Where is the US economy headed?

@realjohnboy,

It's pretty safe to say that the investment would be a very good one for everyone concerned. As you've stated, there are two positives to this investment. The first is the very fact that a good deal of the assets have already been written down. The only big question remaining would be the actual return on investment which can be around the amount you proposed or a plus or minus of some 15 to 20% variance. With the prices of homes in today's marketplace, they are good values for people wishing to buy with the added incentive of the $8,000 tax write-off this year. 30-year fixed rates are just below 5% right now; a very good rate. The only other question remaining would be the future inflation rate which is an unknown.

I see it as a good deal for the private investors and for the government funds invested to shore up the housing market which in turn will help our economy.

I believe its a very good trend to help our economy recover.

0 Replies

@realjohnboy,

realjohnboy wrote:

AND THE CROWD GOES WILD!
The Dow soared 500 points. The Dow, Nasdaq and S&P up about 7%.
The Treasury published a Fact Sheet about how the clearing of toxic assets off of banks' balance sheets might work.
Here is the example posted to explain it:
1) A bank might toss loans having an original* value into a pool that could be auctioned off to private investors. Say $100B.
2) A private investor might bid $84B after reviewing the pool to see the interest rates the loans might be earning, the delinquency rate, the geographical distribution. The FDIC will fund and guarantee 6/7th of the $84B; in this example $72B after signing off on the deal.
3) That leaves $12B ($84B-$72B). The Treasury, using TARP money, will put up $6B and the private investor will put up $6B for a share of the profit/loss.

The * may no longer be the carrying value of the loans on banks' balance sheets. Some of the decline in value may have already been recognized.

The government example stops there. So I will make up the rest. Suppose the A2K Investment Club, holding this $100B pool of loans restructures the loans and gets a total of 5% interest on the pool for 10 years ($5B/year=$50B) and recovers principle of, say $86B (for another $2B profit). The private investors would get 50% of the $52B profit ($50B + $2B), equals $26B over 10 years, or (ignoring the present value of money etc) $2.6B a year or a return of 44% a year. The government will get an equal amount of the profit.
Are than any flaws in the STRUCTURE of the deal/example as I have posed it. If so, please correct me. If not, we can, if yall are interested in talking about economics, talk about, for example, how valid the 84% bid that the A2K Club is. I have heard more like 50% .

Cleaning up some sloppiness on my part.

1 Reply

@realjohnboy,

Yeah, I struggled through your first post, but gave it a college attempt to respond. LOL

1 Reply

@cicerone imposter,

I tried, CI, to explain it as simply as I could. It takes some effort to get our heads around the numbers, but, if this is going to be an economics thread we need to do more than hurl insults at each other. That's the way I see it, anyhow.
1) The example I cited assumed that the A2Klub would bid 84 cents on the dollar. Bill Gross, who runs a pretty successful fund called PIMCO, says the bids are more likely to come in at 40-60% of face value. It is unclear how much the banks have marked down these loans, these toxic assets, but I doubt that it is by 50%. So if they play, the banks will get them off their books but will have to report more big losses at the time of sale. They might not want to do that.
2) The notion is that, once the banks get an infusion of cash from the government and us on A2K, they will resume spending. Is that really going to happen?
3) If this plan works, the private investors (A2Kers) and their partner (the government) come out fine and the FDIC gets their money back but
4) If the loans in the pool go bad, we lose our money, the TARP loses its money and any additional losses and the FDIC (i.e. taxpayers) are on the hook for that also.
5) Some concern has been expressed that, if this works and we A2Kers make "too much" profit, Congress will pull an AIG and tax it away.

I am mulling over you last post, Spendious. I am not sure I understand what you were saying.

3 Replies

@realjohnboy,

I was suggesting that there are other factors besides accounting procedures based on accountancy assumptions.

0 Replies

@realjohnboy,

Quote:

2) The notion is that, once the banks get an infusion of cash from the government and us on A2K, they will resume spending. Is that really going to happen?

Presumably, the banks make money by spending it - so theoretically they should; or they could always be required to...

Cycloptichorn

1 Reply

@Cycloptichorn,

I didn't mean "spending" it. I meant "lending." And yes, that should be a requirement.

0 Replies

@realjohnboy,

I don't believe we have to worry about zero values on those assets, but the 64 thousand dollar question still remains. What are the true value of those assets on their books? If we can believe what the banks have been reporting on writing down those assets during the past six to eight months, I think it reflects about what the actual market value of those assets are worth today. The biggest problem I see are the huge pockets of areas where foreclosures are actually making parts of huge cities into trash-ghost towns; they have no value what-so-ever in today's market. People are just leaving them, and people are trashing the properties. Many are boarded up. Since many are close to town centers, the land must be worth something.

I had to add this edit: According to a recent report in our local newspaper, they have shown the jump in percentage of workers who now qualify for a local home, and some places are showing 44%. That's quite an impressive number - in my books. It also shows that people are just waiting for the prices to come down lower, but I believe that's a mistake, because they're already reaping tens of thousands (if not hundreds of thousands in some areas) of dollars in the reduced cost of homes.

On the other side of the coin, people are seeing good bargains out there, and people are beginning to take advantage of the good prices and mortgage rates. When employment begins to improve, the demand for housing will pick up again even though at a much slower pace.

I'm still a bit skeptical about the 500 point rise in the market today, because unemployment continues to increase without any brakes in site. It's been one of the biggest jump in our retirement funds for a very long time in one day. Did you also know that we are exactly 1000 points below 12/31/2008?

0 Replies

@spendius,

spendius wrote:

Looks interesting rjb.

Tell me--who owns the properties which are defaulted on?

There's a factor I think you've overlooked. The cost of building new properties. Land make get cheaper, wages go down, materials get reduced and efficiencies of building might improve. Population might increase. As might single households.

Show me my A2K share of $1oo B and I'm off on the razz.

Clearly I am missing something here in this discussion. Bear with me. The $100,ooo house that is included in the pool that the A2Klub bought for $50,000 (50% of the bank's original value) goes into default and foreclosure. We would own it and our basis would be $50,000. Could we sell it for that in this market?
Your 2nd paragraph, what you meant to say there, totally eludes me. But I am willing to listen.

0 Replies

what are these derivatives going to sell for at auction? I am thinking 45 cents on the dollar, which means that this plan will have the immediate effect of creating $500+ billion in losses for the current owners. I am not seeing how we handle that.

1 Reply

@hawkeye10,

What auction?

1 Reply

@cicerone imposter,

Quote:

Under one main component of the plan, the Federal Deposit Insurance Corporation would oversee a program in which banks offer bundles of whole mortgages for sale to investors. The F.D.I.C. would set up an auction for each bank portfolio, allowing a bank to sell the mortgages to the investor that offered the highest bid.

http://www.nytimes.com/2009/03/24/business/economy/24bailout.html?hp
From the reporting it sounds like team obama thinks that the sale price will end up 80-90% of book value, I think that they are dreaming.

1 Reply

@hawkeye10,

Thank you, hawkeye.

0 Replies

The Govenor of the Bank of England said today, before the select committee which deals with all this shite, that you would be hard pressed to find better men to run the world's biggest bank than the five Citibank had chosen from the vast pool of American knowhow. He named them and faintly praised them.

0 Replies

YOU'VE GOT MAIL!
I am sure yall watched the Congressional hearing today involving the US Postal Service.
You didn't? I cannot imagine what you could possibly have found to do with your time that would be more exciting.
Here is a summary: The USPS lost $2.5B last year and is on target to lose $5B this year. Mail volume overall is down by almost double digits. Costs, which are almost exclusively fuel and labor on a day to day basis are tough to cut. And the USPS has a whole bunch, I say a whole bunch, of people due to retire soon. The retirement fund doesn't have enough money in it, as I understand the situation.

The USPS, like Amtrak, is somewhat controlled at the whim of Congress and the administration, but is supposed to stand alone financially. And Congresspeople demand that every little post office at every little crossroads village must remain open. I tried to figure out how much that costs, but the USPS will not touch that "3rd rail" of cost cutting, and I couldn't find much.

And I can appreciate that many folks can only walk as far as their mail box, only to discover a flier from the GAP store. But at what point might we see the USPS disappear?

3 Replies

@realjohnboy,

The point at which the rural food growing folks cave in entirely to the greed and false superiority of the city slickers.

0 Replies

@realjohnboy,

rjb :

i know that 100 years ago mail was delivered in some places three times a day , and there was delivery on saturdays (which has been discontinued in canada for many years ) .
mail was meticulously stamped with date and TIME of arrival at the destination post-office . when mail was transferred from on train to another , the mail was usually backstamped by the new carrier also .
(i have some neat examples of old envelopes so stamped) .

mail going to and from europe took usually only about 8 days - about the same as today's airmail .

i have often wondered why we still need daily delivery . we probably receive about 50 pieces of mail a month and no more than 10 are "real" mail .
surely , delivery two or three times a week should be sufficient .

btw mail in the U.S. and canada is pretty inexpensive when compared to germany , as an example .
"postage" in germany - and probably other european countries - is about double what we are paying .
hbg

checked canadian and german postal rates for a 30 gram (1 ounce) letter :
canada to germany : C$ 1.65
germany to canada : EURO 2.20 (about $ 3.50 )

just increase postal rates and volume should drop - junkmail too , i hope !

0 Replies

@realjohnboy,

I don't think the USPS will disappear during our lifetime. They should reduce their hours and days of delivery to save money, and learn to live like everybody else on limited revenues. They reason they'll out last us is very simple; they just have to increase the rates.

1 Reply

@cicerone imposter,

Quote:

I don't think the USPS will disappear during our lifetime. They should reduce their hours and days of delivery to save money, and learn to live like everybody else on limited revenues. They reason they'll out last us is very simple; they just have to increase the rates.

Maybe the problem is that we got a wild hair and decided that the post office would work as a private sector type organization, that it can't, and thus the solution is to accept that it is a government agency that must be funded with taxes.....

0 Replies

Obama's spending plans a way to hell!

http://www.foxnews.com/politics/first100days/2009/03/25/global-recession-tests-obamas-popularity-world-leaders/

"Global Recession, Security Challenges Test Obama's Popularity Among World Leaders
From France to Poland, from the Czech Republic to China, nations are rebuffing President Obama and offering little wiggle room for him to negotiate economic and security policies."

""Europe is increasingly turning against his massive spending plans, which most European leaders see as a destructive way to move forward for the global economy and will only add to a massive American debt burden," Gardiner told FOXNews.com.

"At the same time, there is a growing impression across Europe that the Obama administration is inept and inefficient and increasingly poorly managed."

A top European Union politician on Wednesday slammed Obama's plans for the U.S. to spend its way out of recession as "a way to hell.""

1 Reply

Where is the US economy headed?

Related Topics

Quick Links

My Account

able2know