patrick.net

snmr,

the key about this is, the printing party, as evidenced in history over and over again, has no control where the extra supply of money goes.

Based on our understanding of the American banksters, when they get bailed out, you believe that they will just pay down their debt and be done with it? They won't use the Fed money to...for example, bet on something else to reap more gains, since the money is free anyway?

Leakage is what caused inflation. The Fed just cannot sprinkle money exactly at the place where it is needed. On top of this, there's huge moral hazard of NOT punishing those who f*cked up. You think these banksters are going to be prudent in the future? They will just lay larger and larger bets because they are truly "too big to fail".

snmr :

I am no economist either - so I could be wrong on this one. But this is the way I see it.

Govt is not simply going to take the bad paper for free. They are going to pay some money - maybe pennies on the dollar - to the bank. The banks capital can actually decrease because the asset they had on their book and valued at 1$ got sold to the Govt at 5 cents. So they have less assets on their books and hence can lend less. This is deflationary in the short term.

But now Govt has paid money for this. This will increase budget deficit. How do you think we will fix that ? By increasing taxes and offering less services ? By cutting costs ? Or by printing money ?

Budget deficit doesn't automatically translate into printing money and inflation. If economic activity resumes at a higher pace, increased tax revenue can be used to reduce government debt. For some reason ;-) I am not betting on that scenario.

In this weird arrangement, Govt in theory can profit from these assets - if they were bought at steep discount and eventually realized a much better value - either via cash flow or via sell. But it depends on at what price the Govt buys the paper. And do you think that the money will actually end back on Govt balance sheet ? Or it will be siphoned away in many creative ways ? My bet is, tax payers won't see a dime of it. Ever. Heck most even wouldn't understand what happened.

Remember this - they said giving subprime mortgages was for the benefit of the society. To help poor people get their share of American Dream. They said financial innovation protects us from systemic risk. Now they are doing this - of course to help us save our home, our retirement savings and our society. And our future.

Paulson says this is less costly. The way I understand him - it's not a good thing to pay the Mafia don some protection money - but it's cheaper than letting him rob you.

This is a giant mother of all scams to divert money away from tax payers and common shareholders to a few elites. For example, someone like Bill Gross will manage and sell of these Govt owned assets for a small fee. ;-)

This is - IFF the Govt buys only the mortgage paper. But if they decide to take derivatives/CDS based on that paper then US Govt will be the largest hedge fund in the entire world. Then even God wouldn't help us taxpayers.

And even otherwise, in general my bet is budget deficits result in higher inflation. We already have record deficit. Add this trillion dollars to it. No way we get out of it without printing more money.

From Troy on CR:
Thanks to this blog and patrick.net when I started a new job in mid-2006 I kept my 401K in the MM plan. I only made 2% or so, but that's better than LOSING 10-18% of my retirement principal in these funds over this term.

Berkeley doesn’t need your promotion
For the record, the incoming kindergarten class in the Berkeley Public Schools increased by almost 100 pupils. Never misunderestimate school fetishists ability to prop up home prices. BTW, OO, did you decide to sell your house?

OOO Wrote :
Based on our understanding of the American banksters, when they get bailed out, you believe that they will just pay down their debt and be done with it? They won’t use the Fed money to…for example, bet on something else to reap more gains, since the money is free anyway?

Leakage is what caused inflation. The Fed just cannot sprinkle money exactly at the place where it is needed. On top of this, there’s huge moral hazard of NOT punishing those who f*cked up. You think these banksters are going to be prudent in the future? They will just lay larger and larger bets because they are truly “too big to fail”.

Now that we are already in deep shit and the only way is bailout, can we atleast ask our elected officails to make sure that there are rules in place to guarantee that bank uses fed money to pay off thier debt.

One way to partly fix the moral hazard would be to fire the whole top level management without severance of any bank that used FED help.
If they can bend rules to stop things like short trading and lend free public money, can't they void the severance package clause in a contract of a CEO ?

Now that we are already in deep shit and the only way is bailout, can we atleast ask our elected officails to...

No, fuck off. Where do you think you live? In some kind of democracy, fool? This is a government of the banksters, by the banksters and FOR the banksters. Just who do you think _you_ are to ask your elected official to do anything?
[sarcasm off]

Did we not recently kill thousands of civilians to spread democracy and free markets ?

.....hypocrisy at its best !

EBGuy,

I decided to suspend sale, not because that I think that housing price will hold (in terms of purchasing power), but because I don't want to get caught in the weird USD unwinding during closing and end up holding a bunch of waste paper. With the crisis unfolding at a much faster speed, I really have no idea what is going to happen a week or two from now.

I had one prospective buyer earlier who turned out couldn't secure enough financing, two-income, solid credit rating. The mortgage market is certainly deteriorating fast.

http://money.cnn.com/2008/09/20/news/economy/bailout_proposal/index.htm?postversion=2008092012

A 700 billion dollar bill here. Just add that to the 850 billion already sepnt to save the thieves of America!

Morgan Stanley is the new Haliburton...