Bailout Suggestions to Hanky Bernanke from a Banker

[davelj]

I’ve been traveling all day so I just read through the bailout proposal. It’s absurd, as expected.

Some thoughts and suggestions to the clown posse that’s proposing this thing follow.

(1) The first thing to realize is that the single biggest issue in the financial system is confidence in the system itself. I think we can all agree on that. The first place to start in this regard is with depositors in US banks. If depositors get spooked and want to move their money to Mattressville, it’s game over for the system. So, for an indefinite period of time, all deposits, regardless of size are covered by FDIC insurance. With one caveat – there will be a rate ceiling on the coverage. If you’re a “rate shopper” and are considering that 5% 1-year WaMu CD, then don’t. Because all NEW deposits priced over, say, 4% won’t be covered. But everything else will – no size limits. Hopefully this only lasts for a few years. But this will calm the largest funding base for the economy – depositors. Just calm those fuckers down. This, along with guaranteeing the money market funds (a good idea in the context of this crisis), will probably end up costing $300-$400 billion or so after taking into account failed banks. Yup, that’s a big number but you get a HUGE bang for your buck here. Depositors and money market investors stop freaking out.
(2) Repeat the same type of RTC plan that was used in the S&L crisis. It wasn’t perfect, but it was a much better model that the one currently under consideration. Shut down the problem banks, move the assets to the RTC II and let the govt. sell them over time to the highest bidders. Then you eliminate the issues with, “Oh jeez, what is the right price, etc.” The cost of this gets lumped in with (1) above as really you’re just worried about compensating depositors. The equity holders and bond holders of these institutions are wiped out, as they should be.
(3) Set aside $200 – $300 billion in loans for folks to buy foreclosures (at market prices – presumably low) and other crap that arises out of (2) above. That should be at least 1 – 1.5 million homes. That’s a shitload of homes and will make a huge dent in the hanging inventory. These will be loans directly from some agency of the govt. at some rate below 6%. Fixed for 30 years, you gotta put 10% down.
(4) Rewrite the restrictions on equity investments in banks to allow private equity firms and sovereign wealth funds to own up to 24.9% of a bank without having to become a bank holding company (huge deterrent to investing) or sign a rebuttal of control (big deterrent to investing). We need more capital in our banking system. Let’s stop pretending that we can pick and choose where it comes from! We need all the capital we can get from whomever we can get it.

So, I’m up to $500 – $700 billion in the “bailout” which is a big ass number. But the difference between my plan and Hanky Bernanke’s is that (1) calm should be restored at the funding level (almost everyone’s insured for few years!!); (2) moral hazard at the corporate level is reduced – lots of banks will still fail (but depositors don’t need to worry) with equity and debt wiped out; (3) govt. will take the assets of the failed institutions and put them in a central agency (RTC II) to sell off to bulk purchasers who can turn around and rent or re-sell the properties; (4) Lots of Joe Taxpayers can buy these foreclosures at presumably reasonable prices with low-rate govt. loans. And the loan money we shouldn’t actually lose!! Presumably we’d get paid back for most of that; (5) Lots of capital gets into our system.

Now, housing prices are still gonna fall. Still gonna have that long, deep recession. Ain’t gonna be pretty. But at least we avoid a depression and still bury a lot of the dumb fucks (re: “investors”) who got us here. Moral hazard shouldn’t be a big issue – lots of folks take it in the shorts.

Admittedly, this plan ain’t perfect. Not saying it is. But if we’re going to be in the bailout business for the next few years – which looks baked in the cake at this point – at least lets try to get the most bang for our taxpayer bucks.

[barnaby33]

I have a feeling and its just that a feeling, that its going to be just about as easy to enact a sensible bailout as it is to fight bailouts altogether.
Josh

[barnaby33]

I have a feeling and its just that a feeling, that its going to be just about as easy to enact a sensible bailout as it is to fight bailouts altogether.
Josh

[barnaby33]

I have a feeling and its just that a feeling, that its going to be just about as easy to enact a sensible bailout as it is to fight bailouts altogether.
Josh

[barnaby33]

I have a feeling and its just that a feeling, that its going to be just about as easy to enact a sensible bailout as it is to fight bailouts altogether.
Josh

[barnaby33]

I have a feeling and its just that a feeling, that its going to be just about as easy to enact a sensible bailout as it is to fight bailouts altogether.
Josh

[CA renter]

davelj,

I think your plan is excellent (much like what I proposed in the “call your representative” thread). 😉

The only thing I would disagree with is the loans for new mortgages. The govt should not be in the mortgage business, as it will continue to distort prices. Besides that, many of the current homes on the market will still lose over 30%, and the 10% down will lead us to the same problems we have today, except the govt is directly on the hook.

I think there is plenty of money out there (both to buy houses and to make mortgage loans), but we are not willing to pay prices that were determined by specuvestors with Monopoly money.

There is lots of evidence that the hardest-hit areas are already seeing huge increases in sales volume and multiple bids. We need to get there with the rest of the market, and there’s nothing that can do that better than letting prices drop to such levels that people who have something to lose (significant down payments and good credit) will step up to the plate.

We need tighter money, and that is a GOOD thing. This whole notion that debt = wealth needs to be put to rest, permanently. Debt is the means used to transfer money from the poor/weak to the strong/wealthy. Self-liquidating debt is okay, but consumer debt (including mortgages) should be wound-down significantly, IMHO. Let the poor people save for a change.

[CA renter]

davelj,

I think your plan is excellent (much like what I proposed in the “call your representative” thread). 😉

The only thing I would disagree with is the loans for new mortgages. The govt should not be in the mortgage business, as it will continue to distort prices. Besides that, many of the current homes on the market will still lose over 30%, and the 10% down will lead us to the same problems we have today, except the govt is directly on the hook.

I think there is plenty of money out there (both to buy houses and to make mortgage loans), but we are not willing to pay prices that were determined by specuvestors with Monopoly money.

There is lots of evidence that the hardest-hit areas are already seeing huge increases in sales volume and multiple bids. We need to get there with the rest of the market, and there’s nothing that can do that better than letting prices drop to such levels that people who have something to lose (significant down payments and good credit) will step up to the plate.

We need tighter money, and that is a GOOD thing. This whole notion that debt = wealth needs to be put to rest, permanently. Debt is the means used to transfer money from the poor/weak to the strong/wealthy. Self-liquidating debt is okay, but consumer debt (including mortgages) should be wound-down significantly, IMHO. Let the poor people save for a change.

[CA renter]

davelj,

I think your plan is excellent (much like what I proposed in the “call your representative” thread). 😉

The only thing I would disagree with is the loans for new mortgages. The govt should not be in the mortgage business, as it will continue to distort prices. Besides that, many of the current homes on the market will still lose over 30%, and the 10% down will lead us to the same problems we have today, except the govt is directly on the hook.

I think there is plenty of money out there (both to buy houses and to make mortgage loans), but we are not willing to pay prices that were determined by specuvestors with Monopoly money.

There is lots of evidence that the hardest-hit areas are already seeing huge increases in sales volume and multiple bids. We need to get there with the rest of the market, and there’s nothing that can do that better than letting prices drop to such levels that people who have something to lose (significant down payments and good credit) will step up to the plate.

We need tighter money, and that is a GOOD thing. This whole notion that debt = wealth needs to be put to rest, permanently. Debt is the means used to transfer money from the poor/weak to the strong/wealthy. Self-liquidating debt is okay, but consumer debt (including mortgages) should be wound-down significantly, IMHO. Let the poor people save for a change.

[CA renter]

davelj,

I think your plan is excellent (much like what I proposed in the “call your representative” thread). 😉

The only thing I would disagree with is the loans for new mortgages. The govt should not be in the mortgage business, as it will continue to distort prices. Besides that, many of the current homes on the market will still lose over 30%, and the 10% down will lead us to the same problems we have today, except the govt is directly on the hook.

I think there is plenty of money out there (both to buy houses and to make mortgage loans), but we are not willing to pay prices that were determined by specuvestors with Monopoly money.

There is lots of evidence that the hardest-hit areas are already seeing huge increases in sales volume and multiple bids. We need to get there with the rest of the market, and there’s nothing that can do that better than letting prices drop to such levels that people who have something to lose (significant down payments and good credit) will step up to the plate.

We need tighter money, and that is a GOOD thing. This whole notion that debt = wealth needs to be put to rest, permanently. Debt is the means used to transfer money from the poor/weak to the strong/wealthy. Self-liquidating debt is okay, but consumer debt (including mortgages) should be wound-down significantly, IMHO. Let the poor people save for a change.

[CA renter]

davelj,

I think your plan is excellent (much like what I proposed in the “call your representative” thread). 😉

The only thing I would disagree with is the loans for new mortgages. The govt should not be in the mortgage business, as it will continue to distort prices. Besides that, many of the current homes on the market will still lose over 30%, and the 10% down will lead us to the same problems we have today, except the govt is directly on the hook.

I think there is plenty of money out there (both to buy houses and to make mortgage loans), but we are not willing to pay prices that were determined by specuvestors with Monopoly money.

There is lots of evidence that the hardest-hit areas are already seeing huge increases in sales volume and multiple bids. We need to get there with the rest of the market, and there’s nothing that can do that better than letting prices drop to such levels that people who have something to lose (significant down payments and good credit) will step up to the plate.

We need tighter money, and that is a GOOD thing. This whole notion that debt = wealth needs to be put to rest, permanently. Debt is the means used to transfer money from the poor/weak to the strong/wealthy. Self-liquidating debt is okay, but consumer debt (including mortgages) should be wound-down significantly, IMHO. Let the poor people save for a change.

[Arraya]

1) The first thing to realize is that the single biggest issue in the financial system is confidence in the system itself. I think we can all agree on that.

Spoken like a true banker;)

-Maybe if the banking system was sound then there would be more confidence.
-Or if congress and the fed did not say we are on the verge of an economic meltdown
-Or if banks were not spontaneously combusting in front of our eyes
-Or if every major bank was not insolvent
-Or if maybe if anything resembling honesty came out of any officials mouth.

These conditions and many others do not instill confidence. Maybe besides short selling they should ban pessimism and lack of confidence.

Lying to instill confidence only works for so long. Cramer and the CEO of Bear Stearns gave the ultimate confidence booster two days before it went BK.

This whole bailout is just further looting of the treasury for the made men, not unlike all those CEOs that left with golden parachutes after they ran their companies into the ground. This time it’s the whole country.

MSNBC had this headline (today):

Treasury Secretary Paulson says credit markets remain frozen

Treasury Secretary Henry Paulson says the nation’s credit markets are very fragile and still frozen and Congress must move quickly to pass a $700 billion bailout package for financial firms.

Translation: Gimme your money before you look at the details of the proposal and see what a bad deal you are getting.

The empire wears no clothes….

[Arraya]

1) The first thing to realize is that the single biggest issue in the financial system is confidence in the system itself. I think we can all agree on that.

Spoken like a true banker;)

-Maybe if the banking system was sound then there would be more confidence.
-Or if congress and the fed did not say we are on the verge of an economic meltdown
-Or if banks were not spontaneously combusting in front of our eyes
-Or if every major bank was not insolvent
-Or if maybe if anything resembling honesty came out of any officials mouth.

These conditions and many others do not instill confidence. Maybe besides short selling they should ban pessimism and lack of confidence.

Lying to instill confidence only works for so long. Cramer and the CEO of Bear Stearns gave the ultimate confidence booster two days before it went BK.

This whole bailout is just further looting of the treasury for the made men, not unlike all those CEOs that left with golden parachutes after they ran their companies into the ground. This time it’s the whole country.

MSNBC had this headline (today):

Treasury Secretary Paulson says credit markets remain frozen

Treasury Secretary Henry Paulson says the nation’s credit markets are very fragile and still frozen and Congress must move quickly to pass a $700 billion bailout package for financial firms.

Translation: Gimme your money before you look at the details of the proposal and see what a bad deal you are getting.

The empire wears no clothes….

[Arraya]

1) The first thing to realize is that the single biggest issue in the financial system is confidence in the system itself. I think we can all agree on that.

Spoken like a true banker;)

-Maybe if the banking system was sound then there would be more confidence.
-Or if congress and the fed did not say we are on the verge of an economic meltdown
-Or if banks were not spontaneously combusting in front of our eyes
-Or if every major bank was not insolvent
-Or if maybe if anything resembling honesty came out of any officials mouth.

These conditions and many others do not instill confidence. Maybe besides short selling they should ban pessimism and lack of confidence.

Lying to instill confidence only works for so long. Cramer and the CEO of Bear Stearns gave the ultimate confidence booster two days before it went BK.

This whole bailout is just further looting of the treasury for the made men, not unlike all those CEOs that left with golden parachutes after they ran their companies into the ground. This time it’s the whole country.

MSNBC had this headline (today):

Treasury Secretary Paulson says credit markets remain frozen

Treasury Secretary Henry Paulson says the nation’s credit markets are very fragile and still frozen and Congress must move quickly to pass a $700 billion bailout package for financial firms.

Translation: Gimme your money before you look at the details of the proposal and see what a bad deal you are getting.

The empire wears no clothes….

[Arraya]

1) The first thing to realize is that the single biggest issue in the financial system is confidence in the system itself. I think we can all agree on that.

Spoken like a true banker;)

-Maybe if the banking system was sound then there would be more confidence.
-Or if congress and the fed did not say we are on the verge of an economic meltdown
-Or if banks were not spontaneously combusting in front of our eyes
-Or if every major bank was not insolvent
-Or if maybe if anything resembling honesty came out of any officials mouth.

These conditions and many others do not instill confidence. Maybe besides short selling they should ban pessimism and lack of confidence.

Lying to instill confidence only works for so long. Cramer and the CEO of Bear Stearns gave the ultimate confidence booster two days before it went BK.

This whole bailout is just further looting of the treasury for the made men, not unlike all those CEOs that left with golden parachutes after they ran their companies into the ground. This time it’s the whole country.

MSNBC had this headline (today):

Treasury Secretary Paulson says credit markets remain frozen

Treasury Secretary Henry Paulson says the nation’s credit markets are very fragile and still frozen and Congress must move quickly to pass a $700 billion bailout package for financial firms.

Translation: Gimme your money before you look at the details of the proposal and see what a bad deal you are getting.

The empire wears no clothes….

[Author]

Posts