JayB

The transfers of assets from the payors to the beneficiaries would be more transparent, less expensive, and would more clearly illustrate the political expedients motivating this largesse if the government simply paid the existing UAW members their existing salaries until death, and transferred the remainder to the UAW's political slush fund. Funneling the money through the carcasses of the big three is just expensive and inefficient political theater. There's a thriving auto-industry in the US, which is directly or indirectly responsible for the employment of hundreds of thousands of workers. It also manages to produce vehicles that people actually want to buy, and generate profits in the process. Instead of burning through $50 billion to forestall the inevitable, we'd all be better off if demand for automobiles was satisfied by the people who know how to build high quality, fuel-efficient vehicles, even if their upper management have last names that some of us have difficulty pronouncing. Better yet - that demand and the capital that follows is allocated to new companies that aren't constrained by the woeful management and bloated labor contracts, instead of being transfused into a Franken-Detroit that staggers on for a few more years before making a final trip to the grave. Given that a bailout is seemingly inevitable at this point...at the very least, any capital infusion should be in the form of an equity stake, and if they still go under - all common stock and bondholders should be wiped out, senior management should be fired, all contracts rendered null-and-void, and the company put into receivership under which a reorganization with a single mandate - a return to profitability, should be in force. If that fails - complete liquidation.

Getting an internet connection at our home here as been an epic worthy of Homer, but stopped in at an internet cafe to check the e-mail and take a look at the proliferation of threads here in this forum. A gauge-reading showing fresh spike in the flows out of the Tauranga-Taupo river means that I'll be celebrating by spending an evening by myself pitching flies to a fresh batch of 4-5lb rainbows in one of premier trout fisheries on the world. Although I voted for McCain, there are a number or positives aspects to this election from my point of view (really). Foremost amongst them is a state of affairs in which folks on the political left come in from the wild hinterlands of political estrangement and no longer have to fret when something good happens to the country, because that may have the unfortunate consequence of also being good for the sitting president and his administration (let alone finding solace in baroque conspiracies when confronted with years of political alienation and frustration). I am certain that this observation will not find a receptive audience here, but as an observer of the political left over the past eight years, this passage from Johnson has often come to mind: "Some claim a place in the list of patriots, by an acrimonious and unremitting opposition to the court. This mark is by no means infallible. Patriotism is not necessarily included in rebellion. A man may hate his king, yet not love his country." Now that the hated king is gone, I personally hope that your relationship with the country is less fraught, and you can at long last stop pretending that you are going to move to Canada. I also hope that more sober voices will be whispering in the nascent president's ear when it comes to trade policy and the abolition of secret-ballot voting in union election drives, but that's the subject for another thread. Enjoy the night. When I return from the river, I'll check the news and tip a Speights to at least four years of happy leftists.

Exactly how much has our purchasing power declined, and since when? I just placed a five minute telephone call to New Zealand for about a quarter. I made the call on a Chinese made MacBook that packs as much processing power as computers that would have cost about thirty times as much ten years ago, if it had been available to consumers at all, with software that I obtained for free on a high-speed internet connection that costs less than a typical local phone bill in 1990. Tomorrow afternoon I'll drive a '95 Toyota pickup with 201,000 miles on the original clutch, etc, to the airport and fly the first leg of a round trip journey that ran $1600 US, far less than the same flight would have cost before the days when airlines had to compete on price. I've paid more for gas and groceries lately, but that's about it, and a good portion of that has been a consequence of the declining value of the dollar. As far as the isolationism is concerned, how about attempting to make a go if it yourself before expanding it to the rest of society? Instead of exchanging your teaching abilities for money that you use to buy things that other people specialize in making, swear off trade entirely and grow all of your own food, drill your own fillings, power your home with whatever natural resources abound on your spread, and let us know how much better off you are at the end of the first year.

I am saying that deregulation in telecoms resulted in the building of unnecessary parallel networks that competed for too few customers, which lead to unrealistic price wars, frauds, score of bankruptcies, mass loss of jobs, industry consolidation, and new monopolies (...). Competition is good but if it profits only speculators and crooks while it destabilizes industries, it is not wanted. Moreover, in the case of cable for example, the infrastructure defines a natural monopoly, which should therefore be regulated. No, there is no theory involved since it is a statement from first principles: budgets depend on what comes in and what goes out. You, on the other hand, have a theory and it doesn’t work because, despite the books being thoroughly cooked (notably on inflation data), statistics show that purchasing power has decreased over the last 30 years for the overwhelming majority of Americans, which means that deregulation has not lead to an increase in purchasing power for anyone relying on wages to earn a living. On the contrary deregulation has enabled the casino economy of today where all economic growth, most of it virtual, debt-ridden or financed by taxpayers, is sucked by the upper 0.1% of the income brackets. In how many countries has deregulation and laissez-faire led to complete ruin in the last 30 years? You seem to be convinced that it's possible to increase real wages by some method other than increasing productivity. What someone earns is ultimately a function of what someone else is willing to pay for the good or service that they produce. If the work that they put in every hour making widgets translates into ten-dollars worth of value in the final product, you'll find very few employers willing to pay them $15 per hour to make widgets. Unless, of course, the government uses tariffs, subsidies, or other constraints on competition to force consumers to fill the gap between what their efforts are actually worth, and what some external authority decides that they should be paid. Paying line workers at GM $85 per hour might be feasible if the government forced anyone who wanted a drive to buy their cars from GM and GM only. Great for the 200,000 or so folks that the government wants to insulate from competition, bad for the ~250 million people who have to spend more of their limited monthly than necessary on an overpriced piece of crap. That's money that's no longer available to save, pay for groceries, etc. Everyone but the folks that Uncle Sugar has decided to take under his wing is materially worse off than they would be if GM had to compete for their business. Expand the GM model across the country, and attempt to protect every industry from competition - whether domestic or foreign - and everyone spends more than necessary on everything they buy, and everyone is poorer than they would be otherwise. Try the experiment yourself - pay the guy at the gas station $10 per-gallon for gas when you could get the same gas across the street for $4 per-gallon, spend $300 on the same bag of groceries that you could get for $150, and send 200% of the amount due to the folks at the power company, the phone company, etc every month and see what happens to your personal balance sheet. I think both of us agree that we'd like it if real wages increased for every American. Unfortunately, I'm not convinced that one can accomplish this goal by legislative fiat or any other magic wand, much less by systematically insulating every industry and enterprise from competition.

"Welcome to JP Morgan" https://www.wamu.com/personal/default.asp

Check out his One Market Under God if you haven't already. Pretty appropriate to the current mess. That guy knows what he's talking about. "The Michigan Model" is one that the entire country would do well to emulate....

I totally agree. We need to protect our assets from foreign takeover but at the same time I think this country needs a hard lesson that as individuals, companies, and government that we can't live off of credit and loans, especially when an increasing amount of our money is leaving. Getting people enslaved to their home and mortgages was part of the republican plan all along. Thatcher did the same thing with great success because she knew that once folks had their nest egg in the market they'd have to support it. Remember the "ownership society"? Nordquist said it'd be Bush's greatest legacy. Well, there you have it. 'Tis a happy slave who toils in a prison of stainless and granite...or so their Realtor told them. http://www.youtube.com/watch?v=Ubsd-tWYmZw

This is not an auspicious start for a history lesson. Liberal and leftist mean two entirely different things for people who confuse liberalism with anarcho-capitalism. Liberalism is the product of the enlightenment against religious dogma and for freedom of thought. It is also strongly underpinned by the concept of social contract, which is clearly antithetical to laissez faire libertarianism. You could have spared us all of this reading by simply pointing out that your side is rabidly against the breakup of oligopolies/monopolies or never accounts for the collusion between the news business, the militari-industrial complex, politicians, etc.., which are certainly more relevant today to monopolistic activities than your 300 yo Corn Laws. Under Reagan, the glory age of deregulation, antitrust cases against mergers declined to their lowest levels in 80 years. Anyway, it’s enough to hear you expounding the virtues of the deregulation of telecoms and note that customers are paying way more than ever for telecom services, that TV and internet cables services are de facto monopolies today (fact that you keep not answering ...), that 100,000’s of people have lost their jobs in the telecom debacle and that the entire industry still is not profitable, to see there is a serious disconnect between your discourse and the solutions your side preaches. You seriously need to review your arithmetic. The purchasing power of consumers is determined by prices AND WAGES. If you deregulate to the point where you workforce competes with that of developing nations, its purchasing power is bound to tend toward that of the workforce of developing nations, no matter what’s the price of Wal-Mart’s imported plastic junk. 30 years after the beginning of deregulation, the immense majority of households have 2 wage earners instead of one, most of them go from paycheck to paycheck, 99% of them have lost purchasing power, most of them have little savings; I’d say it about time you reassessed your model, because it doesn’t work for 99.9% of us. You guys are like locusts, everywhere your ideology won by free or totalitarian means, the economy tanked. I've got to get back to packing for a bit, but: -Are you suggesting that increased competition in the telecommunications business would be bad for the consumer? -What, in your opinion, determines both real wages and real wage growth? There seems to be a theory embedded in your final paragraph, but it would be helpful if you'd make that explicit.

WAMU is toast as of now, per CNBC. In FDIC hands ASAP.

I have read (I think on CR) that the investment banks held onto the "Super-senior" tranches and sold off all the "bottom" tranches as investments. The fact that the banks are now struggling with the value of the very best part of the securities implies the investors of the world absolutely lost their shirts. Bailout or not no ones going to be trusting the US Financial Industry anytime soon. Garbage-in, Garbage out I suppose. Given that the appraisal of the underlying collateral was probably submitted by a guy who had incentives to "hit the number" necessary for the loan to go through, the information on the mortgage application was probably incomplete or fraudulent even on a high percentage of "PRIME" loans, I'm not surprised to learn that the super-senior stuff is also rife with losses. I'm not sure how the folks in the rest of the world financed their respective bubbles (priced a Condo in Vancouver, lately?), but from what I've seen their valuations were just as baroque as those in the US, if not more so. Even if there systems were also jacked up, I think you're right that we're (Americans) all going to be paying more to borrow from the rest of the world for quite a while.

Firstly this is just wrong. Investment banks (or those banks formerly known as investment banks), are defaulting because they can't borrow. They can't borrow because nobody knows the value of their balance sheet. Secondly, calling mortgage backed securities "practically worthless" is a strech. How many people that you know are currently in forclusure? Lets assume that 10% of people with mortgages are in or will be in forclosure (this number is ridiculously high). We'll also assume that a house in forclosure is absolutly worthless (not true). What is the value of the mortagage backed securities backing these houses? 90%. The problem is nobody knows who will be forclosed upon. It could be that in a given bond 90% of the houses in it are being forclosed upon. But you can't really know this. So nodoby will buy them. The number I heard, and I could be totally wrong, is that mortgage backed securities right now are selling for 22 cents on the dollar. Do you reall believe the value of the US housing market is down 78% in the last 2 years? I have no idea how to value a securitized bundle of mortgages that's been through the tranche-making ginsu machine, but I suspect that they're trying to put a dollar value some combination of the value of the underlying collateral and the stream of payments that the loans taken out to purchase the said collateral are worth. Given that the securitized bundles were divided into pyramids, with the tranches on the bottom eating all (or the vast majority) of the losses first, and the "super-senior" tranches at the top being relatively insulated from losses - this is probably more difficult than it would seem at first glance. I suspect that in the case of the tranches at the bottom of the pyramid, losses of 10-20% in the larger portfolio that they're part of will render them completely worthless, even if the land + structure + stream of payments that were chopped up and packaged into them have some kind of residual value well north of zero. If you scour through Calculated Risk postings or some Wikipedia entry on RMBS valuation, you might get some information from someone who knows how all of this actualy works.

When things settle down enough that we can return to arguing about tax rates again, I'll be a happy man....

That these instruments were allowed to be created at all as a result of deregulation is 80% or more of the reason we're in this mess. Yes people got themselves in the pickle, but they were quite literally sold on this crack-rock by the people getting the bailout. I'd also add that those sellers were possibly the only people who understood how dangerous those instruments were. The instruments are fine, actually. So are naked currency futures - in the right hands. In the securities market, the law requires that a broker determine a client's wealth and sophistication when they establish an account, and use that to calibrate the amount of risk that they allow them to take on. Put a guy with 15 years of trading experience and five million in liquid assets into an account where they can trade the riskiest options, you're fine. Put grandma into the same account, you're going to jail. This system matches risk with the capacity to bear any losses that it might generate. People still have the freedom to make idiotic decisions and lose everything, but the laws insure that they earn the right to roll the big dice, and know what they're getting into. I've long argued for something like the rules that govern access to risk in the securities market to govern access to debt in the credit market. With regard to "deregulation," that's a rather nebulous term that distorts the nature of the dispute at the center of the argument. Whether a given rule for participants in the marketplace is constructive or destructive has quite a bit more to do with their content than their size or number. If additional regulations increase transparency, require participants in regulated transactions to declare any conflicts of interest, limit or eliminate the potential for information asymmetry to distort transactions, limit the potential for the government to stifle competition and play favorites, etc - then principled advocates of "deregulation" will gladly support the addition of these regulations to the set of rules that govern commerce. Had anyone been tabling additional regulations that would have reformed the set of rules that make realtors and mortgage brokers meet the minimal standards that securities brokers have to abide by, phased out the mortgage interest deduction, applied the same capital gains rate to rental properties and second homes that applies to securities, eliminated FNMA and Freddie and the massive and dangerous distortions that they introduced to the mortgage market, etc - I would have gladly supported all of them, even though I fall squarely into the "de-regulation" camp because I object to the government stifling competition, and using tarriffs, subsidies, price-controls, and other bits regulation to pick winners and play favorites.

Whether they were "innocent bystanders", duped by the media, lenders, or the American myth, they are the ones left holding their personal grab bag of bankruptcy/bad credit cat-shit for the rest of their lives while the bankers take their tropical vacations and theraputic shopping excursions. Maybe, maybe not. If the bankers who made the worst choices have most of their personal wealth tied up in equity stakes in their banks, they'll lose it in direct proportion to the amount of RMBS sludge that they shovel onto the TARP. As for the dipshits that shoehorned themselves into the American Nightmare via their stated income, Libor-Indexed, Neg-AM, 3/27 Cash-Out Option ARM...it should suffice to say that I'll be doling out any sympathy I have on a case-by-case basis.

Wow, only 10% thats 70 to 100 billion!! Thats like ten times what it cost us for Enron!!! What a deal!!! How much did the demise of Enron cost the treasury?

Last I heard, the final proposal will include provisions that grant the government warrants/equity in exchange for the securities that they purchase. Still sucks, but better than the original proposal, and probably better than a catastrophic de-leveraging. Agree that this is going to put downside pressure on the dollar, and upside pressure in interest rates - which is going to hurt all of us. At the end of the day - it's the lender's job to make sure that they're likely to get repaid before they give anyone a loan, and the folks who lent the money failed in that job, big-time. Ditto for the irrational subsidization of real-estate borrowing and horrendously crafted laws that Congress contributed to this disaster. If you're parceling out wrath, though, I think that you should spare a good measure for the folks on the retail end of the debacle. The amount of greed, corruption, and outright fraud involved in the average boom-time residential real estate transaction was such that you can hardly consider the average borrower an innocent bystander in this whole thing. Seems more like a transfer from prudent people at all income levels - to reckless spendthifts...at all income levels.

Metrics for greater Vancouver/Calgary are right up there with Vegas, Baby.

Look upon my work, ye real-estate concentrators, and despair... "Beware the Foreclosure Allure Redbrick's Model of Scattered Bets Is Cautionary Tale By JAMES R. HAGERTY Many investors have been tempted by the idea of buying foreclosed homes in bulk from banks, at a steep discount. But the experiences of a Washington, D.C.-based property investment firm, Redbrick Partners LLC, show it can be difficult to manage a large number of single-family rental homes scattered across a metropolitan area. [redbrick] Reuters Redbrick's business of buying up properties in cities like Trenton, N.J., and outsourcing rentals and maintenance has proved difficult to execute. Though Redbrick was never in the business of buying foreclosed homes, the firm in recent years bought hundreds of properties in working-class areas of East Coast cities including Baltimore, Philadelphia and Trenton, N.J. It hired local managers to handle rentals and maintenance. Now Redbrick, formed in 2003, has concluded that it is too costly to manage those homes and is trying to sell most of them. Tom Skinner, one of Redbrick's managing partners, notes that fixing leaky toilets and other common problems is much more complicated in a diverse array of homes than in an apartment building where fixtures are standard and the manager can walk from unit to unit..." http://online.wsj.com/article_email/SB122222286574070071-lMyQjAxMDI4MjIyNDIyMjQyWj.html

Ditto for the '50s rambler in White Center w/r/t the McMansion next door. I'm sure that there's plenty high-quality timber-framing from '46 rotting away in the rust-belt at the moment.

The best part of the boomtime-condo equation is that you get a share of liability for the entire structure. Yipes.

Depends on how much money/time/effort their owners are willing to sink into them, I suspect. Most of that will be determined by variables beyond those associated with the construction of the houses. I suspect that there are literally thousands of well-constructed homes rotting on their foundations in Michigan, Buffalo, etc. There are also a bunch of homes in Seattle that were probably thrown together with cheap material and slipshod labor during the post WWII boom that have held up better than anyone building them would have thought possible, thanks to the fact that Seattle is home to a high concentration of relatively prosperous people who are willing to pay a ~$300,000 premium to spend less time in traffic-hell. I'd have to agree that most macro trends are unfavorable for the McMansion. I also suspect that we'll see whole subdivisions on the periphery of the commuter-zones near the hardest-hit metro-areas rendered uninhabitable, and demolished before this thing is over.

I think I get it, maybe not. I guess my question in this scenario is where is that demand going to come from? In real life...you know like, not from a diagram. If the economy's in the shitter and no one can get a loan no matter how good their credit/income/savings look per traditional lending guidelines (20% down, fixed), then most of the buyers will be either rich people or institutions. If people with the right credit/income/savings profiles can borrow 70-80% of a home's price at rates below 15% then the buyer mix will shift towards people who have to work for a living. In the long-term, if demand returns to something like a pre-bubble equilibrium, most of the rich people/institutions that own residential properties will probably take their profits and invest them someplace else, where they can get a better return. It's notoriously difficult to achieve profits, let alone decent returns by owning and managing large numbers of single family homes. Very expensive and time consuming relative to the cash flow they generate, and they tie up capital that could earn better returns elsewhere. This is one reason why the big-boys tend to stick with apartments and commercial properties and the concentrations that you speak of have never materialized.

I totally agree. We need to protect our assets from foreign takeover but at the same time I think this country needs a hard lesson that as individuals, companies, and government that we can't live off of credit and loans, especially when an increasing amount of our money is leaving. what about american companies taking over firms in europe , s america or asia? free market means everyone competes with everyone. Yup. We're in no position to refuse capital infusions from private entities, wherever they may be from.

God knows if there's been one person on this board that's been an unrepentant cheerleader for the current status-quo when it comes to every component of the real-estate market, from appraisal to securitization, it's been me. Ditto for the sustainability of the price run-ups relative to income and asset growth, the incentives that lead to plowing staggering amounts of capital into McMansions and granite countertops instead of productive assets, etc. Anyhow, I'll try to respond. -Bailout: Has to be structured so that any bank that reaches for that life-ring gets coughs up an ownership stake equal to the dollar value of the welfare check that Uncle Sam cuts them via the issue of warrants or subordinated debentures that the government can subsequently sell. Determining what to pay for the distressed assets should involve an auction mechanism that's open to private bidders. Re-capitalizing banks by simply overpaying for bad assets is a very bad idea for a number of reasons. A ground up bail-out of overextended homeowners would cost more, take more time, and be less effective IMO - but the idea is roughly the same. -Mortgage lending: The bad regulations that metastacized into the current nightmare when combined with loose monetary policy and mass-psychology predate the current administration. Reform had very few friends on either side of the aisle before the bubble popped. Fannie and Freddie seem to have had more friends willing to stifle reform on the Democratic side, in the name of "affordable housing" since at least the early '90s. If you've got evidence to the contrary, feel free to share it. -Various actors in the real-estate market/existing regulations/incentives/subisidies: You won't find me defending them. -Housing vs Investments: When sanity prevails, most houses are a wash, financially - after you account for taxes, interest, insurance, maintenance, upgrades, etc. If you can rent the same property for less than the total price of owning and have the discipline/knowledge required to invest the savings in a diversified portfolio for as long as the rent vs own disparity exists, I think you'll wind up with more money and more piece of mind than if you'd purchased the same property in most market environments. If you are like most Americans, you should probably just buy a house and cross your fingers. -Home Ownership percentages: The more prices fall, the more willing buyers there'll be. If the total cost of owning approximates the cost of renting, or drops beneath it, there'll be buyers of one kind or another. If lending is tight, the first round of buyers will probably be those who have lots of cash and intend to rent them out. If lending returns to some kind of sanity in the wake of this debacle, a significant percentage of those post-bottom buyers will be individuals with savings and good credit. I'd like to think that there are as many of these people out there as there are lemmings/retards and get-rich-quick schemers, but I'm not aware of any stats that would help prove or disprove this assumption. Question for Buckaroo: -Any idea what differentiates the particulars of the home-price bubble in the US from the property bubbles in Spain, Ireland, England, New Zealand, Canada, Australia, Russia, China, etc? Seems a bit much to hang on the Republicans, IMO.

Worked like a charm for Fannie and Freddie. I'd be more than happy to see the folks here dissect exactly who argued against reforming that case study of moral hazard every time it's come up - ever since the Johnson administration "privatized" Fannie in order to get it's balance sheet off of the country's books.