bail out math, WTF?

[Eugene]

Hmmm….so your saying 20% of these mortgages are heading to default. What do you think commercial paper with a 20% default rate is fetching on the open market today? Probably a lot less than 25 cents on the dollar. Probably more 5-10 cents on the dollar. Does anyone have the data on this? THanks

You clearly don’t understand how this bailout works.

BTW if I could buy commercial paper with a 20% default rate for 5 cents on the dollar, I’d go all in, it would be the investment of the lifetime. Just think about it. $50,000 buys you 10 mortgages for $100,000 each. 2 of them are going to default and you “only” get 60% of market value of the underlying house through foreclosure. The remaining 8 will honestly pay (say) 6% or $48,000/year for the next 30 years.

Additionally, the biggest fallacy in this plan is the CBO’s estimate that 400,000 distressed borrowers may be able to benefit. I suspect that estimate is off by at least an order of magnitude.

Yes, they are understating the number of distressed borrowers. If this bill gets passed, everyone who bought between 2004 and 2007 in bubble states will want in.

This proposed bailout is DOA. Ain’t happening.

There seems to be a lot of bipartisan support for the bill. It seems likely that they will even defeat the president’s veto. This bill has a very good chance of passing.

[SK in CV]

I’m not underestimating the number of distressed borrowers. That number will continue to expand for another 2 years at least. What I think the CBO overestimated is the number of those distressed borrowers that will qualify under this program. Most distressed borrowers will not. The devil is in the details.

[SK in CV]

I’m not underestimating the number of distressed borrowers. That number will continue to expand for another 2 years at least. What I think the CBO overestimated is the number of those distressed borrowers that will qualify under this program. Most distressed borrowers will not. The devil is in the details.

[SK in CV]

I’m not underestimating the number of distressed borrowers. That number will continue to expand for another 2 years at least. What I think the CBO overestimated is the number of those distressed borrowers that will qualify under this program. Most distressed borrowers will not. The devil is in the details.

[SK in CV]

I’m not underestimating the number of distressed borrowers. That number will continue to expand for another 2 years at least. What I think the CBO overestimated is the number of those distressed borrowers that will qualify under this program. Most distressed borrowers will not. The devil is in the details.

[SK in CV]

I’m not underestimating the number of distressed borrowers. That number will continue to expand for another 2 years at least. What I think the CBO overestimated is the number of those distressed borrowers that will qualify under this program. Most distressed borrowers will not. The devil is in the details.

[jrock]

>>BTW if I could buy commercial paper with a 20% default rate for 5 cents on the dollar, I’d go all in, it would be the investment of the lifetime

“The discount on a doubtful loan will always need to be greater than a strict measurement of the risk involved. If there is a 10% risk of default, the discount is likely to be a multiple of 10 per cent…If you cannot value an asset, and no-one wants to buy it, it does not have a value. Bear Stearns have come up with the value of two of its hedge funds. One has lost 91 per cent of value in a year; the other has lost 100 per cent. They were invested in repackaged mortgage backed securities.” William Rees-Mogg
for The Daily Reckoning Australia

[jrock]

>>BTW if I could buy commercial paper with a 20% default rate for 5 cents on the dollar, I’d go all in, it would be the investment of the lifetime

“The discount on a doubtful loan will always need to be greater than a strict measurement of the risk involved. If there is a 10% risk of default, the discount is likely to be a multiple of 10 per cent…If you cannot value an asset, and no-one wants to buy it, it does not have a value. Bear Stearns have come up with the value of two of its hedge funds. One has lost 91 per cent of value in a year; the other has lost 100 per cent. They were invested in repackaged mortgage backed securities.” William Rees-Mogg
for The Daily Reckoning Australia

[jrock]

>>BTW if I could buy commercial paper with a 20% default rate for 5 cents on the dollar, I’d go all in, it would be the investment of the lifetime

“The discount on a doubtful loan will always need to be greater than a strict measurement of the risk involved. If there is a 10% risk of default, the discount is likely to be a multiple of 10 per cent…If you cannot value an asset, and no-one wants to buy it, it does not have a value. Bear Stearns have come up with the value of two of its hedge funds. One has lost 91 per cent of value in a year; the other has lost 100 per cent. They were invested in repackaged mortgage backed securities.” William Rees-Mogg
for The Daily Reckoning Australia

[jrock]

>>BTW if I could buy commercial paper with a 20% default rate for 5 cents on the dollar, I’d go all in, it would be the investment of the lifetime

“The discount on a doubtful loan will always need to be greater than a strict measurement of the risk involved. If there is a 10% risk of default, the discount is likely to be a multiple of 10 per cent…If you cannot value an asset, and no-one wants to buy it, it does not have a value. Bear Stearns have come up with the value of two of its hedge funds. One has lost 91 per cent of value in a year; the other has lost 100 per cent. They were invested in repackaged mortgage backed securities.” William Rees-Mogg
for The Daily Reckoning Australia

[jrock]

>>BTW if I could buy commercial paper with a 20% default rate for 5 cents on the dollar, I’d go all in, it would be the investment of the lifetime

“The discount on a doubtful loan will always need to be greater than a strict measurement of the risk involved. If there is a 10% risk of default, the discount is likely to be a multiple of 10 per cent…If you cannot value an asset, and no-one wants to buy it, it does not have a value. Bear Stearns have come up with the value of two of its hedge funds. One has lost 91 per cent of value in a year; the other has lost 100 per cent. They were invested in repackaged mortgage backed securities.” William Rees-Mogg
for The Daily Reckoning Australia

[Aecetia]

I hope you are correct about the bail out being DOA. It would set another dangerous precedent down the already slippery slope.

[Aecetia]

I hope you are correct about the bail out being DOA. It would set another dangerous precedent down the already slippery slope.

[Aecetia]

I hope you are correct about the bail out being DOA. It would set another dangerous precedent down the already slippery slope.

[Aecetia]

I hope you are correct about the bail out being DOA. It would set another dangerous precedent down the already slippery slope.

[Author]

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