11 replies to this topic

[Islander]

One of my jobs is doing the legal reviews of legislation affecting the financial industry in which public held institutions participate. Recently two pieces of legislations (bills) proposing a Congressional guarantee for the toxic instruments (held by nearly all financial institutions) have surfaced. In effect the plan is to give toxic sub prime an arbitrary US Treasury value of .50 cents on the dollar.(a form of instant money). The hope is that this will free up the sale and exchange of these toxic obligations since the risk of loss is greatly reduced, and the current holders would get only modest coverage of their losses (punishment for creating the mess). Everyone wins! But wait! The dollar goes to hell: when Congress has to make good on promises by cashing in the obligations no one else wants to hold. It will require billions, if not trillions of dollars to be printed to monetize the worthless junk. We should resist this bailout while buying precious metals, currencies, and hard assets with both hands. No assurances these things will get to be law, but my experience has been they will get tagged on to some other legislation and no one will know until we hear the presses running night and day. Best Islander.

[HoseB]

So, America is facing bailout after bailout... one currency debasing scheme after another until the $USD is valueless and all American citizens are effectively bankrupt?

[Islander]

You said it better than I did. Islander.

[johngeorge]

Islander
Thank you for that information. As the old saying goes (something like this anyway ) The only things that have value are what you can take out of the earth.
Best to you.

[pdx5]

Has this congress no shame? And how far along exactly is this legislation fro becoming a reality, and what is its identifier so that I can write to my senators and representative. TIA

[OEXCHAOS]

Recently two pieces of legislations (bills) proposing a Congressional guarantee for the toxic instruments (held by nearly all financial institutions) have surfaced. In effect the plan is to give toxic sub prime an arbitrary US Treasury value of .50 cents on the dollar.(a form of instant money). The hope is that this will free up the sale and exchange of these toxic obligations since the risk of loss is greatly reduced, and the current holders would get only modest coverage of their losses (punishment for creating the mess). Everyone wins!

But wait! The dollar goes to hell: when Congress has to make good on promises by cashing in the obligations no one else wants to hold. It will require billions, if not trillions of dollars to be printed to monetize the worthless junk.

OK, I have a problem with this. Somewhere, on the other side of this "junk" are a bunch of folks living in houses that they are paying or trying to pay a mortgage on. Some are going to fail. Maybe a lot. Probably not all of them.

Those that do will foreclose or do a work out.

Even if EVERY ONE of these loans goes to foreclosure, your statement implies that there will be no recovery on those properties for the lenders (paper holders).

I'll take the other side of that bet. I'm not smart enough to know what the real value is. I am smart enough to know that Zero isn't it.

There are smart guys, however, who are trying to figure it out. There are a lot of different work outs here and the more time is bought, the better it's going to be. Will it be $0.90 on the buck? I seriously doubt it. Will it be $0.70 on the buck? Well, now, that's getting more in the ball park. Could it be worse? Sure. Could it be worse than $0.50? Not too likely, unless you had wholesale forced liquidation. Such would create uneconomic valuations of both debt and the underlying assets. I'd certainly commit a significant sum to said debt at $0.30-0.40 without a clue. I'll always buy a little in a panic and that's a panic. After all, Most homes are worth a lot more than 50% of their appraised value, even in this sick market. And, folks gotta live someplace.

Anyway, try to tear this problems down to their basics. When you do, I think you'll see that it's never quite as bad as it seems.

Mark

[jack]

"Anyway, try to tear this problems down to their basics. When you do, I think you'll see that it's never quite as bad as it seems. Mark " Isn't this the problem, no one is able at this point to "tear the problem down to basics". Ben B complains in public about "not knowing the darn value". Being able to make a reasonable low ball guess at the underlying asset is only one small factor in sorting out this mess. Debt packaged as asset, leveraged, repackaged, leveraged again, resold a few times...what is it? Trillions sit off balance sheet somewhere in or near the biggest banks. Now Im supposed to make a reasonable guess at value during some kind of fast moving currency event. Yeah my faith is shaken.

[Islander]

Your point sounds reasonable, But, it is also dead wrong. When the Congress tells Treasury that all or most sub prime paper is to be negotiable at 50 cents on the dollar the effect on monetary transactions is to create new money which instantly goes into circulation since it becomes an obligation of the US Treasury subject to collection up presentation of the toxic paper. Possibly the money created is not a permanent addition to the monitary base, but it is a long term addition pending the working out of the debt, and the injection is never subject to recovery. If the sub prime properties are foreclosed and sold there will be a recoupment of value to the seller of the foreclosed property, but he will not owe the treasury money; the treasury is not a party to the sale transaction and has no claim on the proceeds. The best the Treasury can hope for is to get the tax on the short capital gains realized by the sellers These will be larger than normal. However that will be no way close to the amount of money this scheme will insert into the monitary base (MZM); it will raise the fears of every dollar holder. The net effect will be on the value of the USD which will be a de facto devaluation. The possible recovery of money from the sales of the property may also be inflationary since it is a net addition to the monetary base of heretofore useless paper. The fed and treasurey could remove funds from the system by selling bonds, but they are unlikely to do so since that would suggest they are not really attempting to reliquidify the debt markets. This is not a segmented market place. The backers of these schemes have the objectives of creating a market for the unwanted securities (invite the speculators to buy them and attempt a resale), and the taxpayer will foot the bill in the short run and the long run, because regardless of the workouts, the damage comes from the creation of the money. Ben B. may think this is better than the air drops, but sooner or later he and the treasury will come across with the money to avoid a recession cum depression. This scheme and all others to reliquify the commercial paper and CMO markets will be net inflationary and no one holding dollars will see it otherwise. If one of these schemes goes into law, buy some gold Mark. Best, Islander

Edited by Islander, 04 November 2007 - 07:25 PM.

[OEXCHAOS]

False presumption. The mere fact of a floor on an asset that likely has higher value does not mean that it will ever be supported with hard money. It's a gesture, not an infusion. Not inflationary. Just legerdemain. Mark

[atlasshrugged]

LET the private sector create the floor or mkt for these SIV's or CDO's !!!!! Isnt that the way a free mkt is supposed to work???? the government has no constitutional right to support these investments!!! Let the players that made the loans fail!!! Let ADAM Smiths invisible hand strangle them by the neck!!!