IndyMac collapse

[southsider2k5]

Yes, it comes from somewhere. But you are saying that once it's spent, it vanishes. Which is wrong.

 

No money vanishes once it has been spent, unless someone is leaving it in a matress somewhere. But once we lend it out, we can't spend it or lend it out again.

[jackie hayes]

No money vanishes once it has been spent, unless someone is leaving it in a matress somewhere. But once we lend it out, we can't spend it or lend it out again.

The point I was making was about the final cost of the bailout. When the money will be recouped (in this case, only partially), the cost is less than the financing.

 

We are not saying, Here's a trillion dollars, Fannie and Freddie, have fun! We're saying, here's a trillion dollars (say) cash. We expect it back, except for the amount that you lose on the mortgage. So if we loan $1 trillion to the pair, and the default rate is 10% (phenomenally high for prime mortgages) and the rate of recouping defaulted mortgages is 30% (phenomenally low), then the cost will be $1 trillion * .1 * .7 = $70 bil.

 

This is just the fundamental notion that an outstanding loan is an asset. Which you certainly understand, but you're trying to obfuscate the real question.

 

As for not having the money to spend once it's out, first, that has nothing to do with what I was saying about the actual cost of the bailout. And second, of course you can. The government is certainly capable of borrowing money now, and a $70 bil change in its net position, while it's certainly a lot of money, is not going to change that. Additional interest costs should be considered, then, but you're still nowhere even remotely close to a $1 trillion cost.

 

The Iraq war, on the other hand, will cost in the trillions. And that's money that's not coming back.

[NorthSideSox72]

The point I was making was about the final cost of the bailout. When the money will be recouped (in this case, only partially), the cost is less than the financing.

 

We are not saying, Here's a trillion dollars, Fannie and Freddie, have fun! We're saying, here's a trillion dollars (say) cash. We expect it back, except for the amount that you lose on the mortgage. So if we loan $1 trillion to the pair, and the default rate is 10% (phenomenally high for prime mortgages) and the rate of recouping defaulted mortgages is 30% (phenomenally low), then the cost will be $1 trillion * .1 * .7 = $70 bil.

 

This is just the fundamental notion that an outstanding loan is an asset. Which you certainly understand, but you're trying to obfuscate the real question.

 

As for not having the money to spend once it's out, first, that has nothing to do with what I was saying about the actual cost of the bailout. And second, of course you can. The government is certainly capable of borrowing money now, and a $70 bil change in its net position, while it's certainly a lot of money, is not going to change that. Additional interest costs should be considered, then, but you're still nowhere even remotely close to a $1 trillion cost.

 

The Iraq war, on the other hand, will cost in the trillions. And that's money that's not coming back.

Good post, but I will take it further.

 

And actually, we wouldn't be loaning them $1T anyway. Why lend them or give them money on the 90 to 95% of mortgages that are in good standing? No reason to. The outlay would only be in the 10's or 100's of billions (which is still BIG money, but not on the scale that some of the fear-mongers in the press are trying to protray).

 

Furthermore, you some of that outlay for the bad loans can be recouped when the collateral assets (homes) are sold, over time.

 

The US government is not going to have to lay out a trillion dollars. Not even close.

 

[mr_genius]

Laughable. And you're the one talking about faux outrage.

 

Show me a credible source of your claim that Fannie and Freddie will cost the federal government $1 trillion. Not that they'll have financing available, blah blah blah, but that the END COST will be $1 trillion. You are comparing it to other costs, so unless you're just being flagrantly dishonest, that's what you should mean. Can't wait.

 

If you look at what IMB itself said in the wake of Schumer's comments, the worst case version of the story goes like this -- IMB was already teetering on the brink of failure, and Schumer's comments triggered a fairly small number of withdrawals which pushed them into an area where automatically-triggered additional regulation prevented them from being able to raise capital. They certainly would have failed anyway (they'd been losing money for a long time, reflected in the stock price plummeting 80-90% over the last 6 mo; the default rate on their mortgages was most recently at 8%, and there was little hope it would get better soon). A think-tank report blasting IMB that came out the following Tuesday would have been enough, or a moth flapping its wings in Sacramento.

 

Can't wait for you next post of Republican cant: how this all could have been avoided with lower taxes and less regulation.

 

Ok so the government needs to bail out a total corporate financial failure. I don't think so. If there isn't going to be trillions eaten by the government let them work it out on their own, this bailout is dumb as hell and will only encourage this kind of reckless corporate activity. It takes out all the risk involved, if a oorporation knows they can make risky moves, as all failures will be covered by the government, they are going to take crazy risks and tax payers will end up getting jacked.

 

Also, where are we getting the money to bail out these banks? The federal government is massively in dept, we don't have money. The government will be borrowing this money to cover other poor borrowing procedures. This really is an epidemic in the United states. Financial stability is totally out the window.

[mr_genius]

Good post, but I will take it further.

 

And actually, we wouldn't be loaning them $1T anyway. Why lend them or give them money on the 90 to 95% of mortgages that are in good standing? No reason to. The outlay would only be in the 10's or 100's of billions (which is still BIG money, but not on the scale that some of the fear-mongers in the press are trying to protray).

 

Furthermore, you some of that outlay for the bad loans can be recouped when the collateral assets (homes) are sold, over time.

 

The US government is not going to have to lay out a trillion dollars. Not even close.

 

If it's not that much money they can borrow the money themselves. If these investments are actually good ones, then the market can easily right this. The US is in debt, we should not be giving out massive loans to anyone. We will be taking out loans to give loans.

 

 

[FlaSoxxJim]

Ok so the government needs to bail out a total corporate financial failure. I don't think so. If there isn't going to be trillions eaten by the government let them work it out on their own, this bailout is dumb as hell and will only encourage this kind of reckless corporate activity. It takes out all the risk involved, if a oorporation knows they can make risky moves, as all failures will be covered by the government, they are going to take crazy risks and tax payers will end up getting jacked.

 

Also, where are we getting the money to bail out these banks? The federal government is massively in dept, we don't have money. The government will be borrowing this money to cover other poor borrowing procedures. This really is an epidemic in the United states. Financial stability is totally out the window.

 

I'd love for the feds to be able to say they're not going to bail the banks out, I really would. But how realistic is that if the worst estimates on bank failures (I've read maybe 150 banks over the next 18 months) turn out to be true?

[mr_genius]

I'd love for the feds to be able to say they're not going to bail the banks out, I really would. But how realistic is that if the worst estimates on bank failures (I've read maybe 150 banks over the next 18 months) turn out to be true?

 

The government bailout won't fix anything. There will still be the same financial issues, just now they will only add to national debt. A completely out of control debt. The weak economy has a lot to do with this debt, the bailout will only intensify problems.

[mr_genius]

Another question, where was Schumer and the Senate banking committee when this problem was developing? Asleep at the wheel, as usual. And this is the government we are going to trust with covering all these companies? greeaaat

[FlaSoxxJim]

The government bailout won't fix anything. There will still be the same financial issues, just now they will only add to national debt. A completely out of control debt. The weak economy has a lot to do with this debt, the bailout will only intensify problems.

 

I guess my question is, if the feds just let the nation's financial institutions fail like they probably deserve, would 2009 start to look a lot like 1929?

[NorthSideSox72]

Another question, where was Schumer and the Senate banking committee when this problem was developing? Asleep at the wheel, as usual. And this is the government we are going to trust with covering all these companies? greeaaat

While I think the whole idea of Schumer somehow causing the collapse is laughable... I do agree with you that he and others responsible for oversight (not just in Congress, but in the responsible agencies as well) should be embarrassed, and some of them should be out of their jobs or committees.

 

[Balta1701]

Another question, where was Schumer and the Senate banking committee when this problem was developing?

In the minority, stuck without subpoena power.

[Balta1701]

While I think the whole idea of Schumer somehow causing the collapse is laughable... I do agree with you that he and others responsible for oversight (not just in Congress, but in the responsible agencies as well) should be embarrassed, and some of them should be out of their jobs or committees.

On that part, of course, you won't get any disagreements, except from other members of Congress.

[mr_genius]

In the minority, stuck without subpoena power.

 

I actually agree with you on this, the Republicans are more to blame than the Democrats, as they have been in control of this financial disaster for a while.

 

 

But Schumer knows where to find a microphone, he didn't saying anything during the housing bubble when all these bad loans were being granted. I love how the current chair, Dodd, was basically taking bribes from these lenders, so I don't have any confidence in the Dems fixing anything. And Richard Shelby ( R)--the Ranking Member of the Senate Committee on Banking, Housing, and Urban Affairs - sure let this get out of control.

Edited July 15, 2008 by mr_genius

[lostfan]

Another question, where was Schumer and the Senate banking committee when this problem was developing? Asleep at the wheel, as usual. And this is the government we are going to trust with covering all these companies? greeaaat

I don't want to start any partisan debate since the Democrats have their hands all kinds of dirty right now... but weren't the Republicans firmly in power when people started noticing this might be a problem?

 

edit: I just read to the end of the thread and saw your reply

Edited July 15, 2008 by lostfan

[Balta1701]

I don't want to start any partisan debate since the Democrats have their hands all kinds of dirty right now... but weren't the Republicans firmly in power when people started noticing this might be a problem?

January of 2003 to January of 2007 in the Senate, January of 1995 in the House, and the only interruption from 1995 to 2007 in the Senate was 2 years at essentially 50-50, right around 9/11 "Trust the President" time.

 

Although, one could certainly argue that the housing market really started to go up above inflation in the late 90's, it really started going crazy around the 2000-2001 recession, when the credit market expansion was used as the way to bail us out of the business-led recession that happened after the tech bubble burst.

[jackie hayes]

Ok so the government needs to bail out a total corporate financial failure. I don't think so. If there isn't going to be trillions eaten by the government let them work it out on their own, this bailout is dumb as hell and will only encourage this kind of reckless corporate activity. It takes out all the risk involved, if a oorporation knows they can make risky moves, as all failures will be covered by the government, they are going to take crazy risks and tax payers will end up getting jacked.

 

Also, where are we getting the money to bail out these banks? The federal government is massively in dept, we don't have money. The government will be borrowing this money to cover other poor borrowing procedures. This really is an epidemic in the United states. Financial stability is totally out the window.

I don't know how you got "the government needs to bail out a total corporate financial failure" from those comments about IndyMac. I'd never say that about IMB. The shareholders should be screwed. If you mean the FDIC guarantee, I don't know how anyone could be opposed to that. If you mean Fannie and Freddie, well, I don't like it, but you can't really have the companies that holds half the mortgages in the US go bust and expect a good outcome.

 

I agree with most of the rest of what you say. There's a lot of risk in guaranteeing any company. When that can't be avoided, you need a good deal of regulation. And the money is coming, in the end, from future generations, same place the Iraq war money is coming from. Obviously not ideal.

[mr_genius]

I don't know how you got "the government needs to bail out a total corporate financial failure" from those comments about IndyMac. I'd never say that about IMB. The shareholders should be screwed. If you mean the FDIC guarantee, I don't know how anyone could be opposed to that. If you mean Fannie and Freddie, well, I don't like it, but you can't really have the companies that holds half the mortgages in the US go bust and expect a good outcome.

 

I agree with most of the rest of what you say. There's a lot of risk in guaranteeing any company. When that can't be avoided, you need a good deal of regulation. And the money is coming, in the end, from future generations, same place the Iraq war money is coming from. Obviously not ideal.

 

"Laughable. And you're the one talking about faux outrage.

 

Show me a credible source of your claim that Fannie and Freddie will cost the federal government $1 trillion. Not that they'll have financing available, blah blah blah, but that the END COST will be $1 trillion. You are comparing it to other costs, so unless you're just being flagrantly dishonest, that's what you should mean. Can't wait."

 

It sure seems like you were advocating a bailout of Fannie and Freddie, as you argued the cost would be fairly low and that the poster you were countering had a laughable argument against.

[jackie hayes]

 

"Laughable. And you're the one talking about faux outrage.

 

Show me a credible source of your claim that Fannie and Freddie will cost the federal government $1 trillion. Not that they'll have financing available, blah blah blah, but that the END COST will be $1 trillion. You are comparing it to other costs, so unless you're just being flagrantly dishonest, that's what you should mean. Can't wait."

 

It sure seems like you were advocating a bailout of Fannie and Freddie, as you argued the cost would be fairly low and that the poster you were countering had a laughable argument against.

So why bold the other part of the post?

 

I wasn't arguing for or against a bailout, only saying the cost would be WAY less than $1 trillion. That doesn't mean it's low.

 

If it matters, I do think it's probably a good idea. There should be reforms, but I don't think letting them crash now is a good option.

[Rex Kickass]

Another question, where was Schumer and the Senate banking committee when this problem was developing? Asleep at the wheel, as usual. And this is the government we are going to trust with covering all these companies? greeaaat

 

When many of these mortgages were being doled out (1/03-1/07), I believe the answer was not in charge of the Senate banking committee.

[mr_genius]

When many of these mortgages were being doled out (1/03-1/07), I believe the answer was not in charge of the Senate banking committee.

 

Are you saying that The Senate Banking committee is not in charge of The Senate Banking Committee?

 

or

 

That Schumer was not in charge of the Senate Banking committee, therefore holds no responsibility?

 

or

 

The correct answer to the problem was not on the Senate Baning committee?

[Balta1701]

Are you saying that The Senate Banking committee is not in charge of The Senate Banking Committee?

 

or

 

That Schumer was not in charge of the Senate Banking committee, therefore holds no responsibility?

 

or

 

The correct answer to the problem was not on the Senate Baning committee?

I think the answer is #2, for 2 reasons. First of all, Senator Schumer is, as far as I can tell, not in charge of the Senate Banking committee, Senator Chris Dodd is the current chairman. He is on the committee but is not chairman.

 

Secondly, the only Democrat other than Senator Dodd who has been chairman since 1995 was Senator Sarbanes, who was chairman from 2001-2003 after Senator Jeffords flipped the Senate when it started off 50/50 and went to 50-49-1. Senator Richard Shelby (R-Alabama) was chairman from January of 2003 to January of 2007.

[mr_genius]

I think the answer is #2, for 2 reasons. First of all, Senator Schumer is, as far as I can tell, not in charge of the Senate Banking committee, Senator Chris Dodd is the current chairman. He is on the committee but is not chairman.

 

Secondly, the only Democrat other than Senator Dodd who has been chairman since 1995 was Senator Sarbanes, who was chairman from 2001-2003 after Senator Jeffords flipped the Senate when it started off 50/50 and went to 50-49-1. Senator Richard Shelby (R-Alabama) was chairman from January of 2003 to January of 2007.

 

haha he's on the committee. he should have said something or done something. i do like how you guys are defending him though.

[Texsox]

I guess this is where I am confused, if everyone knew about it, then what did he report that was so damaging?

 

And if everyone didn't know, where is his greater responsibility? To the individual investors and voters who elected him, or the banks which contributed (assumption) to his campaign?

[mr_genius]

I guess this is where I am confused, if everyone knew about it, then what did he report that was so damaging?

 

And if everyone didn't know, where is his greater responsibility? To the individual investors and voters who elected him, or the banks which contributed (assumption) to his campaign?

 

na what he did was perfect. he was on a committee, said nothing about horrible lending practices, then once it was too late to fix he decided to come out and be an idiot.

 

example: Lets say i am engineering the scheme for a large parallel processing system for scientific applications. I am on a committee to design it, and I go along with everything. I even take credit when things look good. However, the design is terrible, and when it does not work I come out and tell everyone that they messed up. I'm not the team lead, so none of it's my fault. and i get to criticize and try to draw any attention away from my horrible work.

 

the chuck schumer way. USA!

Edited July 16, 2008 by mr_genius

[southsider2k5]

The point I was making was about the final cost of the bailout. When the money will be recouped (in this case, only partially), the cost is less than the financing.

 

We are not saying, Here's a trillion dollars, Fannie and Freddie, have fun! We're saying, here's a trillion dollars (say) cash. We expect it back, except for the amount that you lose on the mortgage. So if we loan $1 trillion to the pair, and the default rate is 10% (phenomenally high for prime mortgages) and the rate of recouping defaulted mortgages is 30% (phenomenally low), then the cost will be $1 trillion * .1 * .7 = $70 bil.

 

This is just the fundamental notion that an outstanding loan is an asset. Which you certainly understand, but you're trying to obfuscate the real question.

 

As for not having the money to spend once it's out, first, that has nothing to do with what I was saying about the actual cost of the bailout. And second, of course you can. The government is certainly capable of borrowing money now, and a $70 bil change in its net position, while it's certainly a lot of money, is not going to change that. Additional interest costs should be considered, then, but you're still nowhere even remotely close to a $1 trillion cost.

 

The Iraq war, on the other hand, will cost in the trillions. And that's money that's not coming back.

 

If you want to go into second and third levels of costs, that isn't right on either account. First of all you know there is more to cost than just getting the money paid back. There are all of the set costs of what the banks are going to lose that we are going to absorb. There is also the opportunity cost of not being able to use that trillion dollars for something else, just like the Iraq War. We are most likely also losing money on the loans themselves because I doubt we are taking the money from somewhere else. We are borrowing the trillion from someone, and loaning back to the banks for a smaller interest rate with almost certianty. Then we are hoping they pay it back eventually. Until then that trillion dollars is gone. It is a cost until that loan is repayed. Remember mortgages are a 30 year commodity.

 

Secondly when you can't make a narrow assumption of the banking money showing up eventually so that is OK, but the Iraq War money just disappearing, which is pretty much economically impossible. In fact a case could easily be mad that the war spending is good for the economy as well. That money isn't just going into a void. It is being spent mainly on defense contract, which provides some of the highest paying jobs in the country. People need to build all of those tanks, bullets, etc. All of the troops over there are getting paid. All of the jobs they left at home are getting filled by people who might not have them in the first place. You can go into the multiplier effect there as far as you want. The idea that they money isn't "coming back" is laughable. That money is a lot more relevant in the current economy than the banking money which is truely disappearing until the banks maybe repay most of it. The multiplier effect is lost here because this is money just to cover the money that has already been lent out.