$700 Billion Bailout

[Balta1701]

So that's what Secretary Paulson meant when he blamed this on "Future administrations" (direct quote from him before Congress).

[Rex Kickass]

I don't mean the financial crisis, I mean the actions of Congress on the bail out. From Paulson, to the House voting it down when they did, and then to the "compromise"... the entire process was orchestrated and shennanigans. The message was for John McCain to get the hell out of Washington and welcome RSO to the Big House. It was also a move to "socialism" - and I use that in quotes because I want to explain myself further when time permits. Back to work (the slave to the government that I'm becoming).

 

You honestly think that 20-30 House GOP members flipped their vote on this to get Obama elected?

[kapkomet]

You honestly think that 20-30 House GOP members flipped their vote on this to get Obama elected?

Honestly, yes. But they were bought off, so whatever.

 

I think something waaaaaaaay bigger is going on here.

 

It's going to get freaking scary in this country before long.

[mr_genius]

There's an excellent expose on FOX news about this mortgage crisis called "saving our economy". I know, cheesy name, but it's actually really good. I recommend.

[NorthSideSox72]

There's an excellent expose on FOX news about this mortgage crisis called "saving our economy". I know, cheesy name, but it's actually really good. I recommend.

I may not be able to catch that. Major bullet points?

 

[mr_genius]

I may not be able to catch that. Major bullet points?

 

Basically puts a time line on events that lead to the risky lending, the political votes that were taken to stop regulation, the legislation that encouraged loans to high risk consumers, and the 'cooking of books' which allowed executives show massive profits (and get huge bonuses) while the companies were actually about to implode. It also gets into the financial structure which is set up in our country as far as home loans are concerned.

 

The Democrats were really pushing a system in which people with a low credit rating and little income would be treated 'fair' and given a loan. These banks, knowing they had government backup, were fine with taking the risks as they were receiving large fees from finalizing all these new loans. But it was a house of cards and when the housing market slumped, people whom had bought their homes at a time when the market was high now had a large negative investment. On top of that, when they don't pay, the banks take on these negative investments.

 

Be warned though, it is a FOX news expose, and there is a lot of focus on the Democrats. Not sure how balanced it is, but the facts the are reporting seem to be accurate and it does show mistakes that were made. It doesn't go after the Republicans much, and I'm sure they played a big role in this too. I would like to see a similar program but with some investigation on the GOP role in this meltdown.

Edited October 5, 2008 by mr_genius

[lostfan]

Well the root of the whole thing got its start with the Democrats putting pressure on the lenders to give loans to lower income families to get minorities in houses. It just kind of spiraled downward from there when the banks figured out they could make money on this.

 

There are other people who f***ed it up too though.

Edited October 5, 2008 by lostfan

[mr_genius]

Well the root of the whole thing got its start with the Democrats putting pressure on the lenders to give loans to lower income families to get minorities in houses. It just kind of spiraled downward from there when the banks figured out they could make money on this.

 

There are other people who f***ed it up too though.

 

Yea pretty much. The idea was that lending needed to be fair and that not being a homeowner only added to poverty. Which is a decent assessment, but there needs to be limits and regulation on the amount of money a high risk consumer can get; especially considering that these loans are going to be at least implicitly backed by tax payers. The housing bubble really pushed things over the edge because people were buying homes at a very high price which weren't in reality worth that much. Not only did their investment go down (which it had to as they purchased during a peak) but they couldn't afford to pay the payments or sell the home for anywhere near what they paid for it.

 

The Democrats were very defensive of this program and didn't want certain limits, as they felt that would not be fair and that their programs were under attack.

 

All the fees the lenders get at the start of a loan made these companies appear to be making money, when in reality they were taking on a lot of bad investments.

 

Oh, I also remember GW Bush sighting the increase of home ownership as a good thing, when it actually might not have been.

Edited October 5, 2008 by mr_genius

[lostfan]

Yea pretty much. The idea was that lending needed to be fair and that not being a homeowner only added to poverty. Which is a decent assessment, but there needs to be limits and regulation on the amount of money a high risk consumer can get; especially considering that these loans are going to be at least implicitly backed by tax payers. The housing bubble really pushed things over the edge because people were buying homes at a very high price which weren't in reality worth that much. Not only did their investment go down (which it had to as they purchased during a peak) but they couldn't afford to pay the payments or sell the home for anywhere near what they paid for it.

 

The Democrats were very defensive of this program and did want certain limits, as they felt that would not be fair and that their programs were under attack.

 

All the fees the lenders get at the start of a loan made these companies appear to be making money, when in reality they were taking on a lot of bad investments.

 

Oh, I also remember GW Bush sighting the increase of home ownership as a good thing, when it actually might not have been.

I bought my house about a year and a half ago, right at about the peak of the bubble. No way in hell would I be able to qualify for that loan today, or at any other time for that matter and I'm really not sure how they did it. Just looking at the salary they used to calculate it since my wife had bad credit and I didn't factor in her income, to give me 6.25% or whatever interest rate it was at 100% financing. Well, technically I could've used the VA loan which would've made this post moot but that's a long story, I ended up using convential financing... my loan would've qualified as a high risk loan, I'm sure. Debt to income ratio was probably all out of whack.

 

Although, at the same time, I'm kind of an anomaly because I was due to get out of the Army within a few months and my income skyrocketed after I got out, and I knew that was going to happen, so it wasn't like I was taking on a risk I couldn't handle. The bank didn't know that though (well I told them, but it doesn't count unless you actually HAVE the job), and they were taking on a risk. So, bottom line for me: I'm plenty capable of handling my mortgage payments, but thanks to the bubble bursting out from underneath me my house is worth $15-20k less than what I paid for it right now, not including the improvements I've done since I've been here.

Edited October 5, 2008 by lostfan

[bmags]

there was a fantastic article in GQ in may or april I believe that outlined why owning a home isn't always the smartest option.

[southsider2k5]

So if the problem is lack of regulations, how come Iceland, and the EU, which are WAY more regulated than the US are having the same collapse of banking?

 

http://www.fool.co.uk/news/your-money/savi...-in-crisis.aspx

 

Iceland’s banking system is in very serious trouble. Here’s how the crisis will affect UK savers with Icelandic banks.

 

Yesterday, emergency legislation gave Iceland’s financial regulator the power to force banks to merge or go into receivership.

 

One day on, Iceland has put Landsbanki, the country’s second largest bank, into receivership.

 

Landsbanki owns the Icesave savings bank in the UK as well as Heritable Bank. So this news is very worrying for anyone with money in Icesave and Heritable's accounts. Icesave’s UK website isn’t allowing customers to withdraw money as I write.

 

Iceland’s largest bank, Kaupthing, is still trading. Iceland’s central bank has lent €500m (£390m) to Kaupthing so that may keep it going. What’s more, Russia has lent €4 billion to Iceland’s central bank to boost liquidity.

 

That said, I am worried about Kaupthing’s future. I said last week that Kaupthing was probably strong enough to get through this. And, indeed, when you look at its liquidity and capital numbers, it looks to be ok. But in the current climate, and given the loan from the Icelandic government, I worry that I may have been too optimistic.

What does this mean for UK savers?

 

Let’s start with Kaupthing. In the UK, Kaupthing operates under full FSA authorisation status, granted to UK company, Kaupthing Singer & Friedlander.

 

This means that if Kaupthing does fold, you can claim up to £50,000 from the Financial Services Compensation Scheme (FSCS). So unless you have more than £50,000 with Kaupthing, you should get your money back. However, it may take a few months for the FSCS to pay up. If, however, you have a fixed rate term account with Kaupthing you may have to wait longer for your cash.

 

The situation is worse for Icesave. Not only is the bank in receivership, the arrangements for compensation are more complex.

 

As a first step, savers will have to claim from the Icelandic compensation scheme. This will pay out up to €20,887 (around £16,100). Then if you have more than £16,100 in your Icesave account, you can claim the excess up to £50,000 from the FSCS.

 

The worst case scenario is that the Icelandic government doesn’t even have the money to pay out the £16,100. I don’t think this is a likely scenario, but you can’t rule anything out in the current climate.

 

If Iceland doesn’t pay, the FSCS will only pay out the excess over £16,100. (We checked this fact with the FSCS this morning - twice.) This is a scary scenario, but my guess is that the UK government would in the end make sure that Icesave savers are fully compensated if Iceland doesn’t pay up.

 

I know that many Fools have opened accounts with Kaupthing and Icesave via our site. At least one TMF staff member is in the same boat too. This is a very worrying time for all of these people.

 

As Bruce Jackson wrote earlier this morning: I Never Thought It Would Get This Bad.

 

http://news.sky.com/skynews/Home/Business/...g_Funke_Resigns

 

Georg Funke's future had been thrown in doubt after Hypo Real Estate was bailed out.

 

The boss had allegedly failed to reveal the depth of the bank's problems, which forced the government to save it from bankruptcy in a cobbled €50bn (£39bn) bail-out.

 

On approving the deal, German Chancellor Angela Merkel said: "Those who managed their company in an irresponsible way will have to answer for it."

 

Hypo Real Estate received two emergency credit lines in just over a week from public and private banks.

 

The government has guaranteed almost €27bn euros in credit to the bank, which specialises in property financing.

 

A second credit line of €15bn euros was added over the weekend.

 

Finance Minister Peer Steinbrueck said at the time it was "inconceivable to be able to continue working with the present management" of HRE.

 

Hypo said in a statement that Funke's responsibilities will be carried out by the company's board.

 

A successor is to be named later in the day.

 

Hypo Real Estate, which specialises in property financing, is the fourth-biggest bank in Germany and is based in Munich.

 

http://www.businessweek.com/globalbiz/cont...global+business

 

If the $700 billion mortgage bailout plan in the U.S. was supposed to calm global investors, someone forgot to tell Europe. Stock indexes from Paris to Frankfurt plunged as much as 9% on Oct. 6 over worries of a spreading crisis among European banks. A series of government interventions over the weekend and on Monday—following last week's sudden bailouts and guarantees (BusinessWeek.com, 9/29/08)—only seemed to fan the flames of anxiety.

 

Investors and politicians are waking to the realization that Europe faces a banking and economic crisis of its own not linked solely to bad U.S. subprime debt. Since the credit crunch first hit 15 months ago, lending in the Old World has gotten tighter and tighter, and now the lack of capital flow is taking down globe-straddling European banks, threatening businesses with credit starvation, and roping in cash-strapped governments for multibillion-dollar, 11th-hour rescues.

 

"Banking is like religion: It's all about trust and confidence," says Bob McDowall, European research director at financial-services consultancy Tower Group in London. "Governments and regulators are trying to demonstrate firm leadership and show confidence, but banks don't trust each other."

Exposing Deep Holes

 

That lack of trust is a major cause of Europe's worsening bank crisis. Aside from a few exceptions such as UBS (UBS), the Old World's financial institutions weren't as exposed to toxic mortgages as their American counterparts, and they've had a year to clean up their balance sheets. But the sudden nosedive in the U.S.—especially the collapse of Lehman Brothers—has virtually frozen European lending and exposed deep holes at institutions such as Belgium's Fortis (FOR.BR) and Germany's Hypo Real Estate Group (HRXG.DE).

 

Complicating the picture in Europe is that no central mechanisms exist to carry out a coordinated regionwide response of the sort engineered in the U.S. The European Central Bank has a more limited mandate than the Federal Reserve, and no EU equivalents exist to the U.S. Treasury Dept. or Securities & Exchange Commission.

 

That has left governments to tackle the crisis on a country-by-country basis, with sometimes divergent solutions that can even make matters worse for neighboring countries. A weekend meeting in Paris of top European leaders, called by Nicholas Sarkozy, the President of France and current holder of the EU's six-month rotating presidency, made no evident progress in hammering out a framework for a regional solution.

 

"Europe's piecemeal approach hasn't helped build confidence," says Jeremy Batstone-Carr, director of private client research at stockbrokers Charles Stanley (CAY.L) in London. "Some form of coordinated response is necessary, but we haven't seen that yet."

Rising Anxiety

 

The market tailspin on Oct. 6 traced to a sense of panic engendered by the rolling country-specific reactions. Last week, for instance, the market was shocked and surprised by an €11.2 billion ($15.3 billion) part-nationalization of Fortis bank (BusinessWeek.com, 9/30/08), which signaled that the bank's balance sheet was in more trouble than previously thought. By Oct. 3, though, it became clear that more medicine was needed, and the Dutch government announced its intention to buy a 100% stake in Fortis' local operations for €16.8 billion ($22.9 billion).

More drama was to come over the weekend. The proposed €35 billion ($47.6 billion) bailout of Germany's Hypo Real Estate by a consortium of domestic banks fell apart on Oct. 4 after the lender's liabilities—tied to the deteriorating U.S. and European real estate markets—were revealed to be larger than expected. German Chancellor Angela Merkel scrambled for a new solution, and on Sunday evening, Oct. 5, she announced a new plan for the government and a group of commercial banks and insurers to inject €50 billion ($67.9 billion) into Hypo.

 

Merkel's counterparts in France and Belgium also were burning the midnight oil. After the Netherlands took over its chunk of Fortis, Sarkozy got behind a plan for French financial giant BNP Paribas (BNPP.PA) to buy the bank's remaining Belgian- and Luxembourg-based operations for €14.5 billion ($19.8 billion), which was sealed and announced on Oct. 6. Under the deal, BNP will acquire Fortis' branches across Europe (except in the Netherlands), as well as its Belgian-based insurance and private-banking businesses. In exchange, the Belgian and Luxembourg governments will take 11.6% and 1.1% stakes, respectively, in the French bank.

Falling Consumer Confidence

 

Such brokered bank rescues helped avoid collapses by specific institutions. But an even wider problem—plunging consumer confidence in retail banking—also spread over the weekend, prompting politicians to enact sweeping national guarantees that put their governments on the hook for potentially trillions of dollars.

 

Ireland got the ball rolling on Sept. 30 when the government moved to guarantee all debt and deposits until 2010 at six of the country's banks, for an estimated cost of $578 billion (BusinessWeek.com, 10/1/08). A decision last week in the U.S. to raise the Federal Deposit Insurance Corp. ceiling on consumer bank account protection to $250,000 fueled the trend.

 

The cat was out of the bag, and suddenly other countries found themselves under pressure to offer comparable protections. Germany's Merkel announced on Oct. 5 that the government would guarantee all private savings, estimated to be worth €500 billion ($679 billion). Authorities in Austria, Denmark, Sweden, and Iceland followed suit with similar plans the next day to assuage consumer fears. Unlike the other plans, Denmark will call on commercial lenders—not the government—to guarantee deposits at an estimated cost of 35 billion kroner ($6.4 billion).

 

Other European countries may now have to take similar action or risk seeing local depositors move their savings to government-supported foreign banks. Britain alleges this unintended consequence already has distorted competition between Irish and English banks in both countries.

Iceland's Overexposure

 

Perhaps no country has been hit as hard as Iceland. The tiny island's top banks, such as Kaupthing (KAUP.ST) and Landsbanki, had used easy access to foreign capital markets to expand aggressively in recent years. But with the onset of the credit crunch, investors grew wary of Icelandic banks' market exposure, even though they have capital-borrowing ratios comparable to the European average. Only last week, Iceland's government bought a 75% stake in Glitnir, the country's third-largest bank, for $865 million to bolster shareholder confidence.

 

Now, Prime Minister Geir Haarde has been forced to go further. On Oct. 5 he announced the country's banks had agreed to sell foreign assets and decrease their international activity. The next day, Iceland suspended trading in its domestic banking stocks to protect them from meltdown. It's a question of holding on until the storm has died down a bit, and observers figure Iceland is in the same position as many other countries. "All banks are reliant on short-term funding, and the Icelandic banks no more so than any other," says Richard Portes, professor of economics at the London Business School.

 

Indeed, all these quick bailout measures and expedited government policy shifts still aren't managing to unclog Europe's frozen capital markets. According to Tower Group's Bob McDowall, uncertainty surrounding future European government action means banks remain wary of loaning cash to other institutions. The London Interbank Offered Rate (LIBOR), the rate at which banks lend to each other, is at a seven-and-a-half-year high—evidence institutions now prefer to hoard cash reserves instead of lending to the market.

 

Europe's central banks also have failed to reopen capital markets, despite injecting billions of dollars of short-term liquidity. On Sept. 29 the European Central Bank announced plans to provide additional capital for banks until the end of the year. The Bank of England similarly said it would offer $72.4 billion in extra three-month funds to financial institutions. Yet these measures have had little effect.

EU-Wide Approach?

 

European governments can only hope their interventions—and a focus on more traditional retail banking—will generate the confidence needed to bolster Europe's lagging financial-services industry. But the increased state role in Europe's banking sector also is setting off some alarms. Though the underlying political philosophy and motivations are different, nationalizing banks is a throwback to the 1970s and 1980s, when governments often owned or controlled large stakes in domestic financial institutions.

 

With many European institutions now reverting to state hands, Batstone-Carr of brokerage Charles Stanley worries that the banking sector will become more conservative—and potentially less global. After embracing a myriad of sophisticated banking practices in recent years, banks could now realign their business models, he cautions.

 

Perhaps it's time, he and other analysts say, for a more EU-wide approach to solving what is quickly becoming a pan-European problem. But with no central financial regulator in Europe, and a tendency by local politicians to focus on domestic financial and economic issues, any such solution is unlikely soon. The resulting irony could be that even though Old World institutions engaged in less of the risky lending that pulled down so many American counterparts, a European banking recovery could take even longer.

 

[EvilMonkey]

I'm plenty capable of handling my mortgage payments, but thanks to the bubble bursting out from underneath me my house is worth $15-20k less than what I paid for it right now, not including the improvements I've done since I've been here.

I had to have my house appraised last month, and it came in $24,000 less than what I had paid for it in 2005. And I have added new roof, siding, a new garage door and hardwood floors since I bought it.

[NorthSideSox72]

My place has gone for a ride too. Bought in 2004, and I had it appraised in early 2007 for $60k more than we paid. But we tried to sell this year, with a list price of $40k above purchase price, and couldn't get it sold (we did get one offer from a bottom-feeder looking for a bargain, who offered $70k less than our asking price). I'd suspect its worth only just a little more than we paid.

 

We're going to try to sell again next year (need more room for a kid on the way), but I'm not holding out high hopes for what I might get.

 

We have the added oddity that our neighborhood is being rebuilt - intersections being redesigned and moved around, new development going in, rebuilding our street and alley... all good in the long run, but the area will be torn up to s*** around the time we're trying to sell.

 

[lostfan]

I had to have my house appraised last month, and it came in $24,000 less than what I had paid for it in 2005. And I have added new roof, siding, a new garage door and hardwood floors since I bought it.

I have a new kitchen, for whatever that's worth. I wonder how much it adds if I was to get the house appraised, the other kitchen was pretty old and raggedy and the one I put in is pretty sweet. I need a new roof. I had a brief little infatuation with solar shingles but I don't think the Nazi party my homeowner's association will go for that.

[Cknolls]

So if the problem is lack of regulations, how come Iceland, and the EU, which are WAY more regulated than the US are having the same collapse of banking?

 

http://www.fool.co.uk/news/your-money/savi...-in-crisis.aspx

 

 

 

http://news.sky.com/skynews/Home/Business/...g_Funke_Resigns

 

 

 

http://www.businessweek.com/globalbiz/cont...global+business

 

 

George Bush.

[mr_genius]

I need a new roof. I had a brief little infatuation with solar shingles but I don't think the Nazi party my homeowner's association will go for that.

 

haha that sucks. having solar panels would be sweet.

[lostfan]

haha that sucks. having solar panels would be sweet.

Yeah I think I still might do it if they let me put them on the back, where people can't see it, but that's in another couple of years. But solar shingles would be bad ass. The problem is that they are bluish-gray and my shingles are brownish-red and I'd be the only one in the neighborhood with that color. They won't like that.

[NorthSideSox72]

Yeah I think I still might do it if they let me put them on the back, where people can't see it, but that's in another couple of years. But solar shingles would be bad ass. The problem is that they are bluish-gray and my shingles are brownish-red and I'd be the only one in the neighborhood with that color. They won't like that.

Solar shingles? new one on me. I had put off researching the solar options until we moved into a house (we're in a condo). I'll have to do some research, but, can you give me a brief idea on how solar shingles work?

 

[lostfan]

Solar shingles? new one on me. I had put off researching the solar options until we moved into a house (we're in a condo). I'll have to do some research, but, can you give me a brief idea on how solar shingles work?

Cliff's notes version: a regular-sized photovaltic panel will be like 120, 150, 200 watts, or whatever, depending on their size and rating. Shingles are shaped like shingles (obviously), and their texture is a little different but they still look like shingles from a distance. Each one is wired individually underneath the roof and it's probably 10-15 watts apiece. It's pretty expensive, but then again, so is installing a decent-sized solar system in the first place.

[EvilMonkey]

Cliff's notes version: a regular-sized photovaltic panel will be like 120, 150, 200 watts, or whatever, depending on their size and rating. Shingles are shaped like shingles (obviously), and their texture is a little different but they still look like shingles from a distance. Each one is wired individually underneath the roof and it's probably 10-15 watts apiece. It's pretty expensive, but then again, so is installing a decent-sized solar system in the first place.

Check out this:

http://www.futurepundit.com/archives/005606.html

I am going to post it in the enviro thread as well.

[Cknolls]

Oh, yes, Kevin Hassett. So I can just link to an Al Franken blurb to refute that?

 

The Dems were sure powerful if they were able to kill something without having a majority. They even killed the House bill, then exercised mind control over Oxley to make him believe the WH did it. Pretty sneaky...

 

And of course, Fannie and Freddie are the one and only cause of the subprime mortgage crisis. No proof needed.

 

 

http://www.humanevents.com/article.php?id=28973

 

McCain should hammer Obama on this issue in the debate. 20 Repubs want reform and the Dems kill it on the floor of the Senate. Why Barry, why?

[NorthSideSox72]

http://www.humanevents.com/article.php?id=28973

 

McCain should hammer Obama on this issue in the debate. 20 Repubs want reform and the Dems kill it on the floor of the Senate. Why Barry, why?

I saw nothing in the article about the Dems killing it. In fact, at that time, the GOP controlled the Senate, so it seems maybe it was the GOP who stopped it?

 

[Cknolls]

I saw nothing in the article about the Dems killing it. In fact, at that time, the GOP controlled the Senate, so it seems maybe it was the GOP who stopped it?

 

 

 

Well you have 22 Rep. Senators named in and on the letter. Almost 50% of their caucus. So if you want to think that they stopped this, fine. Would you like to buy a bridge?

[NorthSideSox72]

Well you have 22 Rep. Senators named in and on the letter. Almost 50% of their caucus. So if you want to think that they stopped this, fine. Would you like to buy a bridge?

What I'd prefer is to know what actually happened, instead of taking your conclusion from an article on a non-journalistic site. That's an assumption based on a derivative.

 

I may look around later to see what actually happened. It may indeed have been killed by the Dems, but given the GOP control of the senate, I think that's not likely.

 

 

[southsider2k5]

What I'd prefer is to know what actually happened, instead of taking your conclusion from an article on a non-journalistic site. That's an assumption based on a derivative.

 

I may look around later to see what actually happened. It may indeed have been killed by the Dems, but given the GOP control of the senate, I think that's not likely.

 

OK, so how in the hell did the failure for the first bailout vote fall on the GOP with most journalists, when they aren't in control of Congress?