add some links for people who don't have access to services like Westlaw.)
It says "the rest doesn't belong to the Federal government." Sure, you've shown that you favor a more expansive Commerce Clause than I do, but that's orthogonal to my point, which is that the 10th Amendment does, in fact, say something about it ("strong" teeth is your phrase, not mine). You're talking about matters of degree, which are up for reasonable debate. [...] In any case, all constitutional theorists agree that the states have some powers reserved to them (if you can dig up a single remotely credible scholar who says otherwise, I'd like to see it; even Ginsburg will occasionally defer to the autonomy of the states).
I'd agree on the last point. New York v. United States [findlaw.com] 488 U.S. 1041 (1992) makes clear that Congress can't compel state action through promises of penalties. (See Part B(1) of the major
I think it's time to go back to law school until you get this part right.
Are you disputing this? Do you have any logical basis for this statement or are you just asserting that I'm wrong without any supporting evidence that might allow one to question your own knowledge? This is how Amendments like the 1st through 5th, 8th, and 9th are viewed, after all.
Yes, I'm disputing it. The logical basis for the statement is obvious to anyone that's read basic high-school US history. Alexander Hamilton spent a great deal of energy in Federalist #84 arguing against the inclusion of an explicit bill of rights in the new constitution on the basis that it would be misinterpreted exactly as you've done.
The Constitution grants the government specific rights. The first ten Amendments do not grant anything, but rather enumerate rights held by the people by virtue of the
The first ten Amendments do not grant anything, but rather enumerate rights held by the people by virtue of the fact that they're human beings.
Semantics. Rights only exist so far as they can't be taken away from you. Your right to live only exists because it's illegal for people to murder you. Your right to free speech only exists because it's illegal to restrain your speech. In absence of those restraints against other parties, your rights don't exist.
By banning the government from taking certain actions against you, the Constitution creates those rights, but there is nothing that gives you those rights if you live under a government that doe
The articles of the Constitution that he actual cited (as opposed to your general parapharsing) are known as the Taxing and Spending Clause and the General Welfare Clause in Constitutional Law.
You're not going after the 'general Welfare as an enumerated power' angle, are you?
There is absolutely nothing in the bailout plan that was unconstitutional.
Specifically, which enumerated power in Article 1, Section 8 provides the Congress with the power to purchase toxic assets from the financial industry?
You're not going after the 'general Welfare as an enumerated power' angle, are you?
The "Taxing and Spending Clause," "Spending Clause," and "General Welfare Clause" all refer to the same text (just different parts of it):
Article 1, Section 8, Clause 1: "The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States;"
Court cases have consistently found no limitation on what Congress can spend your tax dollars on since United States v. Butler. That clause gives Congress the ability to spend tax dollars to purchase toxic assets from the financial industry.
We may not like how they're exercising that power, but there's absolutely no question that they have it to anyone who's studied Supr
We may not like how they're exercising that power, but there's absolutely no question that they have it to anyone who's studied Supreme Court precedent on the matter.
Right, but just because they've adopted a binding system of stare decisis in a manner incompatible with Constitutional rule doesn't make it Constitutional. A persuasive system [constitution.org] would allow the judges to uphold their oaths.
Right, but just because they've adopted a binding system of stare decisis in a manner incompatible with Constitutional rule doesn't make it Constitutional. A persuasive system would allow the judges to uphold their oaths.
A persuasive system would make it no more or less constitutional than a binding system. After all, "constitutional" would still be a matter of court interpretation. All you do is shift around the authority to do so.
A persuasive system has the worse side effect of substituting rule of man for rule of law. While you take serious issue with the binding precedent of "wrong" decisions, you overlook the importance of binding precedent for right decisions. Take the case of Watts v. Indiana [justia.com] , 338 U.S. 49 (1949
Now, in a binding precedent world, no court of this nation finds itself free to allow confessions under torture to be admitted in court.
Yet in the binding precedent world any Superior Court in the State of Indiana was compelled to allow tortured confessions from the time Watts was decided until it was overturned by the SCOTUS, no? And if the SCOTUS had declined to hear the case that would have stood until the Indiana Supreme Court was replaced.
For the sake of clarity, am I correct in understanding that it'
Yet in the binding precedent world any Superior Court in the State of Indiana was compelled to allow tortured confessions from the time Watts was decided until it was overturned by the SCOTUS, no? And if the SCOTUS had declined to hear the case that would have stood until the Indiana Supreme Court was replaced.
Yes (ignoring the the Circuit Court gets first stab at it). Unfortunately, this would be the case -- just as state weren't allowed to grant citizenship for former slaves or their descendants due to Dred Scott. I'm not pretending that unjust decisions never happen.
However, one thing the argument for persuasive precedent ignores is that not all judges are created equal. Not all judges go through the same level of scrutiny before taking their positions and not all have the same level of expertise. It is un
This is insightful? All you've posted is that the Constitution says whatever the Supreme Court says is does.
And? That's how things are. Deal with it. As I say in my reply to his reply to the above post, there is no such thing as a platonic, ideal notion of Constitutionality. Constitutionality is entirely a concept of the law as applied, based on our English-inherited common law system -- i.e. judge-interpreted law.
The GP was pointing out that the government(all three branches) simply ignore the 10th Amendment. This goes against the entire premise of rule of written law.
No. They interpret the 10th Amendment in a way different from what you would like. Words on paper are meaningless without interpretation, and if you learn anything when studying law, there's no se
I say this once every few debates over the 10th Amendment, and it feels like its time again.
If we're going to be strict constructionalists, that's swell. But to be logically and legally consistent, the very first thing we need to start with is the idea that the Supreme Court can strike down laws based on their constitutionality. The Constitution gives them no such authority, only the authority to interpret laws; this was a power that John Marshall took for himself in order to fuck over Thomas Jefferson
The Congress shall have Power To... borrow Money on the credit of the United States... To regulate Commerce with foreign Nations, and among the several States
The underlying problem is, house prices are *way* over-inflated. Inflation-adjusted, they peaked at *double* the historical norm, and all this mess started when they came back down just 10-30% (regional). There is a generation of people who honestly believe that house prices don't go down, and have made grave mistakes in their personal finances as a result. Nation-wide, house prices above about 3x the median hosehold income aren't sustainable, and we're still about 5x (and of course far worse in the housing bubble cities).
While there were certainly a subset of loans that were just bad - forged docs, impossible payments, etc, and that's what's causing this month's crisis, the problem is much deeper. There's an entire culture now of buying a house with a mortgage payment of 80%+ of your take-home pay, counting on cashing out equity every year because "house prices only go up". This isn't a problem the government can fix.
Sure, the governement needed to intervene to avoid a market panic, but really it just needed to "make a market" in these mortgage-backed securities, to allow them to trade at a value not absurdly depressed by that panic. That's not a $700B bailout, that's just splitting the difference between buyer and seller.
Long term, however, house prices are certain to fall back to sustainable levels, and anyone thinking "we just need to put this problem behind us so house prices can start rising again" is in a dream world. The governement isn't going to solve that problem, and shouldn't try. Do the minimum to stop the panic, and get out.
However, overall public perception clearly stated the desire to not act, don't you think? Can you fault Congress for actually listening to it's constituents?
Can you fault Congress for actually listening to it's constituents?
Sometimes, yes. A panicking Wall Street is no better than a panicking constituency. Wall Street is interested in saving it's own neck and big paycheques. The people, meanwhile, are, apparently, primarily interested in sticking it to Wall Street at any cost. Both are completely irrational, and neither should be unquestioningly heeded.
'course, that presumes that government is a) capable of handling this crisis, and b) able to remain above
I think most people have come to your conclusion and that's why there was an overwhelming cry saying "DON'T DO SHIT YOU BASTARDS!" At least that's what I told my representatives.
There's an entire culture now of buying a house with a mortgage payment of 80%+ of your take-home pay, counting on cashing out equity every year because "house prices only go up". This isn't a problem the government can fix.
Yeah, it can. It's called "regulation" and it's what certain sections keep ranting against.
Simply put, make it illegal for the bank to write a mortgage unless certain criteria are met.
If we had stuck to that then we wouldn't be facing this crisis today. It would probably be a different c
I'd settle for a regulation saying businesses may not enter into financial negotiations they do not, at that time, have sufficient verifiable assets to support.
You might still take a hit if housing prices drop a few percent and lenders who made reasonable lending decisions find themselves stretched, but you would be unlikely to see the kind of major players failing that we have seen recently.
Perhaps more to the point, you wouldn't get the sort of silly leveraging that has been going unchecked in the financial services industry for years, where no-one could really keep the promises they were making. That is how you get companies "too big to fail", which then need government intervention that is completely unjustifiable in a sane world, because while the mega-businesses deserve to fail and their investors deserve to lose out, the collateral damage to the innocent bystanders in the rest of the economy is nasty.
There are all these clever analyses flying around about what went wrong and how to fix it, but it seems to me that the basic problem has simply been allowing businesses to make promises they cannot keep.
In 2004 the SEC removed the "Fixed Leverage Rule" for a handful of investment banks. That rule stated that they had to have 10% of their holdings in liquid assets...A safety net basically. You know what banks those were? Goldman Sachs, Merrill Lynch, Morgan Stanley, Lehman Brothers, and Bear Stearns.
That was pretty fucking stupid of the SEC, eh? Those jokers put that extra 10% into the market, and at the first downturn, they fucking crashed because they had no
You can't expect a bank to have 100% of what it needs on hand. It just doesn't work that way. 10% is plenty, and the proof of that is how well the traditional banks are weathering this.
Erm... No, sorry, I don't buy it. If it weren't for central banks taking huge liberties with what is, ultimately, tax-payer-backed money, those "traditional" banks would be toast right about now. Several of them are anyway. You write as if the others have healthy balance sheets, which isn't exactly a safe bet today.
In any case, banks are not the only ones who count. The entire economy in most western countries is royally screwed, and is likely to remain so for quite some time at this point. Numerous everyda
I think you'll find that most people's pensions and savings will recover value just like any other investment. Markets are cyclical. What goes down comes back up...in time.
If you don't want the value of your funds to change, by all means put them in a bank and collect interest...If you can find one that can afford to pay interest, since it can't, in your world, loan out any money.
I think you'll find that most people's pensions and savings will recover value just like any other investment.
In time, yes, they will. But it could take several years in some markets.
The problem is that those who will be retiring in the near future and compelled to cash in their pension funds might never have the opportunity to enjoy those gains.
If you can find [a bank] that can afford to pay interest, since it can't, in your world, loan out any money.
Of course it can. It just can't lend out more money than it can afford, just like everyone else in the world.
And what that has to do with paying interest, I don't know: banks invariably pay interest rates that are below the long-term return they will make while investing th
How do you think banks make money? They make money by making loans. If they can't make loans, they can't make money.
And "More than they can afford" is an imaginary number. When WAMU tanked it was after its banking clients withdrew 17 billion dollars of their money in a 10 day long bank run. 11 days before they were saying, "Well, we're not doing great but we have 17 billion in liquidity over our required margins, and that should be plenty."
I'm not saying banks shouldn't be able to make loans. I'm just saying they shouldn't be able to make loans they can't afford. If that is really a problem for the economy as a whole, perhaps we need to reconsider the extent to which our society is built on debt.
Would it really be such a bad thing if people could only borrow modestly, and as a consequence prices for more expensive assets such as houses had to be more realistic? Would it be such a bad thing if lenders weren't allowed to lend irresponsibly, and
Meh. They were both massively exposed in the mortgage market, and, technically, they both got bought out. The thing that killed wamu was a 17 billion dollar bank run, but they were already under their capital requirements and had been for some time.
I'd settle for a regulation saying businesses may not enter into financial negotiations they do not, at that time, have sufficient verifiable assets to support.
The failed businesses did have sufficient verifiable assets to support their transactions at the time they were made. The problem is with another regulation that says they are insolvent if they don't have sufficient assets to support these transactions at a later time when the market decides they are worth less - even if they can meet all of their co
The failed businesses did have sufficient verifiable assets to support their transactions at the time they were made.
The financial trickery going on behind the scenes involved leverage on silly scales. If the picture is as simple as you suggest, how do you account for the failure of banks in Europe, which are not subject to US accounting rules?
So what are you advocating, exactly? That businesses should carry sufficient cash to have positive net worth even if the value of all other assets falls to zero?
No, of course not. And I agree the change in accounting rules that relied on daily valuations was foolish. But financial commitments should only be permissible when there is a reasonable expectation that the means are there to back them up. Lending 125% mortgages to people who didn'
Regulation might help here, but sadly, regulation also got us into this mess. Regulations to create "affordable housing" strongly incented lenders to give loans to people who couldn't qualify for Fannia Mae criteria, and congresscritters (Barney Frank, I'm looking at you) called "make it illegal for the bank to write a mortgage unless certain criteria are met" racist.
In a time and place where the congress is calling holding people to reasonable credit standards racist, the banks were under a lot of regulat
Bah, I've heard this before, and it's all bullshit. CRA loans were but a fraction of the total number of subprime loans that were given out. It's a fact. Look it up. No, wait, I'll do it [prospect.org]:
Further, CRA only governs a certain class of federally insured banks. Problem is, half of the subprime loans came from mortgage companies with no CRA involvement at all. Another 25%-30% came from companies with very little CRA exposure. For those who left their abacus at home, that's 80% of the loans which were fully or
Ah, I see... rather than a fact-based refutation, I'm just modded down. Oh well, I suppose this is what happens when you present republicans with facts...
So do *you* have facts to prove that the CRA was the driver behind this fiasco?
And I bring out "party lines" because this particular fib is consistently brought up by small-government republicans who are hellbent on blaming the crisis on *too much* regulation, which I find amusing in a sad sort of way.
The other big thing that led to this bubble was the absolutely insane amount of credit the fed pumped into the system to stave off the last minor recession. That money had to find some place to go, and a lot of it found it's way into ever increasing housing costs. Combined with such stupidity as zero (or less) down mortgages and you have our current problems. All that funny money the fed pumped into the system came back to bite us in the rear and even if they find a way out of this problem the double whammy
Get a clue. The whole problem started when the government threatened to legislate if the banks were discriminating against people. The banks got scared that "You're not qualified" would be taken the wrong way, so they started handing out money to anybody. There was huge pressure from the government to hand out crap loans.
If the government had minded its own business in the first place, there'd be no crisis. So STFU with your "Regulation will save us" bullshit.
The monetary expansion that fueled the home-buying binge started in late 2001. Overnight rates went from 6.54% in 7/2000 down to.98% in 12/2003, and by 1/2002 it was down to 1.73%, and the biggest changes in interest rates were over. So that's a convenient place to base our estimates of the "normal" price.
The historical real increase in housing value has been about 1.5% over the last century. The CSXR was at 123.93 in 1/2002. And the CSXR peaked at 226.29 in 6/2006. Since
While also correct that wages haven't gone up enough to justify housing values with historical home-to-income ratios, that is because medical insurance is a much larger component of compensation than it was a decade or two ago.
Perhaps, but not *nearly* enough to make up the difference. There's a lot more at work here than just the cost of insurance.
Interesting assessment. I'm not too familiar with the US housing market, but from what you've said, I'm not sure that US house prices are extremely over inflated. Somewhat inflated, yes, but not extreme.
Why are house prices above 3x median income unsustainable? It seems to me that it can be sustained, even at 5x. At least, that's my experience in my country, where a house at 5x the average salary is actually cheap.
It sounds to me that you're assuming house prices will go back to historical levels. That
Judging by your posting history you are Australian. The Australian real estate market is one of the most overinflated in the world, so I don't know why you think that's a good benchmark. Housing markets in Britain and Spain are also collapsing, so it seems likely it will hit Australia as well.
The last decade or so has been a period of abnormally low interest rates, thanks to exceptionally low inflation. This situation may not be maintainable with rapidly rising wages in East Asia and high commodity prices.
Nation-wide, house prices above about 3x the median hosehold income aren't sustainable.
We're in trouble over in the UK then; median income is £24,700[1], average house price is £219,262[2], so we're over 9x.
But house prices will never fall more than 10-15%.
Our key voting demographic own their homes already (bought at 3x-6x), and the 4 year politicians will be replaced a couple of times before the current 18-35 demographic start voting enough. The current strategy of preventing more than 1/10 of required housing being built will mean we've gone from "least space per pe
you may be right; but £125k would still be 5x and frankly I don't believe there is anywhere left in the UK where even the smallest bedsit goes for that little.
Your comments about house prices are spot on - as anyone could see if they took the trouble to examine a graph of real-dollar house prices since 1970. That graph also illustrates the fallacy of assertions that the problem could have been avoided had we only taken action in, say 2005. From about 1999 on we were doomed to a painful correction, and every year of delay just stored up more pain.
I can't agree with the following opinion, though:
Sure, the governement needed to intervene to avoid a market panic, but
If you understand the way the mortgage backed securities were bundled, sliced-and-diced, bundled again, and sliced-and-diced again, then you understand that it's the securities initially rated as junk bonds that are basically worth nothing now, but the securities rated AAA originally are still OK, realistically they're still AA or a step worse, and worth 90-95% of face value. No one's willing to buy them at 70 right now. There's a complete dicsonnect between underlying value (assuming very bad things abou
I'm not surprised to hear the major networks in a panic and beating us over the head to support this bailout. But, I was terrified to see normally sane outlets in the same panic (namely NPR, The Economist, and BBC).
You're right though. No amount of panic, no amount of dollars is going to fix the underlying demographics: a teacher/firefighter/retail manager cannot afford a half million dollar house.
There is plenty of capital available in the world, just not in the West. Ironically, if we proc
The larger concern, at least to me, is that the government will buy the at risk paper and one of two things will happen:
1.) Those with the at risk mortgages realize that there is no way the congress wants to accept the negative press associated with them actually foreclosing on properties in serious default and continue missing monthly payments.
Or 2.) The market recovering and congress using the return on their investment to grow government even more, becoming even more intrusive in areas which do not
The whole issue revolves around the new FAS regulation from a year ago (157, if anyone cares)
I wonder if we would have had either a more gentle slope or if the current issues would have been delayed without the presence of this regulation. Do you have any idea about this?
mark-to-market (MTM accounting, which is rule 157) no doubt isn't helping the banks, but the real problem IMHO is the way these mortgages were packaged.
Say you make a mortgage for $100k to someone for 20 years, and the total repayment is $250k principal plus interest. Now you take 10 of these things and you package them up and sell the paper for $1.5 million (150k per mortgage). SOUNDS like a good deal, except what happens if ONE of those mortgages goes bad? The buyer of the paper is now out 250k and all of
Well...no. Assuming that 10 100k mortgages with an expected return of 250k were sold for 1.5 million, then the expected final value would be 2.5 million, and the complete loss of a mortgage (which is pretty unlikely, since, if they default, you still have the house which has residual value) you're only going to be making 2.25 million instead of 2.5 million.
So you'd need to lose 4 mortgages before you broke even, assuming the seized houses were worth nothing. More likely you could lose 5 or even 6 before you
No no no. Remember there is a 'time value of money'. There is substantial opportunity cost associated with making ANY loan. Not to mention the risk of inflation. If I put my money into an investment at 5% return, and even a small fraction of my principle is written down, I'm immediately in the red.
See the flaw with all these mortgage backed securities is this. The house is worth 100k lets say, the bank loans 100k, they sell the mortgage for 200k, THAT 200k IS PRINCIPLE. It is really just as if the buyers of
That doesn't answer my question of why it's not helping the banks. Is it because the value of the package now fluctuates more rapidly and thus steepened the slope down which the market would go, or is it because it placed a light on a problem that had been previously fairly hidden, bringing forward something that was going to happen anyway?
I think it's actually a bad thing, simply because loans are not a "right now" sort of asset. You just can't know really.
The problem here is that the loans are guaranteed by assets, and the value of those assets are used to offset the risk. So if the value of that house goes down by 50%, then that loans immediate "value" takes that into account.
But if the guy never defaults (which he very well may not), then the loan is still worth the same in the long run, and the house price en
I think part of the problem is that when these mortgages were 'packaged' and sold, the securities were sold at values which were far in excess of the reasonable value of the underlying surety (the home). Frankly I doubt most of the people who bought them really understood that.
Deregulation has lead to a scenario where the large financial institutions dealings have become almost totally opaque. Trust but verify became 'oh, what the heck, everyone is doing it.'
Forgive me for the incessant questions, but banking finance is not one of my strongest fields. I understand in concept how the chain of failures would occur (especially now with foreign central banks stepping in for their own banks), but I'm a little fuzzy on this line:
In this case the APMs and the loosening of the capital reserve on the big boys made for some huge ugly problems.
I think clearing this up would help me on the basic points of this thread, and I thank you for indulging me on this.
Or a big tech industry could pop up right across the street and the value skyrocket. In the latter case, the bank would be praying for him to default because they'd make money on the deal...Indeed, that's likely a chunk of the reasoning behind the above prime rate mortgages; banks wanting to repo an appreciating asset.
Over all, the only quibble I have is with this portion. Current law is such that if someone defaults on a house and owes the bank $200,000 and the bank is able to sell the house for $300,000 then the Bank *has* to pay the defaulter $100,000. The Bank receives no benefit to the borower defaulting.
Wait: So you are saying that these things are actually way more valuable than their current prices would indicate? If that were the case, wouldn't people with money be snapping them up like free hotcakes?
The only way this plan wouldn't lose the taxpayers vast sums of money, would be if Hank Paulson was much better at valuing these things, using other people's money, than people out there who would be spending their own money.
So you are saying that these things are actually way more valuable than their current prices would indicate?
Actually, maybe. See, right now, there's a panic. Originally, these assets were priced far higher than they were worth because no one properly assessed the risks associated with them. Now, the prices *may* be far lower than their worth, because the market is panicking, and no one can properly assess the risks associated with them.
So the answer might be yes. It might also be no. Paulson is bettin
Nah, they are just worth more than $0 which is essentially what you can get for em since no one in the free market will buy em. They are probably worth about half of face value in reality (houses are at ~200% of historical averages) so the government would lose about half of the $700B spent on the bailout, less after inflation. Personally I don't want to spend ~$5,000 of my hard earned dollars because other people bought houses for too much money. I bought a house at ~2x my annual salary, not the 7x some st
The bail out package that was proposed is not supposed to buy the mortgages at "face value". They are supposed to buy them below "face value" and below "real value". How to evaluate that what the "real value" is, is part of what this whole thing is designed to do. Additionally, there was the provision in the House Bill (and the Senate Bill as well), that a tax would be imposed on the financial industry in five years if the government lost any money.
Warren Buffet (Liberal, not Conservative BTW), believe
It's a problem of scale; you can't really buy a mortgage package as a private investor, and, to make it worse, it's a "more is better" situation.
It's like selling insurance. If you sell insurance to one guy, and he dies early, you're fucked. But if you sell insurance to a million guys, only about 8% of them are going to die early, so you're going to make a nice profit.
Right now they're thinking between 10 and 20% of the above prime rate mortgages may end up in default. That's not a problem, if you've got en
In a concrete example, imagine a bank owns a formerly AAA-rated residential mortgage-backed security (RMBS) composed of Alt-A loans, which are better than sub-prime but less than prime. About 5% of the loans were delinquent, and there are no high-risk option ARM (above prime rate-mortgages) in the security. It is offered at 70 cents on the dollar. If you bought that security, you would be making well over 12% on your money, and 76% of the loans in the portfolio of that security would have to default and lose over 50% of their value before you would risk even one penny.
Let me say that again: seventy-six percent would have to default.
This would only be the case if the RMBS consists of whole mortgages. My understanding is that each mortgage was split into various income streams, with a stream getting the first x% of dollars obtained either through payments or foreclosure, one getting the next y% of dollars, and so on. Therefore, if your tranche only gets the last 10% of the repayment of the mortgage, getting less than 90% through a default where the property resale price + payments made falls more than 10% short means this tranche is w
"The whole issue revolves around the new FAS regulation from a year ago (157, if anyone cares) which required the banks to revalue their investment holdings based on the daily current market values, which, due to a current housing market glut, are tanking. In the long term most of these assets have a much higher (and more stable) value, but since they're being measured in the short term, these horrible reports are coming out and scaring the shit out of everyone."
Go to realtor.com and have a look at houses in Detroit costing = $100. There's quite a lot of them, and I wouldn't pay as much as $100 to buy one of them, as they are semi-demolished huts in a crap area of the city.
These houses have hundreds of thousands of dollars of mortgages secured on them which the banks have no hope whatsoever of recovering.
Anyone who thinks one of these piles of rotting 1930s timber is going to "recover" in price needs to have their head examined.
Frankly, having the government snap up a chunk of semi-stable investments which, in all likelihood, will render an eventual profit isn't a bad deal if it will get all the goddamn market amateurs to stop having hourly shit-hemorrhages.
And you think this should be the government's job?
Frankly, having the government snap up a chunk of semi-stable investments which, in all likelihood, will render an eventual profit
---
Unfortunately that's not true. That's the way the Swedes did it.
The way we were going to do it mean by adverse selection we would get all the stuff known for sure to be worthless.
And paulson would make sure GS was first in line-- hell, they were the only non-governmental people in the meeting where we decided to support AIG (and happened to be on the hook for 20 bil
Holy shit! A good objection! You're the first one;)
I'm definitely in favor of taking Paulson out of the loop; I don't trust him either. And the buyout is another Bush corporate handout, there is no question about that.
But the liquidity crisis is very real, and it will have pretty nasty ramifications well beyond the market. Having that money out there will calm everyone down, and give the banks some room to breathe.
I'd like to see the control go to some accountable body. I like the provisions against execut
Most people will listen to your unreasonable demands, if you'll consider
their unacceptable offer.
Yeah... (Score:2, Informative)
Please shut up, we do not want to hear from you on important matters.
We know what's best, so just get over yourselves.
Signed
House of Representatives
Re:Yeah... (Score:5, Insightful)
Oh please. I'm no fan of the government, but they're not in a position to just "fix" the problems with the economy, and they don't really need Joe Sixpack's crap advice piling up.
Of all the coverage I've seen on the current problems, hardly any of it actually hits the real roots of the issue. The 700,000,000,000 bailout is being pushed (hilariously) not because anyone who knows really thinks it'll solve the problem, but because the people who are pushing it know it will be perceived that way, and calm down the markets.
The whole issue revolves around the new FAS regulation from a year ago (157, if anyone cares) which required the banks to revalue their investment holdings based on the daily current market values, which, due to a current housing market glut, are tanking. In the long term most of these assets have a much higher (and more stable) value, but since they're being measured in the short term, these horrible reports are coming out and scaring the shit out of everyone.
Frankly, having the government snap up a chunk of semi-stable investments which, in all likelihood, will render an eventual profit isn't a bad deal if it will get all the goddamn market amateurs to stop having hourly shit-hemorrhages.
But all the average scmuck knows about the situation is that the government is going to "throw away" 700bil on something that will (depending on their view) save/destroy the economy. They've got no idea, no more than the better informed people who are pushing it, and their attempts to get in the way are just causing problems.
To use an IT metaphor; the mainframe has eaten itself, and you're trying to fix it, and you've got to do things that may or may not destroy data, but that have to be done regardless just to get the system running again. Is it productive to listen to all the people who have a stake in the data screaming their uninformed opinions? Not really. I think Congress is displaying a distinct lack of tact, but I've been known to tell a CFO to go fuck themselves sideways a time or two myself, and I'm finding it hard to blame them.
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I think I'll let everyone else digest that fact for themselves.
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To use an IT metaphor; the mainframe has eaten itself, and you're trying to fix it, and you've got to do things that may or may not destroy data, but that have to be done regardless just to get the system running again.
Yup. Basically, the way I figure it, either people aren't cognizant of the fact that, like it or not, the government has to intervene in some sort of "bailout-like" scenario in order to save the economy, or they're simply choosing to cut off their noses to spite their faces. The latter is s
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That is the point of representative government.
Actually, no. The point of a representative government is for you to elect someone you feel will do a good job in office. That does *not* mean they should unquestioningly toe the line of their constituents. It means they should use their judgement, in conjunction with feedback from their constituents, experts, colleagues, and so forth, to do what they feel is the right thing. Otherwise, you might as well just have direct democracy and be done with it.
In thi
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The thing is that I'm not exactly ignorant. I've been following this issue for more than two years at this point. Economists who know what they are talking about have been warning about this for a long time now. There has been ample time to properly address the problem. Our financial system under the Federal Reserve is the problem. They inflate bubble after bubble and we pay for it in terms of market instability and inflation. If the government passes the bail out bill it will destroy the dollar becau
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Well, it isn't entirely the government's fault, Federal Reserve or otherwise.
Who was buying McMansions? Who was flipping houses? Who was refinancing their mortgages to take the equity out of their properties? Who was signing for credit they knew they couldn't pay back?
That's right, the sainted American People. Surely they were enabled by our dumb government policies. Fannie Mae is one of the main employers of former Democrat congressional staff members, so it isn't entirely a Republican problem either. But
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Although I agree with you that the fault to a certain extent lies with the people who took out the loans, it also lies with the lenders and the government for allo
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So spake dave 'Gambino' 562.
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It won't be paid back - just look at our current debt to see the truth of that. When both candidates were cornered with the question: "What we ill you differently to offset this cost", BOTH of them hemmed and hawed and committed to changing /
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I would still object. The "safeguards" are a joke - what everyone is conveniently forgetting is that the taxpayer is not paying for this money! It is getting printed up out of nothing - the fed will turn around and say, "Yep, now there's 700b more in the economy."
And what money the taxpayer does have loses value thanks to the inflation caused by this injection. So yes, we're all paying for it. And by all, I mean anyone holding $US.
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If the government gets their figures right there's no offsetting of the cost required. The mortgage repayments should cover the government debt repayment. Obviously, the figures won't be right...but they won't be 700bn USD wrong.
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isn't a bad deal
other than the fact that they have no constitutional authority to do so...
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Show me where it says that they can't do it.
That's the thing about the Constitution; it has a few rights that it explicitly guarantees, and it has a few rights that it specifically removes, and everything else it leaves alone.
The legislature has the power to collect revenue (Article 1, Section 8, First sentence. Income tax is specifically dealt with in the 16th Amendment), and the legislature has the power to spend revenue (Article 1, Sections 7 and 8) "to pay the Debts and provide for the common Defence an
Uh, READ the constitution first... (Score:5, Insightful)
The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.
Amendment X.
There is something unclear about this? POWERS NOT DELEGATED, the key phrase. All that is not permitted explicitly is EXPLICITLY forbidden. There MAY be arguments as to the extent of the power of Congress which could be made with regards to commerce and regulating the money, but they are at best weak arguments. The point is, your analysis is simply wrong and not only directly contravened by the 10th amendment, but also discussed at length by the authors in the Federalist Papers (in all fairness Hamilton made some arguments similar to yours, but it is a dangerous position to take).
What if Congress decides that 'the common welfare' would be served by having the FBI throw you in a pit for 30 years? Is that OK because 'hey, it is good for everyone else, and they can do whatever they think is good'. Sorry, not in my United States.
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The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.
The "to the people" bit is important here. The representatives represent the people, so they exercise the rights of the people on your behalf.
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No, "the representatives" are Congress, whose role is clearly and specifically defined.
Exactly (Score:3, Insightful)
If you assume that Congress has UNLIMITED AUTHORITY, then why do we have a Constitution at all? The Constitution is a compact between the people, of the comity of the people, WITH EACH OTHER which vests certain defined and limited portions of the absolute sovereignty of the people in a Congress, etc. That power is clearly and explicitly limited. What part of 'reserved to the people' is not clear here?
When Congress assumes for itself powers not vested in it they are overthrowing the authority of the people.
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hehe (Score:2)
Well, I was replying to you, but I was agreeing with you disagreeing with him... ;)
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i think they would easily drive it through the 73 bushel.. er interstate commerce exception.
No doubt (Score:2)
They WILL do so. Personally I'm not one of the rabid originalist type. I think society has to function and OK, it is true that the original intent was probably that gold and silver were the only money Congress was allowed to make. Yet our modern society could not function on that basis. Unfortunately the debate was never had as to how the authority of Congress should have been altered in order to accommodate changing circumstance.
Instead the existing terms of the document were stretched out of all recogniti
Re:Yeah... (Score:4, Insightful)
Yay! Mod points for wishful thinking over law! (Score:3, Insightful)
Unfortunately, your understanding of the constitution is fundamentally flawed. It has a few things that it explicitly tells the federal government it can do, and the 10th amendment says, "If we didn't explicitly say you can do it, it's none of your business."
As pointed out by the above poster, the federal government *was* explicitly told that this is something they can do. The articles of the Constitution that he actual cited (as opposed to your general parapharsing) are known as the Taxing and Spending Clause and the General Welfare Clause in Constitutional Law. There is absolutely nothing in the bailout plan that was unconstitutional. Unwise or unfair, maybe, but not unconstitutional.
Furthermore, the 10th Amendment is generally considered to have little ju
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Like I said, this statement is unequivocally false. And despite your stunning ability to look up cases on the internet, the Congress still has to give lip service to a grant of authority before it passes a law. Usually it's the Commerce Clause, which after Wickard v. Filburn
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Like I said, this statement is unequivocally false.
One can make an argument that it's not. It's really no different from from the analysis you gave, except for your faulty assumption that the 10th Amendment has strong teeth. The Constitution grants the government several powers to pass laws (removing some rights from you) and the Bill of Rights takes several powers away from the government (granting some rights to you). What it says nothing about is left alone, presumably to the states.
The 10th Amendment has long been viewed as little more than an affirm
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Okay, congratulations, you've proved you have free Westlaw access, which means you're a student (but shame on your for not having Blue Book-correct cites; I hope you're not on Law Review), and so you deserve a little more respect that J. Random Slashdotter who thinks he knows the law. But you still have yet to refute my original point, which is that the 10th Amendment does not "just leave the rest alone." It says "the rest doesn't belong to the Federal government." Sure, you've shown that you favor a mor
Alright, let me get gritty here. (Score:3, Insightful)
Okay, congratulations, you've proved you have free Westlaw access, which means you're a student (but shame on your for not having Blue Book-correct cites; I hope you're not on Law Review), and so you deserve a little more respect that J. Random Slashdotter who thinks he knows the law.
Damnation. You're a practicing attorney, aren't you? Alright, I've got to be a little more humble and back up my arguments a little more forcefully. (And I'm not following formal style because this is just an informal internet geek fight. I'll add some links for people who don't have access to services like Westlaw.)
It says "the rest doesn't belong to the Federal government." Sure, you've shown that you favor a more expansive Commerce Clause than I do, but that's orthogonal to my point, which is that the 10th Amendment does, in fact, say something about it ("strong" teeth is your phrase, not mine). You're talking about matters of degree, which are up for reasonable debate. [...] In any case, all constitutional theorists agree that the states have some powers reserved to them (if you can dig up a single remotely credible scholar who says otherwise, I'd like to see it; even Ginsburg will occasionally defer to the autonomy of the states).
I'd agree on the last point. New York v. United States [findlaw.com] 488 U.S. 1041 (1992) makes clear that Congress can't compel state action through promises of penalties. (See Part B(1) of the major
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I think it's time to go back to law school until you get this part right.
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I think it's time to go back to law school until you get this part right.
Are you disputing this? Do you have any logical basis for this statement or are you just asserting that I'm wrong without any supporting evidence that might allow one to question your own knowledge? This is how Amendments like the 1st through 5th, 8th, and 9th are viewed, after all.
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The Constitution grants the government specific rights. The first ten Amendments do not grant anything, but rather enumerate rights held by the people by virtue of the
What is a right? (Score:2)
The first ten Amendments do not grant anything, but rather enumerate rights held by the people by virtue of the fact that they're human beings.
Semantics. Rights only exist so far as they can't be taken away from you. Your right to live only exists because it's illegal for people to murder you. Your right to free speech only exists because it's illegal to restrain your speech. In absence of those restraints against other parties, your rights don't exist.
By banning the government from taking certain actions against you, the Constitution creates those rights, but there is nothing that gives you those rights if you live under a government that doe
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The articles of the Constitution that he actual cited (as opposed to your general parapharsing) are known as the Taxing and Spending Clause and the General Welfare Clause in Constitutional Law.
You're not going after the 'general Welfare as an enumerated power' angle, are you?
There is absolutely nothing in the bailout plan that was unconstitutional.
Specifically, which enumerated power in Article 1, Section 8 provides the Congress with the power to purchase toxic assets from the financial industry?
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You're not going after the 'general Welfare as an enumerated power' angle, are you?
The "Taxing and Spending Clause," "Spending Clause," and "General Welfare Clause" all refer to the same text (just different parts of it):
Article 1, Section 8, Clause 1:
"The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States;"
Court cases have consistently found no limitation on what Congress can spend your tax dollars on since United States v. Butler. That clause gives Congress the ability to spend tax dollars to purchase toxic assets from the financial industry.
We may not like how they're exercising that power, but there's absolutely no question that they have it to anyone who's studied Supr
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We may not like how they're exercising that power, but there's absolutely no question that they have it to anyone who's studied Supreme Court precedent on the matter.
Right, but just because they've adopted a binding system of stare decisis in a manner incompatible with Constitutional rule doesn't make it Constitutional. A persuasive system [constitution.org] would allow the judges to uphold their oaths.
Rule of law, not of man. (Score:2)
Right, but just because they've adopted a binding system of stare decisis in a manner incompatible with Constitutional rule doesn't make it Constitutional. A persuasive system would allow the judges to uphold their oaths.
A persuasive system would make it no more or less constitutional than a binding system. After all, "constitutional" would still be a matter of court interpretation. All you do is shift around the authority to do so.
A persuasive system has the worse side effect of substituting rule of man for rule of law. While you take serious issue with the binding precedent of "wrong" decisions, you overlook the importance of binding precedent for right decisions. Take the case of Watts v. Indiana [justia.com] , 338 U.S. 49 (1949
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Now, in a binding precedent world, no court of this nation finds itself free to allow confessions under torture to be admitted in court.
Yet in the binding precedent world any Superior Court in the State of Indiana was compelled to allow tortured confessions from the time Watts was decided until it was overturned by the SCOTUS, no? And if the SCOTUS had declined to hear the case that would have stood until the Indiana Supreme Court was replaced.
For the sake of clarity, am I correct in understanding that it'
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Yet in the binding precedent world any Superior Court in the State of Indiana was compelled to allow tortured confessions from the time Watts was decided until it was overturned by the SCOTUS, no? And if the SCOTUS had declined to hear the case that would have stood until the Indiana Supreme Court was replaced.
Yes (ignoring the the Circuit Court gets first stab at it). Unfortunately, this would be the case -- just as state weren't allowed to grant citizenship for former slaves or their descendants due to Dred Scott. I'm not pretending that unjust decisions never happen.
However, one thing the argument for persuasive precedent ignores is that not all judges are created equal. Not all judges go through the same level of scrutiny before taking their positions and not all have the same level of expertise. It is un
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This is insightful? All you've posted is that the Constitution says whatever the Supreme Court says is does.
And? That's how things are. Deal with it. As I say in my reply to his reply to the above post, there is no such thing as a platonic, ideal notion of Constitutionality. Constitutionality is entirely a concept of the law as applied, based on our English-inherited common law system -- i.e. judge-interpreted law.
The GP was pointing out that the government(all three branches) simply ignore the 10th Amendment. This goes against the entire premise of rule of written law.
No. They interpret the 10th Amendment in a way different from what you would like. Words on paper are meaningless without interpretation, and if you learn anything when studying law, there's no se
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I say this once every few debates over the 10th Amendment, and it feels like its time again.
If we're going to be strict constructionalists, that's swell. But to be logically and legally consistent, the very first thing we need to start with is the idea that the Supreme Court can strike down laws based on their constitutionality. The Constitution gives them no such authority, only the authority to interpret laws; this was a power that John Marshall took for himself in order to fuck over Thomas Jefferson
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I can see you are a constitutional scholar.
The Congress shall have Power To ... borrow Money on the credit of the United States ... To regulate Commerce with foreign Nations, and among the several States
Re:Yeah... (Score:5, Insightful)
The underlying problem is, house prices are *way* over-inflated. Inflation-adjusted, they peaked at *double* the historical norm, and all this mess started when they came back down just 10-30% (regional). There is a generation of people who honestly believe that house prices don't go down, and have made grave mistakes in their personal finances as a result. Nation-wide, house prices above about 3x the median hosehold income aren't sustainable, and we're still about 5x (and of course far worse in the housing bubble cities).
While there were certainly a subset of loans that were just bad - forged docs, impossible payments, etc, and that's what's causing this month's crisis, the problem is much deeper. There's an entire culture now of buying a house with a mortgage payment of 80%+ of your take-home pay, counting on cashing out equity every year because "house prices only go up". This isn't a problem the government can fix.
Sure, the governement needed to intervene to avoid a market panic, but really it just needed to "make a market" in these mortgage-backed securities, to allow them to trade at a value not absurdly depressed by that panic. That's not a $700B bailout, that's just splitting the difference between buyer and seller.
Long term, however, house prices are certain to fall back to sustainable levels, and anyone thinking "we just need to put this problem behind us so house prices can start rising again" is in a dream world. The governement isn't going to solve that problem, and shouldn't try. Do the minimum to stop the panic, and get out.
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Shrug. That's a problem with any investment. Look at all the people who bought into oil thinking that would never go back down.
In this I think the public perception of action is the primary need...As with most financial crises, this one is mostly driven by panicking investors.
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Can you fault Congress for actually listening to it's constituents?
Sometimes, yes. A panicking Wall Street is no better than a panicking constituency. Wall Street is interested in saving it's own neck and big paycheques. The people, meanwhile, are, apparently, primarily interested in sticking it to Wall Street at any cost. Both are completely irrational, and neither should be unquestioningly heeded.
'course, that presumes that government is a) capable of handling this crisis, and b) able to remain above
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You are telling me more market intervention is going to solve it?
The government can fix that. (Score:2)
Yeah, it can. It's called "regulation" and it's what certain sections keep ranting against.
Simply put, make it illegal for the bank to write a mortgage unless certain criteria are met.
If we had stuck to that then we wouldn't be facing this crisis today. It would probably be a different c
Re:The government can fix that. (Score:5, Informative)
I'd settle for a regulation saying businesses may not enter into financial negotiations they do not, at that time, have sufficient verifiable assets to support.
You might still take a hit if housing prices drop a few percent and lenders who made reasonable lending decisions find themselves stretched, but you would be unlikely to see the kind of major players failing that we have seen recently.
Perhaps more to the point, you wouldn't get the sort of silly leveraging that has been going unchecked in the financial services industry for years, where no-one could really keep the promises they were making. That is how you get companies "too big to fail", which then need government intervention that is completely unjustifiable in a sane world, because while the mega-businesses deserve to fail and their investors deserve to lose out, the collateral damage to the innocent bystanders in the rest of the economy is nasty.
There are all these clever analyses flying around about what went wrong and how to fix it, but it seems to me that the basic problem has simply been allowing businesses to make promises they cannot keep.
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That would cause fairly large problems actually.
In 2004 the SEC removed the "Fixed Leverage Rule" for a handful of investment banks. That rule stated that they had to have 10% of their holdings in liquid assets...A safety net basically. You know what banks those were? Goldman Sachs, Merrill Lynch, Morgan Stanley, Lehman Brothers, and Bear Stearns.
That was pretty fucking stupid of the SEC, eh? Those jokers put that extra 10% into the market, and at the first downturn, they fucking crashed because they had no
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You can't expect a bank to have 100% of what it needs on hand. It just doesn't work that way. 10% is plenty, and the proof of that is how well the traditional banks are weathering this.
Erm... No, sorry, I don't buy it. If it weren't for central banks taking huge liberties with what is, ultimately, tax-payer-backed money, those "traditional" banks would be toast right about now. Several of them are anyway. You write as if the others have healthy balance sheets, which isn't exactly a safe bet today.
In any case, banks are not the only ones who count. The entire economy in most western countries is royally screwed, and is likely to remain so for quite some time at this point. Numerous everyda
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I think you'll find that most people's pensions and savings will recover value just like any other investment. Markets are cyclical. What goes down comes back up...in time.
If you don't want the value of your funds to change, by all means put them in a bank and collect interest...If you can find one that can afford to pay interest, since it can't, in your world, loan out any money.
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I think you'll find that most people's pensions and savings will recover value just like any other investment.
In time, yes, they will. But it could take several years in some markets.
The problem is that those who will be retiring in the near future and compelled to cash in their pension funds might never have the opportunity to enjoy those gains.
If you can find [a bank] that can afford to pay interest, since it can't, in your world, loan out any money.
Of course it can. It just can't lend out more money than it can afford, just like everyone else in the world.
And what that has to do with paying interest, I don't know: banks invariably pay interest rates that are below the long-term return they will make while investing th
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How do you think banks make money? They make money by making loans. If they can't make loans, they can't make money.
And "More than they can afford" is an imaginary number. When WAMU tanked it was after its banking clients withdrew 17 billion dollars of their money in a 10 day long bank run. 11 days before they were saying, "Well, we're not doing great but we have 17 billion in liquidity over our required margins, and that should be plenty."
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I'm not saying banks shouldn't be able to make loans. I'm just saying they shouldn't be able to make loans they can't afford. If that is really a problem for the economy as a whole, perhaps we need to reconsider the extent to which our society is built on debt.
Would it really be such a bad thing if people could only borrow modestly, and as a consequence prices for more expensive assets such as houses had to be more realistic? Would it be such a bad thing if lenders weren't allowed to lend irresponsibly, and
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I see a lot of traditional banks failing.
WaMu.
Wachovia.
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Meh. They were both massively exposed in the mortgage market, and, technically, they both got bought out. The thing that killed wamu was a 17 billion dollar bank run, but they were already under their capital requirements and had been for some time.
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The failed businesses did have sufficient verifiable assets to support their transactions at the time they were made. The problem is with another regulation that says they are insolvent if they don't have sufficient assets to support these transactions at a later time when the market decides they are worth less - even if they can meet all of their co
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The failed businesses did have sufficient verifiable assets to support their transactions at the time they were made.
The financial trickery going on behind the scenes involved leverage on silly scales. If the picture is as simple as you suggest, how do you account for the failure of banks in Europe, which are not subject to US accounting rules?
So what are you advocating, exactly? That businesses should carry sufficient cash to have positive net worth even if the value of all other assets falls to zero?
No, of course not. And I agree the change in accounting rules that relied on daily valuations was foolish. But financial commitments should only be permissible when there is a reasonable expectation that the means are there to back them up. Lending 125% mortgages to people who didn'
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Regulation might help here, but sadly, regulation also got us into this mess. Regulations to create "affordable housing" strongly incented lenders to give loans to people who couldn't qualify for Fannia Mae criteria, and congresscritters (Barney Frank, I'm looking at you) called "make it illegal for the bank to write a mortgage unless certain criteria are met" racist.
In a time and place where the congress is calling holding people to reasonable credit standards racist, the banks were under a lot of regulat
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Bah, I've heard this before, and it's all bullshit. CRA loans were but a fraction of the total number of subprime loans that were given out. It's a fact. Look it up. No, wait, I'll do it [prospect.org]:
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Ah, I see... rather than a fact-based refutation, I'm just modded down. Oh well, I suppose this is what happens when you present republicans with facts...
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So do *you* have facts to prove that the CRA was the driver behind this fiasco?
And I bring out "party lines" because this particular fib is consistently brought up by small-government republicans who are hellbent on blaming the crisis on *too much* regulation, which I find amusing in a sad sort of way.
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The next time you see a "small government" republican, make sure to tag him with a radio transponder: we're an endangered species, you know.
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Get a clue. The whole problem started when the government threatened to legislate if the banks were discriminating against people. The banks got scared that "You're not qualified" would be taken the wrong way, so they started handing out money to anybody. There was huge pressure from the government to hand out crap loans.
If the government had minded its own business in the first place, there'd be no crisis. So STFU with your "Regulation will save us" bullshit.
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A few clarifications for you:
The monetary expansion that fueled the home-buying binge started in late 2001. Overnight rates went from 6.54% in 7/2000 down to .98% in 12/2003, and by 1/2002 it was down to 1.73%, and the biggest changes in interest rates were over. So that's a convenient place to base our estimates of the "normal" price.
The historical real increase in housing value has been about 1.5% over the last century. The CSXR was at 123.93 in 1/2002. And the CSXR peaked at 226.29 in 6/2006. Since
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how about the fact that wages have more or less been frozen for a while?
That kind of impacts things too.
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Perhaps, but not *nearly* enough to make up the difference. There's a lot more at work here than just the cost of insurance.
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Interesting assessment. I'm not too familiar with the US housing market, but from what you've said, I'm not sure that US house prices are extremely over inflated. Somewhat inflated, yes, but not extreme.
Why are house prices above 3x median income unsustainable? It seems to me that it can be sustained, even at 5x. At least, that's my experience in my country, where a house at 5x the average salary is actually cheap.
It sounds to me that you're assuming house prices will go back to historical levels. That
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Judging by your posting history you are Australian. The Australian real estate market is one of the most overinflated in the world, so I don't know why you think that's a good benchmark. Housing markets in Britain and Spain are also collapsing, so it seems likely it will hit Australia as well.
The last decade or so has been a period of abnormally low interest rates, thanks to exceptionally low inflation. This situation may not be maintainable with rapidly rising wages in East Asia and high commodity prices.
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Nation-wide, house prices above about 3x the median hosehold income aren't sustainable.
We're in trouble over in the UK then; median income is £24,700[1], average house price is £219,262[2], so we're over 9x.
But house prices will never fall more than 10-15%.
Our key voting demographic own their homes already (bought at 3x-6x), and the 4 year politicians will be replaced a couple of times before the current 18-35 demographic start voting enough. The current strategy of preventing more than 1/10 of required housing being built will mean we've gone from "least space per pe
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you may be right; but £125k would still be 5x and frankly I don't believe there is anywhere left in the UK where even the smallest bedsit goes for that little.
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Your comments about house prices are spot on - as anyone could see if they took the trouble to examine a graph of real-dollar house prices since 1970. That graph also illustrates the fallacy of assertions that the problem could have been avoided had we only taken action in, say 2005. From about 1999 on we were doomed to a painful correction, and every year of delay just stored up more pain.
I can't agree with the following opinion, though:
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If you understand the way the mortgage backed securities were bundled, sliced-and-diced, bundled again, and sliced-and-diced again, then you understand that it's the securities initially rated as junk bonds that are basically worth nothing now, but the securities rated AAA originally are still OK, realistically they're still AA or a step worse, and worth 90-95% of face value. No one's willing to buy them at 70 right now. There's a complete dicsonnect between underlying value (assuming very bad things abou
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Fantastic point.
I'm not surprised to hear the major networks in a panic and beating us over the head to support this bailout. But, I was terrified to see normally sane outlets in the same panic (namely NPR, The Economist, and BBC).
You're right though. No amount of panic, no amount of dollars is going to fix the underlying demographics: a teacher/firefighter/retail manager cannot afford a half million dollar house.
There is plenty of capital available in the world, just not in the West. Ironically, if we proc
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1.) Those with the at risk mortgages realize that there is no way the congress wants to accept the negative press associated with them actually foreclosing on properties in serious default and continue missing monthly payments.
Or 2.) The market recovering and congress using the return on their investment to grow government even more, becoming even more intrusive in areas which do not
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The whole issue revolves around the new FAS regulation from a year ago (157, if anyone cares)
I wonder if we would have had either a more gentle slope or if the current issues would have been delayed without the presence of this regulation. Do you have any idea about this?
Well, it is probably more complex than that (Score:2)
mark-to-market (MTM accounting, which is rule 157) no doubt isn't helping the banks, but the real problem IMHO is the way these mortgages were packaged.
Say you make a mortgage for $100k to someone for 20 years, and the total repayment is $250k principal plus interest. Now you take 10 of these things and you package them up and sell the paper for $1.5 million (150k per mortgage). SOUNDS like a good deal, except what happens if ONE of those mortgages goes bad? The buyer of the paper is now out 250k and all of
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Well...no. Assuming that 10 100k mortgages with an expected return of 250k were sold for 1.5 million, then the expected final value would be 2.5 million, and the complete loss of a mortgage (which is pretty unlikely, since, if they default, you still have the house which has residual value) you're only going to be making 2.25 million instead of 2.5 million.
So you'd need to lose 4 mortgages before you broke even, assuming the seized houses were worth nothing. More likely you could lose 5 or even 6 before you
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No no no. Remember there is a 'time value of money'. There is substantial opportunity cost associated with making ANY loan. Not to mention the risk of inflation. If I put my money into an investment at 5% return, and even a small fraction of my principle is written down, I'm immediately in the red.
See the flaw with all these mortgage backed securities is this. The house is worth 100k lets say, the bank loans 100k, they sell the mortgage for 200k, THAT 200k IS PRINCIPLE. It is really just as if the buyers of
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That doesn't answer my question of why it's not helping the banks. Is it because the value of the package now fluctuates more rapidly and thus steepened the slope down which the market would go, or is it because it placed a light on a problem that had been previously fairly hidden, bringing forward something that was going to happen anyway?
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It's an interesting question.
I think it's actually a bad thing, simply because loans are not a "right now" sort of asset. You just can't know really.
The problem here is that the loans are guaranteed by assets, and the value of those assets are used to offset the risk. So if the value of that house goes down by 50%, then that loans immediate "value" takes that into account.
But if the guy never defaults (which he very well may not), then the loan is still worth the same in the long run, and the house price en
That would be my feeling as well (Score:2)
I think part of the problem is that when these mortgages were 'packaged' and sold, the securities were sold at values which were far in excess of the reasonable value of the underlying surety (the home). Frankly I doubt most of the people who bought them really understood that.
Deregulation has lead to a scenario where the large financial institutions dealings have become almost totally opaque. Trust but verify became 'oh, what the heck, everyone is doing it.'
The SCALE of the insanity is almost impossible to
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Forgive me for the incessant questions, but banking finance is not one of my strongest fields. I understand in concept how the chain of failures would occur (especially now with foreign central banks stepping in for their own banks), but I'm a little fuzzy on this line:
In this case the APMs and the loosening of the capital reserve on the big boys made for some huge ugly problems.
I think clearing this up would help me on the basic points of this thread, and I thank you for indulging me on this.
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Or a big tech industry could pop up right across the street and the value skyrocket. In the latter case, the bank would be praying for him to default because they'd make money on the deal...Indeed, that's likely a chunk of the reasoning behind the above prime rate mortgages; banks wanting to repo an appreciating asset.
Over all, the only quibble I have is with this portion. Current law is such that if someone defaults on a house and owes the bank $200,000 and the bank is able to sell the house for $300,000 then the Bank *has* to pay the defaulter $100,000. The Bank receives no benefit to the borower defaulting.
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The only way this plan wouldn't lose the taxpayers vast sums of money, would be if Hank Paulson was much better at valuing these things, using other people's money, than people out there who would be spending their own money.
I don't believe it. Sounds like BS to me.
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ding ding ding we have a winner.
If I had mod points I'd be helping this post get to "Insightful 5"
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So you are saying that these things are actually way more valuable than their current prices would indicate?
Actually, maybe. See, right now, there's a panic. Originally, these assets were priced far higher than they were worth because no one properly assessed the risks associated with them. Now, the prices *may* be far lower than their worth, because the market is panicking, and no one can properly assess the risks associated with them.
So the answer might be yes. It might also be no. Paulson is bettin
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So $700 Billion on black then?
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Warren Buffet (Liberal, not Conservative BTW), believe
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It's a problem of scale; you can't really buy a mortgage package as a private investor, and, to make it worse, it's a "more is better" situation.
It's like selling insurance. If you sell insurance to one guy, and he dies early, you're fucked. But if you sell insurance to a million guys, only about 8% of them are going to die early, so you're going to make a nice profit.
Right now they're thinking between 10 and 20% of the above prime rate mortgages may end up in default. That's not a problem, if you've got en
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In a concrete example, imagine a bank owns a formerly AAA-rated residential mortgage-backed security (RMBS) composed of Alt-A loans, which are better than sub-prime but less than prime. About 5% of the loans were delinquent, and there are no high-risk option ARM (above prime rate-mortgages) in the security. It is offered at 70 cents on the dollar. If you bought that security, you would be making well over 12% on your money, and 76% of the loans in the portfolio of that security would have to default and lose over 50% of their value before you would risk even one penny.
Let me say that again: seventy-six percent would have to default.
This would only be the case if the RMBS consists of whole mortgages. My understanding is that each mortgage was split into various income streams, with a stream getting the first x% of dollars obtained either through payments or foreclosure, one getting the next y% of dollars, and so on. Therefore, if your tranche only gets the last 10% of the repayment of the mortgage, getting less than 90% through a default where the property resale price + payments made falls more than 10% short means this tranche is w
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"The whole issue revolves around the new FAS regulation from a year ago (157, if anyone cares) which required the banks to revalue their investment holdings based on the daily current market values, which, due to a current housing market glut, are tanking. In the long term most of these assets have a much higher (and more stable) value, but since they're being measured in the short term, these horrible reports are coming out and scaring the shit out of everyone."
I really do think that you just horribly miss
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Go to realtor.com and have a look at houses in Detroit costing = $100. There's quite a lot of them, and I wouldn't pay as much as $100 to buy one of them, as they are semi-demolished huts in a crap area of the city.
These houses have hundreds of thousands of dollars of mortgages secured on them which the banks have no hope whatsoever of recovering.
Anyone who thinks one of these piles of rotting 1930s timber is going to "recover" in price needs to have their head examined.
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And you think this should be the government's job?
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You say...
Frankly, having the government snap up a chunk of semi-stable investments which, in all likelihood, will render an eventual profit
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Unfortunately that's not true. That's the way the Swedes did it.
The way we were going to do it mean by adverse selection we would get all the stuff known for sure to be worthless.
And paulson would make sure GS was first in line-- hell, they were the only non-governmental people in the meeting where we decided to support AIG (and happened to be on the hook for 20 bil
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Holy shit! A good objection! You're the first one ;)
I'm definitely in favor of taking Paulson out of the loop; I don't trust him either. And the buyout is another Bush corporate handout, there is no question about that.
But the liquidity crisis is very real, and it will have pretty nasty ramifications well beyond the market. Having that money out there will calm everyone down, and give the banks some room to breathe.
I'd like to see the control go to some accountable body. I like the provisions against execut