Morning Christy!

It is a ray of hope (I hope)

And when I say hope, I mean that perhaps at least some level of sense might be returning somewhere. But I’m not holding my breath until I know all the details, ya know?

But how many times have we rescused Citibank? A few times actually.

“…assets, typically a pool of loans that they wish to sell…”

Jane said there are no dumb questions. Here’s my not dumb question. They choose the assets they wish to sell. Is it correct to assume that these are assets that aren’t doing them a whit of good? Who buys and why? And isn’t it the fox/henhouse thingie for the banks to decide what to ditch and what to hang on to? Someone pays big time for this, and I can’t sort out how this works (or even if it does).

Oh. Good morning, Christy, Elliott.

There have been blips through the years for all of them, I think. I’m just talking about this particular moment going forward — can’ go back and change the past without a time machine and some Pillsbury refrigerated buttermilk biscuits. *G*

headline over at HuffPo:

OBAMA WANTS ‘UNPRECEDENTED’ POWERS FOR GEITHNER

ugh.

Reminds me, though – I wonder where Paulson is these days? Do ya suppose that he made enough money from his friends, in the late innings of the georgie admin, that he maybe bought an island or something?

It’s designed to be a way to get toxic assets off the books of companies that bought pools of them when the value was sky high and then it plummeted. It’s essentially, as I understand it, a type of socialism for corporations wherein their bad business decisions get wiped out by government purchase — but it’s done to restore stability and liquidity for loans and other financial transactions within the marketplace as a whole.

So long as the assets remain on the books, banks are required to keep a certain balance of value to balance out the bad assets — which leaves little to nothing available for loaning outward as they hold onto any value for that balance. The problem is that there are questions on the hows and whys of a lot of this and whether taking bad assets off the books of some of these bad actors will do any good if they fail to learn anything about crap business practices.

Which is where the evaluation portion comes in and why I want details.

Re unprecedented powers for Geithner, I heard that includes multiple rounds of rock, paper, scissors as a decision making tool.

Or if you watch Big Bang Theory (funniest damned show on teevee), it’s “rock, paper, scissors, lizard, Spock.” (YouTube)

So FDIC et al basically becomes a humongous toxic waste disposal site, right? The assets have no value to anyone.

Super Elf!

One thing’s for sure: those who are contracted to evaluate the loan packages to be placed up for sale better not be able to buy them. I want that evaluation to be totally independent and all purchases to be subject to review for “insider” favoritism.

who decided that paper wins over rock, anyway?

what – rock loses by way of embarrassment?

Even if this plan works (whatever that means — I have the same questions as Barbara), there still will be trillions and trillions of dollars of credit default swaps waiting to explode if the real estate market continues trudging south.

LOL Way funny!!

Nt necessarily — they are devalued because housing and other values are so far down right now. But for the most part even on really badly leveraged loans? Most of them pay their mortgage bills. They just don’t have a lot of value in terms of stock portfolio or investment value because no one wants to buy them right now.

But default rate, while higher than it was say 5 or 6 years ago, is still pretty low overall — meaning most of the loans pay off over the long haul. It’s just that holding them for the long haul means no loan liquidity for new home sales, new small business start-ups, new innovation for entrepreneurs or research or anything else that may need to borrow capital to make it happen. Because that ratio of good to bad assets is a fixed number via FDIC and other government regulations — and having bad assets means that the number of dollars you have to have on hand as a bank has to be equally high — so you can’t loan them out, even to someone who is a very good credit risk.

I’ve actually known people who run highly successful businesses get caught up in this the last few months. They can’t find financing despite never having defaulted on anything and having good cash flow in the business — but without financing, they can’t expand, hence no new jobs are created, and we stay in stasis which is not good.

I get the theory behind this — I just want to be absolutely certain that proper due diligence is being done and, frankly, I’m not certain it has been.

Yeah — the CDSs are really the turd in the national punchbowl in the worst way. I have no clue how to begin to unravel that mess. SIGH

It becomes invisible, you see. So it has to do with transparency or lack thereof. But under cover of paper, rock (let’s say banks, just for fun) crushes scissors (the economy), even as scissors go after paper. This illustrates perfectly why we just shouldn’t worry our pretty little heads about this and let Spock (Geithner?) play with all us lizard-brains. Hey, it’s as good a policy as anything we’ve seen so far!

OMG, I didn’t think anyone else watched it!

But default rate, while higher than it was say 5 or 6 years ago, is still pretty low overall — meaning most of the loans pay off over the long haul. It’s just that holding them for the long haul means no loan liquidity for new home sales, new small business start-ups, new innovation for entrepreneurs or research or anything else that may need to borrow capital to make it happen.

Okay. This is clear enough that even I understand it. I want to blame my muzzy-mind on life events, but really, it’s time to chuck that and get with the program. Thanks for your patience, Christy. Didja ever teach Econ 101? Maybe should!! *g*

Follow-up dumb question. If some small investor bought some of these “assets” does the “asset” come in the form of, like, a house?

Are you kidding? I absolutely LUV that show. Of course, I’m a super-duper geek, but there you are. Mr. ReddHedd and I watch it alla time. *G* (He’s a super-duper geek, too.)

HAHAHAHAHAHA

No one — and I mean NO ONE — would want me teaching their children econ. But thanks much.

Crap. I’m gonna have to haul the new teevee out of the closet, aren’t I?

Only if you like to laugh to the point that you are holding your belly while tears roll down your cheeks. It may just be me, but it’s some of the funniest writing and acting I’ve seen in ages.

The guy who plays Sheldon is fricking hilarious.

Oh hey! I just noticed something — some time in the last month, we went over 100,000,000 page views. Boo yah!

G’Morning All,
I would like a buttermilk biscuit please.
And, in the rockpaperscissors game, where does a match sit?

And when Leslie Winkle gets thrown in. . .

btw, I’m certain everyone already knows this — but Geithner begins testimony in House Financial Services at 10 am ET. Just FYI…

Did you see Christine Baranski as Leonard’s mom? Genius. Pure and simple genius.

Yes and YES!

Link to link for the hearing.

Geithner? Who cares? When is your Rock/Paper/Scissors/Lizard/Spock source show on the tube?

The woman introduces herself as Dr. Beverly Hofstadter and is surprised that Penny is a hand-shaker. As Penny offers to walk up with her, Dr. Hofstadter is willing to exchange pleasantries. Penny is curious as to what Leonard was like when he was little.

“I assume you mean young; he’s always been little.”

“OK, what was he like when he was young?”

“You’ll have to be more specific.”

“Like 5 or 6?” (One evil stare later…)”5″

“Well, at that age, Leonard was in what Freud would call the phallic stage of psycho-sexual development. An outmoded theory, of course, but the boy did spend a lot of waking hours with a firm grasp on his penis.”

“You will believe that a man can lie.”

Monday nights at 8 pm ET. *G*

So, how is everyone this morning? Pardon me while I get another cuppa coffee…

ah yes, Jerome a Paris is depressed about the prospect

Good Morning All

Okay, I’m serene and focused not.

Christy, I mentioned last night that I would love to see FDL put together a glossary of terms/definitions for what is going on in the economy right now. Has someone already done that? If not, it would be extremely helpful to me, and to people like me (stifle yourselves!). It could be updated as this thing deepens/broadens/whatever.

Surely there is someone with depth of knowledge and tons of time on their hands who’d take this on? *g*

I’ll be better when someone kindly passes me a buttermilk biscuit. And, what would I like on it? Oh, maybe a little butter and jam. A witness to the truth would also be nice. Will listen to the Geithner testimony while I do some tidying around here.
(I’m going to the bookstore today. Called yesterday and the manager said Oh good, you’re back in town. Can you come in tomorrow? That’s pretty much all she said. I figure she’s not asking me in to say we don’t like you. Go away.)
Barney and Timmy are up, bthw.

NOW. Focused NOW. (How Freudian was that?!)

And, Benny the Beard!

Hearing is starting

C-Span3 has the Financial Services hearing this morning. It’s Geithner and Bernanke, FYI. And it’s already begun…

Good news on the bookstore, I hope!

Bonjour les pups, from Paris.

As an economic historian is does me good to see that people are looking to past experience (finally) for solutions to present problems. It doesn’t always work, but on the other hand, it doesn’t always fail. For what it’s worth, I think Geithner will do an honest job. The problem is that no one quite understands the magnitude of the problem. Summers is a good economist, but has a very conventional mind. Same is probably true of Geithner as well.

Here’s an interesting article on that:
Lawmaker backs more power for Treasury Secretary
WASHINGTON (Reuters) -” A senior Democratic lawmaker told Reuters on Tuesday that he was willing to give Treasury Secretary Timothy Geithner more authority to oversee the unwinding of financial institutions that are not now federally regulated.”

Now, If he really does it, maybe we’ll come our of these woods someday. Or………..

Geithner plan will rob American taxpayers: Stiglitz

The U.S. government is basically using the taxpayer to guarantee against downside risk on the value of these assets, while giving the upside, or potential profits, to private investors, he said.

“Quite frankly, this amounts to robbery of the American people. I don’t think it’s going to work because I think there’ll be a lot of anger about putting the losses so much on the shoulder of the American taxpayer.”

Even if the plan clears banks of massive toxic debt, worries about the economic outlook mean banks could still be unwilling to make fresh loans, while the prospect of a higher tax burden to pay for various government stimulus plans could further undermine U.S. consumers, he said.”

They’ve got it back asswards IMO as they’ve identified the wrong “real economy”. On the other hand, the banksters may BE the real economy right now as we sure don’t have any manufacturing left in this country to speak of. NAFTA, of course, made sure and short work of that. No wonder Wall Street is up. I’d be up too if somebody came and forced a billion $$$$ on me! and then, politely asked me if I’d like more soon…………..

One of my favorite Far Side cartoons had 3 cavemen playing rock, paper, scissors. The caption read, “Before paper and scissors.”
Here is the cartoon:
http://photos1.blogger.com/blo…..20side.jpg

Is there an echo in here?

Some of the banks crap assets are truly worthless and won’t make it into the pool. Remember it is the banks not the FDIC that get to say what is included. It is being done this way to keep their books closed so they can continue to deny their insolvency. So what they will put in the pool will be their semi-crap assets. These are assets that are worth 25-30 cents on the dollar but which banks would like to sell for 60 or more cents on the dollar.

This is all a trillion dollar scam and kabuki performance. It is meant to funnel a trillion dollars to the banks by overvaluing their crap assets. This could in fact give them so much money as to lift some of them out of insolvency. Overall, it is not enough money to lift the whole system out of bankruptcy which is in part why it will fail. The prices that it is supposed to “discover” will be bogus. The inclusion of the hedge funds is to cut them in on a piece of the action because they too are bankrupt. But their role is primarily to launder the money going to banks.

Geithner et al are doing it this way because they simply refuse to believe that their beloved financial system which failed so spectacularly and then melted down is really gone. They persist despite all the evidence to the contrary to believe that this all was just a glitch and that the system is sound. So what they are trying to do is re-inflate the housing bubble using government funds. What they don’t seem to get is even a trillion dollars is insufficient to do this. Yet even if they are partially successful any extra money that comes out of this will mini-bubble will most likely be used for further rounds of destructive speculation and not to “free” up credit. What we are seeing here is not just financial bankruptcy but moral and intellectual bankruptcy as well.

I don’t know…is NOW some sort of coded message?

Jane’s up, btw, with the memo we sent along to the committee with our myriad questions on all of this. As you’ll see, we had a few details we thought needed fleshed out a bit further.

Hope is a good thing.

that’s true. Countrywide is already buying up the houses their schemes threw the owners out of. An uptick in home sales of 5% while the prices paid went down 15.5%. Pretty

I don’t really understand why the hedge funds must be kept alive. Aren’t these all recently invented? They act like these are the underpinnings for the entire economy. I say, let ‘em go; all they’ve caused is trouble

YAR

Mornin’

I know this isn’t what you are looking for but does contain lots of basic information – it’s what I send to friends and family when I get the ” I know you read about this stuff all the time” … questions (notice links) a very handy 1 pager – kinda Cliff Notes version of Taibbi’s story

Common Cause

Calculated Risk (we miss you Tanta!) posted a glossary of sorts about a year ago, I’ll see if I can find it for ya :D

Hellloooooooooooooooooooooooo….. you mean like that?

Hello, I must be going.
Going to see Jane’s post that is…
Thanks Christy. All this beginning stuff at hearings bore me. Pass the K Y.

Barbara, the bad assets have some value. There are bidders at $.30, but the banks want $.60, at least that is the way it is reported in several newspapers.

I remember a contractor in Chicago, I think, that was involved in the work indicated. They seemed to be favored as I recall, but can’t track down, dangit.

Barbara, significant amounts of those assets are pools of mortgages… which means, at base level, they represent actual improved real estate somewhere. And usable land and dwellings always have some value, so calling them of no worth to anyone is simply false. The problem is that they are worth nowhere near what the banks paid for them… which is why there’s a huge fucking mess.

Kassandra, residential real estate in the US remains, on average, grossly overvalued by historical standards. Even after the recent declines, it’s still selling at almost double the historical trend line. I think we’ll continue to have a serious problem until housing prices are returned to historical norms.

I totally agree that the properties that are securing the loans represented in the securities have a value, and I even know how they can be valued. Appraisers use three methods to reach a conclusion on the value of a property. The market value that you, as consumer, get is a reconciliation of those 3 approaches to value. The sales comparable approach has been tainted by the bursting of the real estate bubble. But you can still get a pretty good idea of the value of a property by the other two methods:

A) the cost approach entails figuring the value based on how much it would cost to build a new one of the same type. (this is a very abbreviated explanation of the cost approach)

B)the income approach bases value on how much the rental value of a property would be if offered for rent.

My problem is, I can’t figure out how knowing the value of the real estate could possibly in any way solve the problem with the fact that the property was leveraged 40 times its value. How do you compensate for that!

Ann: You force someone to take a nasty cramdown. You can move it around and even spread it out, but someone is going to lose heavily as a result of the overleverage. The conspicous lack of homeless bank executives tells me that the wrong people are taking it now.

Yeah. My problem is, this is way more than can be accounted for with any nasty cramdown. But I agree that someone will be losing heavily as a result of the overleveraging. The problem is I think the market did way too well yesterday because they saw this new program as their opportunity to take a second bite of the apple at the taxpayer’s expense. We’ve already paid for their folly once; now we will be asked to take a second bath, because the banksters will never allow themselves to be driven into homelessness. They’ll just file for bankruptcy in the end and move to an enchanted island to live happily ever after, just like the ending of all fairy tales.

anyone digging this?