Saturday, September 20, 2008

Mother of all bailouts

voltron says: here's an analysis of the proposed bailout:

It allows the Treasury to purchase mortgages, but at what price?  The problem is that there is no bid for this toxic waste in the market.  It is rumored that the treasury will conduct a reverse auction.  I've also heard it will be a dutch auction, but that makes no sense because no two mortgage securities are the same, just as no two houses are the same.  If the government pays to much, the taxpayer gets screwed.  If the government doesn't pay a premium, the banks are still insolvent anyway.  This confirms my forecast that government will attempt to nationalize the banking system.

It also does nothing to solve the "root problem" of house prices falling.  I say that in quotes because the real root problem is that instead of borrowing to produce, we borrowed to consume (houses), so of course we can't pay it back!

The real cost of this could be more that 700 Billion, it's essentially a blank check on top of the blank check that the Treasury got to bail out Fannie and Freddie.  There is no practical taxpayer protection.  This confirms my forecast that the government will continue to double down, at least until the election.

Foreign companies are excluded.  Is this a way to "get back" at hedge funds? 

Well the government is firing all guns at once so congress will be under pressure to add bailouts for auto makers, airlines, "main street" and homeowners.

It's expected to be voted on next week.  You don't get to vote.

1 comment:

Anonymous said...

Thanks, Voltron for the analysis. We do get to vote, though--in just a few weeks. Congress is just horrible...we need to throw them all out!