URGENT Smart people pls read-Will save free world

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CDO Squared's picture
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Why cant the government just insure the loans in the troubled CDO's,CMO's etc?
(or say insure to 70%)

bac,c etc balance sheet become so much stronger instantly.

s and p's open limit up

government only pays on ACTUAL homeowner defaults.

simple.   problem solved. confidence back

banks pay into insurance fund or something to pay tax payers back.

WTF am I missing?    

Philo Kvetch's picture
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CDO Squared wrote: Why cant the government just insure the loans in the troubled CDO's,CMO's etc?
(or say insure to 70%)

bac,c etc balance sheet become so much stronger instantly.

s and p's open limit up

government only pays on ACTUAL homeowner defaults.

simple.   problem solved. confidence back

banks pay into insurance fund or something to pay tax payers back.

WTF am I missing?    

Your plan isn't complex enough. How, for example, could any pork be slipped in if the accounting were to become that simple?

CDO Squared's picture
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insure the loans.   end of story   ala fdic,fnm,fre etc.

if people pay off loan govt pays nothing.

"tarp insured loans"

free world saved

Sam Houston's picture
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Joined: 2008-12-01

How about the government go with unlimited FDIC insurance?  Big hitters get the guarantee anyway by buying treasuries.  Then offer no cap gains on any real estate bought this year or next.  Money flows into banks.  Long line of borrowers.  Capital ratios cease to be an issue.  Problem solved.  Of course it does not come with a price tag of billions so it will not happen.  Side affect, treasuries will sell off immediately, and with a little bit of time, the government could actually start buying back at discounts with the new found tax revenue, lowering the national debt.

HymanRoth's picture
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Philo Kvetch wrote: CDO Squared wrote: Why cant the government just insure the loans in the troubled CDO's,CMO's etc?
(or say insure to 70%)

bac,c etc balance sheet become so much stronger instantly.

s and p's open limit up

government only pays on ACTUAL homeowner defaults.

simple.   problem solved. confidence back

banks pay into insurance fund or something to pay tax payers back.

WTF am I missing?    

Your plan isn't complex enough. How, for example, could any pork be slipped in if the accounting were to become that simple?Similar to the reasons why I am not very optimistic that we will ever see true tax reform.

go_huskies's picture
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Joined: 2008-12-11

suspend mark to market...done.
 
it's just that simple, but 'bamer wouldn't have as much control...hmmm...the real problem is...

Philo Kvetch's picture
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HymanRoth wrote:
Philo Kvetch wrote: CDO Squared wrote: Why cant the government just insure the loans in the troubled CDO's,CMO's etc?
(or say insure to 70%)

bac,c etc balance sheet become so much stronger instantly.

s and p's open limit up

government only pays on ACTUAL homeowner defaults.

simple.   problem solved. confidence back

banks pay into insurance fund or something to pay tax payers back.

WTF am I missing?    

Your plan isn't complex enough. How, for example, could any pork be slipped in if the accounting were to become that simple?Similar to the reasons why I am not very optimistic that we will ever see true tax reform.

Amen, Brother!

How have you been keeping Hyman?

josephjones107's picture
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Joined: 2004-12-20

CDO Squared wrote: Why cant the government just insure the loans in the troubled CDO's,CMO's etc?
(or say insure to 70%)

bac,c etc balance sheet become so much stronger instantly.

s and p's open limit up

government only pays on ACTUAL homeowner defaults.

simple.   problem solved. confidence back

banks pay into insurance fund or something to pay tax payers back.

WTF am I missing?    

how many trillions would they be insuring?   mortgage market is 12 trillion, derivative market is 50+ trillio

idea is still very interesting though.

CDO Squared's picture
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Joined: 2009-01-20

just insure crap that is not priced right.

and they ONLY pay on loans that default.

HymanRoth's picture
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Philo Kvetch wrote: HymanRoth wrote:
Philo Kvetch wrote: CDO Squared wrote: Why cant the government just insure the loans in the troubled CDO's,CMO's etc?
(or say insure to 70%)

bac,c etc balance sheet become so much stronger instantly.

s and p's open limit up

government only pays on ACTUAL homeowner defaults.

simple.   problem solved. confidence back

banks pay into insurance fund or something to pay tax payers back.

WTF am I missing?    

Your plan isn't complex enough. How, for example, could any pork be slipped in if the accounting were to become that simple?Similar to the reasons why I am not very optimistic that we will ever see true tax reform.

Amen, Brother!

How have you been keeping Hyman?Battered and bruised, but not beaten.  One day at a time, flipping rocks and seeing what I find under them.  Opportunities abound, but one must be a little more patient these days to get them across the finish line...that is unless you want to cave in and sell them safety, which IMO is the next bubble in many forms. ;-)Put off some discretionary purchases, not so much out of fear but because there are too many things to buy that pay coupons or dividends and will eventually appreciate, rather than depreciate.  I'll stimulate the economy by entertaining new clients in locally owned restuarants and advertising in local publications....and save that kickin' new entertainment system for next year.All in all I'm just happy to be the owner of a debt free company associated with a b/d that isnt' in the headlines every day.  In that sense, life is good compared to what it could have been like.How are you?  Been flying at all?  Staying out of  trouble?  (apologize for the slight hijack...)

JayMc's picture
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Joined: 2009-01-25

I think that Paulson and company had something like that as one of their original ideas.

Insure the toxic loans

It got side-tracked when that circus in congress started. I think it is an incredibly good idea. It actually seems like the perfect answer.   Simple.
will give the market confidence it lacks.   The government only pays on bad loans.
I know a big dog analyst/economist at BAC. Ill run it by him.   

HymanRoth's picture
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go_huskies wrote:suspend mark to market...done.
 
it's just that simple, but 'bamer wouldn't have as much control...hmmm...the real problem is...Inded...the real problem is that is a solution that would destroy their underlying thesis...that more government is the solution....

josephjones107's picture
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suspending mark to market would be just putting off the problems just like Japan has done for the last 20 years. (there stock market is over 80% lower than it was then)

Japan never wanted to deal with their bad loans.

If you suspended mark to market, some firms would go bankrupt out of nowhere. They'd get a capital call from a counterparty and wouldn't be able to deliver liquid securities or liquid assets.

This would be a huge step backwards

Bodysurf's picture
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Joined: 2008-08-02

The flaw is that it shouldn't be the American taxpayer who's on the hook for insuring bad loans, just like it shouldn't be the American taxpayer on the hook to rebuild mega-mansions in Malibu or Palm Beach when the storms come.Suppose Citi has $800 billion in bad loans and mortgages on their books.  It's all being held up by about $14 billion in common stock equity and twice that again in preferred stock.  When Citi declares bankruptcy, the $800 billion gets wiped away when the equity and bondholders get wiped out.  Whoosh!  Almost magic the way bankruptcy paves to way to find out what the real value of these crummy assets are.  The government steps in, sells off the lousy loans, and that's what brings private capital in off the sidelines, snapping up mortgages at 15 cents on the dollar, then renegotiating the terms with the original borrowers.There's only one institution on planet earth more stupid an dysfunctional than these once-giant Wall Street banks who wrote all this toxic paper, and that's the United States Congress and our new tax-dodgin' Cabinet.  There is absolutely no way that you can get the two working together to solve this problem, and not have 300 million honest Americans getting screwed.The big banks are bankrupt.  Time we realized it, and quit pumping new blood into a dead carcass.

Runlong's picture
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Joined: 2009-02-19

I agree with bodysurf, some of the major banks are really bankrupt. They have no real liquidity. The reason the Gov't has not proposed some of these simple fixes talked about here is that the problems are not that simple. It is not just delinquent mortgages. These brilliant banks and thier traders have entered themselves into so many complex trades that nobody can figure out where the bottom of the pile is, Certainly not Uncle Sam.
 

DixieDog's picture
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Joined: 2009-01-12

I briefly read an old piece about the Brady solution to the massive Latin American defaults back in the 80's.  The Treas issued "Brady Bonds" to securitize some of this, and make it tradable, and it was fully backed by the US (I think).  Seemed to get the debt of the bal sheets, and disperse the debt out into the private market where there was demand for it, obviously because of the gov't guarantee.
 
I thought it sounded applicable to this situation.  Someone on this thread probably knows alot more about it than I do.  Would be interested in hearing. 

Bodysurf's picture
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The Brady Bonds sent a very loud and clear message to Wall Street:  there is not a thing you can do, not a single bad loan you can make, that the American taxpayer won't swoop in and bail you out of.  It was moral hazard then to tell Citi that they could lend to bankrupt governments in Latin America, with a US government guarantee on the repayment.  Now we're trying to do the same thing again.When "too big to fail" becomes rewarded, don't be surprised when everyone does.  It has to stop, NOW.

DixieDog's picture
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Body, ditto on that, as well as the S&L fiasco.  Although from what I understand the RTC solution helped keep costs down.
 
I guess the banks are just going to blow themselves up every 30 years or so.

CDO Squared's picture
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Bodysurf wrote:The flaw is that it shouldn't be the American taxpayer who's on the hook for insuring bad loans, just like it shouldn't be the American taxpayer on the hook to rebuild mega-mansions in Malibu or Palm Beach when the storms come.Suppose Citi has $800 billion in bad loans and mortgages on their books.  It's all being held up by about $14 billion in common stock equity and twice that again in preferred stock.  When Citi declares bankruptcy, the $800 billion gets wiped away when the equity and bondholders get wiped out.  Whoosh!  Almost magic the way bankruptcy paves to way to find out what the real value of these crummy assets are.  The government steps in, sells off the lousy loans, and that's what brings private capital in off the sidelines, snapping up mortgages at 15 cents on the dollar, then renegotiating the terms with the original borrowers.There's only one institution on planet earth more stupid an dysfunctional than these once-giant Wall Street banks who wrote all this toxic paper, and that's the United States Congress and our new tax-dodgin' Cabinet.  There is absolutely no way that you can get the two working together to solve this problem, and not have 300 million honest Americans getting screwed.The big banks are bankrupt.  Time we realized it, and quit pumping new blood into a dead carcass.
 
i understand and agree
but the reality is obama nation IS gonna get govt invovled.
 
it seems to me that the insurance route is the simplist and cleanest 
and more importantly, people can understand it and it would improve confidence
 
vs. paulson/geitner bs that no one gets and thus leads to more MF fear.

Bodysurf's picture
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It might be simple, but it sure wouldn't be cheap.  That's what PMI is for.  And for the lenders that didn't require PMI, they should suffer the loss, not me.Under your plan, a guy who borrows the limit to buy a $750,000 house that gets foreclosed on, and then sold for $400,000--the taxpayer makes up $350,000?  Payable to whom?  The bank that made the loan in the first place?That's lunacy.  Sure, it saves the bank.  And it might also encourage them to foreclose on every property they have on their books, just to get them back to breakeven.  What do you do then?Bankrupt 'em.

Anonymous's picture
Anonymous

Here, I have a solution...

 
Dear Joe America:
 
PAY YOUR F*CKING BILLS YOU OVER-EXTENDED A§§HOLE!
 
Respectfully Yours,
 
Financially Prudent Americans

josephjones107's picture
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Joined: 2004-12-20

all hell broker loose after Lehman's collapse.
Lehman was the "lets see what happens if one goes bankrupt experiment"
It didn't turn out too good. (and they weren't that big compared to Citi, BofA/Merrill)

If we let the others fail, just make sure you have a gun, canned foods and an alarm system on your home. Complete financial anarchy and chaos will break out

can you imagine if you just let say Citi and Bank of america go bankrupt.

each have over 800 billion in FDIC insured deposits (but the FDIC fund only has $40 billion)

letting them go bankrupt would cost taxpayers much much much much more

jkl1v1n6's picture
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Sh*t JosephJones and I actually agree on something. 

Bodysurf's picture
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Lehman didn't go bankrupt because we didn't save it.  Lehman went bankrupt because it was run by a bunch of retards, who loaned out all kinds of money it didn't have.  It's like saying the guy who showed up at the hospital with a broken neck, severe head trauma, massive internal hemorrhaging, in shock and unconscious died because the doctor waited too long to start an IV drip.   These other firms aren't falling apart because Lehman is gone; they're falling apart because they pretended that they could lend hundreds of billions of dollars on dicey real estate bets, and that some MBA's sitting on a trading desk at LEH could bail them out if things went bad.  Now, they're expecting the same of the American taxpayer?Fair enough.  Tell me:  how much are you willing to have your kids' taxes go up for the rest of their lives, to keep Citi around another quarter?  Or another year?  Another five?  Every day the real estate market falls, Citi goes deeper into the hole.  So what.Don't bail out anyone.  Let healthy banks take over the dead ones, and you won't have to worry about FDIC solvency.  At any rate, I'd rather the money go to the FDIC than to the banks themselves, making up their losses.  No more.

jkl1v1n6's picture
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I don't think he meant they went bankrupt just because we didn't bail them out.  I'm guessing that many of the others are still around only because we bailed them out.
Let the healthy banks take over the dead ones.  Isn't that part of the problem, most of the really BIG banks were not and are not healthy.  What do you think would have happened if the BIG boys started going under.  IMHO all out Panic! 
I don't profess to know what the hell is going on or how to fix it but I can't imagine just letting them fail is the answer. 

Bodysurf's picture
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They already have failed.  They're dead.  Time we stopped pretending otherwise.What have we been hearing, all the way down?  The government needs to step in and take over Bear Stearns to save a collapse.  The government needs to step in and save AIG to save a collapse.  The government needs to step in and save Fannie Mae and Freddie Mac to save a collapse.  The government needs to step in and put $700 billion to work buying up toxic assets to save a collapse.  The government needs to forget about toxic assets, and put the $700 billion directly into the banks themselves to save a collapse.  The government needs to force a marriage between Merrill and BAC to save a collapse.So here we are, $2.2 trillion in taxpayer money in--and for what?Sunk costs are sunk is the first day of Econ 101.  We've forgotten it.

josephjones107's picture
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you have to have a functioning financial system.

As of February 9, 2009, $388 billion had been allotted, and $296 billion spent of the Tarp. Much of this will be recovered.

the Reconstruction Finance Corporation (RFC) in 1930s was equiv to $200 billion and they recouped most of it

think of how much wealth was lost due to the financial market turmoil that resulted from Lehmans collapse. Money market funds were losing money. Then most money mkts refused to have any commerical paper. So that choked off a source of financing for tons of regular companies. then the gov had to backstop commerial paper.

It was much more expensive to let Lehman collapse. Dow is 4000 points lower since that panic began. That was the game changer

Bodysurf's picture
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Wouldn't have made a difference at all.  It's now conventional wisdom, but it's just false.  Lehman's collapse didn't cause the plunge in asset prices; it was the other way around.  Had housing kept going up, had the CDO market kept rolling blissfully along--Lehman would still be here, still enjoying 80 times leverage, still getting accolades from other Wall Street analysts applauding their outstanding risk management controls and mastery of arcane financial instruments.

josephjones107's picture
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lehmans collapse led to wide spread loss of confidence in the system.

regular people didn't know if their money market was safe (did it contain lehman paper?)

mutual fund managers who had regular trades open with lehman get cancelled (regular T+3 trades)

mutual fund managers who hedged themselves using lehman fx contract all of the sudden had to get in line

companies could no longer use commerical paper

AIG collapsed because they "insured" some lehman debt

an invetment manager didn't know if one of their counterparties would go under for "insuring" lehman debt

I don't care about the Lehman equity or bond holder. I care about a functioning financial system

Bodysurf's picture
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AIG is about to announce a loss of $60 billion, on top of the $160 bn we've already poured into it.  Saying that the collapse of Lehman caused the demise of AIG is just dumb.  It's like to drunk guys trying to hold each other up, then one falls over and blames the other.  The banking system is gone because of these dumbasses who ran Lehman and AIG and Citi and Bear and Moody's and S&P and Wachovia and Golden West and--now--the Treasury Department.  We should have just let it fail, completely, and by now we would be on the way to recovery, and smaller regional banks would have been gobbling up market share.  But, no.  Now Obama's about to throw a budget down with $1.75 trillion in deficit spending, and we're still talking about how much it's going to cost to save these corrupt, bankrupt institutions.$2 trillion dollars gone. POOF!  And you guys want to put in even more?

eggward's picture
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These banks have written down enourmous amounts of residential real estate loans over the last 18mo.  If they mark their commercial real estate loans to market, they are already insolvent.  Find the ticker of a small bank that didn't do subprime but did plenty of commercial RE in their local area and you will see it hold up very well until about 3-4 weeks ago....fears of what the commerical RE exposure will do.
 
Its scary having banks that are "too big to fail."  They need to lower the national deposit cap from 10% down to 5% or even lower (and give any bank over it 10 years to comply) so we aren't forced to bail out these knuckleheads again 30 years from now.

josephjones107's picture
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come to think of it, having US gov insure CMOS for the banks may be a great idea.

insure only the foreclosures. only 1.8 trillion worth of mortgages are upside down. even if the house ends up selling for zero the max loss is 1.8 trillion for the entire system.

government can tell the participating banks, must try to avoid foreclosure by doing a laundry list of things and give the homeowner x months to try to catch up.

This idea is better than anything coming out of the treasury.

Then they could relax mark to market because the derivatives are insured.

prices on the toxic assets would skyrocket, thus negating the need for the preferred shares

CDO Squared's picture
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josephjones107 wrote: come to think of it, having US gov insure CMOS for the banks may be a great idea.

insure only the foreclosures. only 1.8 trillion worth of mortgages are upside down. even if the house ends up selling for zero the max loss is 1.8 trillion for the entire system.

government can tell the participating banks, must try to avoid foreclosure by doing a laundry list of things and give the homeowner x months to try to catch up.

This idea is better than anything coming out of the treasury.

Then they could relax mark to market because the derivatives are insured.

prices on the toxic assets would skyrocket, thus negating the need for the preferred shares

I know!   we need to tell someone.
Im tired of this MF bear market.

will someone PLEASE tell Tim Geitner ASAP

Its the GD answer.    The S and P's would be limit up
PLEASE

josephjones107's picture
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banks would all be immmediatly and legitimately very well capitalized.

they could return what they received from the tarp.

government would be able to set some foreclosure paramaters (to try to limit unnecessary ones and not encourage banks to foreclose)

the more I think about this, this would work and it would probably end up being the cheapest solution.

the numbers would have to be looked at more closely, I'm sure there are other exotic toxic assets that aren't addressed here, but this is really, really good

MinimumVariance's picture
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Joined: 2008-08-20

HUMMMMMMMMM...if the government guarantees everything why bother with a capital market? whada we need banks for? If theres no risk of loss there can;t be an reward from a gain? Any mis steps? See Maxcine Waters for spanking!
 
Do away with Mark-to-Market? What a gret idea. Why not just multiply all the assets values by 100,000? Problem solved.
 
Let me make an anology to mark to market (courtest fast money guy).
 
There's a seriel killer with a chain saw in your bedroom. Hiding under the covers won't make it go away?

CDO Squared's picture
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Joined: 2009-01-20

only "toxic" are insured
set guidelines

its the answer
simple
closure
confidence returns
only "real" losses taken

YHWY's picture
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Joined: 2007-07-18

Let's take a step back and look at the landscape as it unfolds before us, shall we? We have seen what has become of the financial sector stocks..seemingly with more of the same to come. In the name of "solving a problem the free market created", the market cap of the entire US financial sector has taken a lurch toward zero.  Then I read today's headlines, which include the current administration's plans to "address" "climate change" and "health care". All of which are being proposed to "solve problems the private sector has created". Anyone care to hazard a guess how these future policies will effect a few other sectors, namely Energy and Health Care? 

CDO Squared's picture
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yhwy

not good

very very mf hard to see the rainbow today

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