Bailout as investment?

all these questions I assume are rhetorical because anyone believing that once the government gets hold of our money they will EVER under any circumstances see that we get it back.... well.... the person who believes that would be too stupid to get on line to ask the question.

So you can't really wonder, right?

Actually we are being asked to buy these "toxic assets" at a pre decline price so that, having factored in a price decline in housing, the holders of mortgage backed securities have something to claim.
Without more detailed analysis, I dont know whether any of my investments had such securities.

I do feel violated by my Congressional leaders. Peosi should rwsign and the GOPers whove been so quiet must be called on the carpet for their politics as usual crap.

rosborne, The biggest problem with this bailout is very simple; they're asking this amount of money blindly; they just picked a huge number without knowing how to spend that money. The second issue is simply that those mortgages have no real "value," because nobody knows how much they are worth, so our government wants to step in and buy those unknown valued mortgages.

I see many more problems now; with this bailout, most banks will stop reducing the book value on them, because they now know that the government will come to their rescue. As we have seen during the past six months or so, most banks and finance companies were writing off billions off their books, because they knew its real value was nowheres near what they were valued on their books.

The only upside is that those mortgages are depressed to such a degree that if the government does due diligence on purchasing those paper, the taxpayers could see some benefit in the future - but that'll be many years before that is realized. The reason is, our economy is slowing down, and we still haven't recognized all those still in the foreclosure process of losing their homes. Some estimates put that at 2.5 million just this year.

If that is true, the value of those mortgages will even go lower - not higher, and the government will end up paying too much for them.

This problem is complex, but the government must provide cash to the banks and finance companies to make cash available to consumers and businesses with good credit, because without it, it will further harm our economy.

Those are my .02c worth.

c.i. wrote :



make it CASH please - not bank shares <GRIN + CRY>
hbg

http://www.morningstar.com/FundFamily/AmericanFunds.html

You should be able to get your analysis here.

My understanding of the program is that the plan is to buy this stuff on a mark to market basis. That would probably be too high a price to consider it an investiment. Whatever is approved, if anything, will probably be different, and include a few items that most of us will find surprising. As Robert mentioned on another thread, anything that was truly fairly priced wouldn't be much of a bailout. Some of those assets will turn out to be good. Taken overall, we should probably consider it more a bail out than an investment.

I agree with cicerone.

Why should we pay for these mortgages where the banks probably will get
80 cents on the dollar from our tax money. They (banks, lending institutions) should be the ones trying to sell of their inventory and if they get 20 cents on the dollar - too bad! They created the mess in the first place, now let them take RESPONSIBILITY.

This is the fundamental problem here: no one wants to take responsibility
for their actions. Well, to bad, I don't want to reward their criminal tactics
without them even getting a scratch!

Remember the "savings & loan crisis" in the late 80s? At that time, Bush
senior was involved with his sons and it cost the tax payer over $ 1 trillion
to bail them out. Bush senior and sons made millions then. Bush was
also the one to deregulate the banks and credit institutions.

Oh, I am just sick over this. You try to be financially responsible, pay
your bills, don't have debts, and then you have to bail out the most corrupt
government we've ever had. Sickening!!

I'm more curious about the economic theory behind the whole thing.

Roger, I know some people who have tried to buy foreclosures from the
banks - unsuccessful I might add. The banks don't want to discount the
real estate in their inventory, they flat out declined, even though the
offers were according to the market stats. Oh no, once the government
bails them out, they will have much more money to play with, than
selling short now.

I am all for initiating bankruptcy procedures. Let the CEO's and responsible parties resign, regroup under the Chapter 11 cover and try to work out the
mess.

I understand your sentiment and frustration. I'm considering the possibility of more bank failures than be covered by FDIC. My, and I emphasize the word my IRA and savings simply disappear.

I too would like to punish the people responsible. I just don't at all think it can be done without also punishing the rest of us.

rosborne, "Economic theory" in and of itself an oxymoron, because in reality there are just too many variables that controls it. Nobody can formulate a mathematical model that will explain every economic issue. As the title implies, they are all guesses even though many believe otherwise.

You are correct in theory. It sort of depends what sort of investment it is though. Also, the difficulty of pricing these mortgages correctly. If the value these correctly or very close, then it would be a win-win. It will help the situation and potentially minimize the losses or maybe (big maybe) if everything is run effeciency afterwards, we could actually receive a gain from this "investment."

In any case if the price tag ends up being $700 billion, then the most that can be lost is $700 billion. So it is most likely that total loss is significantly less than the $700 billion price tag.

I agree - it is very difficult to price - honestly you need an "expert" on mortgages and valuing these products and even in that case it is still a crap shoot.

Therein lies the problem. If we punish those responsible letting things fail, we all suffer even though we were not the cause.

1) No, it's not a dumb question.

2) Yes, it is an investment.

3) Yes, you the people may make a profit on that investment, if its price goes up. Or you may not, if the other investors' low estimate of the assets' value was still too optimistic. Previous bailouts by the US government have indeed tended to turn in a net profit -- from New Deal banks under Roosevelt to all kinds of banks under Reagan, Bush I, and Clinton, to the state of Mexico under Clinton. So there's reason to be cautiously optimistic on that point.

4) I wouldn't worry too much about the selling of the assets destabilizing other assets. The overall size of the US stock market is somewhere around $20 trillion (give or take a factor of 2), so $700 billion actually isn't such a big deal.

nice to have someone actually attempt an answer to rosbornes questions.

700 billion is a small sum?????????????

I didn't say it's a small sum. I said the sum is small compared to the amount it takes to depress asset prices in the rest of the capital market -- which had been rosborne's question.

I heard that the 770 point drop in the stock market amounted to over a trillion in one day. So that made me wonder, why are we bailing out companies that have only 700 billion involved here in this particular bailout, when stockholders lost over a trillion in one day, but of course we gained it back in part on paper today. As somebody trying to figure this out, it seems bailing out the companies does not actually help the people losing their homes, only the companies? And the companies are owned by a large number of people, like the stock market, and if they lose 700 billion of uninsured investment, thats why they were uninsured. Why not them lose it than the taxpayers? I don't think the government can profit on this as an investment, but even if we could, why should we have to risk it? So I tend to think like Calamity Jane, let the chips fall. If it dries up the credit pool, then we all go on an economic diet, the weak companies are weeded out, but will it be as bad as predicted, Thomas, maybe not? I keep wondering if this is all a setup, or a sky is falling scenario to have us all do something we don't need to do?

Many of the real estate prices were inflated because of the stimulation the W caused with the low interest rates and promotion of home ownership. A very rough estimate would be to divide by 4 to get at the approximate price just before the real estate boom. I am going back to 2000 prices of homes which I believe more correctly approximates the market value of those homes. Since 2000 housing prices have increased 4-fold.