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OT- the bailout
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texd Offline
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Post: #41
RE: OT- the bailout
WMD Owl Wrote:1. The Administration wants to cram this thing down Congress' throat. They want a vote NOW. But Congress really hasn't had the opportunity to read and digest the Bill. What do they think this is, the Patriot Act?

At least the administration made it short and easy to digest. Here's the proposal in its entirety:

Quote:LEGISLATIVE PROPOSAL FOR TREASURY AUTHORITY

TO PURCHASE MORTGAGE-RELATED ASSETS

Section 1. Short Title.

This Act may be cited as ____________________.

Sec. 2. Purchases of Mortgage-Related Assets.

(a) Authority to Purchase.--The Secretary is authorized to purchase,
and to make and fund commitments to purchase, on such terms and
conditions as determined by the Secretary, mortgage-related assets
from any financial institution having its headquarters in the United
States.

(b) Necessary Actions.--The Secretary is authorized to take such
actions as the Secretary deems necessary to carry out the authorities
in this Act, including, without limitation:

(1) appointing such employees as may be required to carry out the
authorities in this Act and defining their duties;

(2) entering into contracts, including contracts for services
authorized by section 3109 of title 5, United States Code, without
regard to any other provision of law regarding public contracts;

(3) designating financial institutions as financial agents of the
Government, and they shall perform all such reasonable duties related
to this Act as financial agents of the Government as may be required
of them;

(4) establishing vehicles that are authorized, subject to supervision
by the Secretary, to purchase mortgage-related assets and issue
obligations; and

(5) issuing such regulations and other guidance as may be necessary or
appropriate to define terms or carry out the authorities of this Act.

Sec. 3. Considerations.

In exercising the authorities granted in this Act, the Secretary shall
take into consideration means for--

(1) providing stability or preventing disruption to the financial
markets or banking system; and

(2) protecting the taxpayer.

Sec. 4. Reports to Congress.

Within three months of the first exercise of the authority granted in
section 2(a), and semiannually thereafter, the Secretary shall report
to the Committees on the Budget, Financial Services, and Ways and
Means of the House of Representatives and the Committees on the
Budget, Finance, and Banking, Housing, and Urban Affairs of the Senate
with respect to the authorities exercised under this Act and the
considerations required by section 3.

Sec. 5. Rights; Management; Sale of Mortgage-Related Assets.

(a) Exercise of Rights.--The Secretary may, at any time, exercise any
rights received in connection with mortgage-related assets purchased
under this Act.

(b) Management of Mortgage-Related Assets.--The Secretary shall have
authority to manage mortgage-related assets purchased under this Act,
including revenues and portfolio risks therefrom.

© Sale of Mortgage-Related Assets.--The Secretary may, at any time,
upon terms and conditions and at prices determined by the Secretary,
sell, or enter into securities loans, repurchase transactions or other
financial transactions in regard to, any mortgage-related asset
purchased under this Act.

(d) Application of Sunset to Mortgage-Related Assets.--The authority
of the Secretary to hold any mortgage-related asset purchased under
this Act before the termination date in section 9, or to purchase or
fund the purchase of a mortgage-related asset under a commitment
entered into before the termination date in section 9, is not subject
to the provisions of section 9.

Sec. 6. Maximum Amount of Authorized Purchases.

The Secretary's authority to purchase mortgage-related assets under
this Act shall be limited to $700,000,000,000 outstanding at any one time

Sec. 7. Funding.

For the purpose of the authorities granted in this Act, and for the
costs of administering those authorities, the Secretary may use the
proceeds of the sale of any securities issued under chapter 31 of
title 31, United States Code, and the purposes for which securities
may be issued under chapter 31 of title 31, United States Code, are
extended to include actions authorized by this Act, including the
payment of administrative expenses. Any funds expended for actions
authorized by this Act, including the payment of administrative
expenses, shall be deemed appropriated at the time of such expenditure.

Sec. 8. Review.

Decisions by the Secretary pursuant to the authority of this Act are
non-reviewable and committed to agency discretion, and may not be
reviewed by any court of law or any administrative agency.

Sec. 9. Termination of Authority.

The authorities under this Act, with the exception of authorities
granted in sections 2(b)(5), 5 and 7, shall terminate two years from
the date of enactment of this Act.

Sec. 10. Increase in Statutory Limit on the Public Debt.

Subsection (b) of section 3101 of title 31, United States Code, is
amended by striking out the dollar limitation contained in such
subsection and inserting in lieu thereof $11,315,000,000,000.

Sec. 11. Credit Reform.

The costs of purchases of mortgage-related assets made under section
2(a) of this Act shall be determined as provided under the Federal
Credit Reform Act of 1990, as applicable.

Sec. 12. Definitions.

For purposes of this section, the following definitions shall apply:

(1) Mortgage-Related Assets.--The term "mortgage-related assets" means
residential or commercial mortgages and any securities, obligations,
or other instruments that are based on or related to such mortgages,
that in each case was originated or issued on or before September 17,
2008.

(2) Secretary.--The term "Secretary" means the Secretary of the Treasury.

(3) United States.--The term "United States" means the States,
territories, and possessions of the United States and the District of
Columbia.
09-23-2008 11:28 PM
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jh Offline
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Post: #42
RE: OT- the bailout
Yep, sounds like a great idea. Lets give a $700 billion dollar budget & virtually unchecked authority to a guy who, just two weeks ago, said the worst was over & there wouldn't be any more bailouts. I know I feel much better now. It's all going to be ok.

Owl69/70/75, I know you're high on Brazil, but have you checked out New Zeland? I might want to follow your lead and I'm just no good at learning forgein languages.
09-24-2008 07:58 AM
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Owl 69/70/75 Online
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Post: #43
RE: OT- the bailout
jh Wrote:Yep, sounds like a great idea. Lets give a $700 billion dollar budget & virtually unchecked authority to a guy who, just two weeks ago, said the worst was over & there wouldn't be any more bailouts. I know I feel much better now. It's all going to be ok.

Owl69/70/75, I know you're high on Brazil, but have you checked out New Zeland? I might want to follow your lead and I'm just no good at learning forgein languages.

Love New Zealand, almost moved there years ago, and have had a couple of marvelous visits. You may not be old enough for this memory to register, but driving around NZ reminds me of driving around the US in my parents' station wagon in the 1950s. Funny thing is how many people I've talked to who have exactly the same impression.

You may know from other posts that I'm a huge rugby fan, and NZ is heaven for rugby followers; like HS football in Texas. Spent a month there with the British Lions Tour in 2005. Probably 30,000 Brits in total came down for the month, plus two Americans. Tour operator put our group up on a cruise ship because there aren't a lot of top-of-the-line hotels. We gained a bit of notoriety in the local media because we drank the ship out of Guinness the first night.

They've got stricter standards on whom they allow in. The older you are, the more you have to commit to invest in their economy, and their investment numbers are higher than Brazil's. At my age I can afford it, but it's getting pricey. They're also getting picky if you're overweight (so I'm currently on a diet), since that raises the risks for their medical system. I've had one experience with the NZ medical system. I had a sinus infection in Warakei. Called a doctor at 4:15, he didn't have any appointments for the rest of the day, but found me someone who did. By 5:30 I had driven to town, seen a doc, been to the pharmacy, and had my antibiotics in hand; the whole thing cost me $15.

NZ is on the active list, to be sure. I think it is more expensive than Brazil and that is one consideration. The less I spend, the more I'll be able to leave to Rice athletics when I'm gone.
09-24-2008 10:34 AM
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texd Offline
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Post: #44
RE: OT- the bailout
jh Wrote:Owl69/70/75, I know you're high on Brazil, but have you checked out New Zeland? I might want to follow your lead and I'm just no good at learning forgein languages.

In that case, you might be better off in Brazil.
(This post was last modified: 09-24-2008 12:11 PM by texd.)
09-24-2008 12:07 PM
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OptimisticOwl Offline
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Post: #45
RE: OT- the bailout
Owl 69/70/75 Wrote:The less I spend, the more I'll be able to leave to Rice athletics when I'm gone.

As an ex-pat, aren't you still going to be subject to US tax laws, specifically the death tax?
09-24-2008 12:13 PM
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texd Offline
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Post: #46
RE: OT- the bailout
I think it depends on what your status is by the time of your death. That said, any money left to Rice would be deducted from the gross estate prior to taxation.

A gross estate is the value of all property at time of death. Deductions are then taken for:

1. Property left to surviving spouse.
2. Property left to qualifying charities.
3. Mortgages and Debt.
4. Administration expenses of the estate.
5. Losses during estate administration.

Obviously, it's possible that any estate tax imposed on the remainder (i.e. what you leave to non-spouse heirs) might curtail what you're willing to leave to charity.
(This post was last modified: 09-24-2008 01:22 PM by texd.)
09-24-2008 01:21 PM
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lauramac Offline
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Post: #47
RE: OT- the bailout
texd Wrote:
jh Wrote:Owl69/70/75, I know you're high on Brazil, but have you checked out New Zeland? I might want to follow your lead and I'm just no good at learning forgein languages.

In that case, you might be better off in Brazil.

Tex - is it cold in here, or is it just you? 03-lmfao
09-24-2008 09:44 PM
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WoodlandsOwl Offline
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Post: #48
RE: OT- the bailout
Was it just me or did W's speech tonight leave everyone less than optimistic?

I can't see the Democrats and Republicans forming any compromise agreement anytime soon.

This plan has more potholes than Kirby Drive.
09-24-2008 09:53 PM
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texd Offline
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Post: #49
RE: OT- the bailout
lauramac Wrote:
texd Wrote:
jh Wrote:Owl69/70/75, I know you're high on Brazil, but have you checked out New Zeland? I might want to follow your lead and I'm just no good at learning forgein languages.

In that case, you might be better off in Brazil.

Tex - is it cold in here, or is it just you? 03-lmfao

Actually, I wasn't meaning to harsh on typos. I meant "they talk funny down there... you'll never learn to understand them, even if it is 'English.'"
09-24-2008 09:58 PM
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texd Offline
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Post: #50
RE: OT- the bailout
WMD Owl Wrote:Was it just me or did W's speech tonight leave everyone less than optimistic?

I can't see the Democrats and Republicans forming any compromise agreement anytime soon.

This plan has more potholes than Kirby Drive.

Does bipartisanly telling Paulson to stick it count as a compromise agreement?
09-24-2008 10:00 PM
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WoodlandsOwl Offline
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Post: #51
RE: OT- the bailout
texd Wrote:
WMD Owl Wrote:Was it just me or did W's speech tonight leave everyone less than optimistic?

I can't see the Democrats and Republicans forming any compromise agreement anytime soon.

This plan has more potholes than Kirby Drive.

Does bipartisanly telling Paulson to stick it count as a compromise agreement?

Yea, but if they tell him to "stick it" won't that just trigger a stock dump?

I think the Administration is more worried about volatility--that a dump here will spread overseas costing the people who buy our T Bills a bunch of money, rather than solving the REAL problem.
09-24-2008 10:08 PM
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jh Offline
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Post: #52
RE: OT- the bailout
http://www.forbes.com/home/2008/09/23/ba...ilout.html
Quote:In fact, some of the most basic details, including the $700 billion figure Treasury would use to buy up bad debt, are fuzzy.

"It's not based on any particular data point," a Treasury spokeswoman told Forbes.com Tuesday. "We just wanted to choose a really large number."
I don't even know what to say.
09-25-2008 08:38 AM
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Owl 69/70/75 Online
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Post: #53
RE: OT- the bailout
Wouldn't it be great, just once, to be able to feel like the people in charge actually had a clue what they were doing?
09-25-2008 09:17 AM
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texd Offline
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Post: #54
RE: OT- the bailout
What would we do if NOT the $700B giveaway (regardless of constraints added to it)? Jamie Galbraith suggests an option that's at least worth talking about.

http://www.washingtonpost.com/wp-dyn/con...03033.html

With everyone so upset with the Bush administration for letting us get this far into the mess without warning, should we be letting them determine the basis for how to fix it? Let's take a couple deep breaths and look at the alternatives.
09-25-2008 10:14 AM
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Post: #55
RE: OT- the bailout
There is no way of knowing how much the government is going to pay for these "assets," how many are going to be offered, etc. These companies don't even know their exposure to these things, because there is not market and because counterparties are very unclear (in part because a lot - if not most - of it is insured in multiple levels). I think I saw a figure that says the true value of the derivatives market is actually somewhere on the order of $400+ trillion. Think about that for a moment. This got built up because contracts were written on top of contracts to reinsure the risk, etc. Just staggering complexity that makes it difficult to figure out who is exposed to which failing institutions (who won't be able to pay out). These mortgage issues are a piece of cake by comparison.

You want to know who comes out smelling great from this thing? Warren Buffett. Not just because of the deal he squeezed out of Goldman Sachs (assuming its stock price holds up), but also for the fact that about 4 years ago, he told his execs to clear the deck on any derivatives and other unclear-relationship counterparty contracts that they had been writing (he claims without his knowledge in general, which is somewhat believable as he lets the individual companies largely run themselves). I think almost all of it got unwound before all of this started blowing up. He got out of it largely because it was nearly impossible to properly value the stuff or know what you were really exposing yourself to, given the revenue stream it otherwise represented.
09-25-2008 10:16 AM
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texd Offline
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Post: #56
RE: OT- the bailout
I have a question: Bush says that we could slip into financial panic if the bailout fails to pass. Have we created a trigger (by proposing a bailout and hyping its importance to the future of our economy) which is now likely to cause panic if it fails? Or is it a risk of panic that is not created/increased by the proposal/potential failure of the bailout?
09-25-2008 10:28 AM
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Hambone10 Offline
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Post: #57
RE: OT- the bailout
Owl 69/70/75 Wrote:Wouldn't it be great, just once, to be able to feel like the people in charge actually had a clue what they were doing?

The "smartest people in the room" and the "Masters of the Universe" don't know what these things are really worth. Even if they COULD value them individually, there are literally thousands of them, and some involve thousands of underlying loans, all of which need to be gone through to REALLy know what they are worth... 700byn is a reasonable estimate of how big it could be... though honestly, just knowing that there may be 700byn in "new money", I suspect the market would improve somewhat, and banks wouldn't actually need to sell 700byn to the government

Besides, you're trying to get 51% of 535 people with a variety of skills in economics (most of them pretty weak, I'd say) some of whom are more interested in hearing themselves talk or pointing fingers than fixing the problem.

Honestly... you're talking about assets that have a duration of +/- 4 years... They have SOME value... but even if their value were zero... $700byn over 4 years is 1.2% of our total GDP (did I do that math right?? 4 years at $14 trillion dollar economy versus 700byn??) The great depression cost us 25% of our GDP.

My point is... while we can all agree that we shouldn't save businesses who made bad decisions... we ALSO shouldn't let our desire to "punish" people to cause us to do something stupid that costs us even more.

You set up an "agency" with 700byn in capital. You put together a team of the best people you can find... you allow them to buy assets from banks and brokers to keep them from failing... you attatch all sorts of restrictions to what can be done with the money... You might even force their compensation committees to present to an ovesight committee before they can pay executive bonuses if they have taken advantage of the plan. I can think of ALL SORTS of strings that they can attatch to ensure that only those that REALLY need the help will take advantage of it. You could even create individual accounts where you can monitor how well or poorly a certain banks investment did versus what they were "paid" for it. In the simplest example... If the company makes $10mm, and their investment loses the government $5mm... then they can't pay bonuses or dividends based on $10mm in earnings... but must keep $5mm in additional capital.

Obviously I'm scatter-gunning this... but the market wants to know that the government will keep us from falling into a depression rather than get into a finger-pointing session. They are NOT interested in the punitive details.

As to your comment, Tex... I guess I see it as telling someone they have cancer. The sooner you take it seriously, the more likely you are to live. the more you downplay it, the more likely it is to consume you.
(This post was last modified: 09-25-2008 11:07 AM by Hambone10.)
09-25-2008 11:04 AM
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OptimisticOwl Offline
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Post: #58
RE: OT- the bailout
(This post was last modified: 09-25-2008 11:56 AM by OptimisticOwl.)
09-25-2008 11:55 AM
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OptimisticOwl Offline
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Post: #59
RE: OT- the bailout
I have a question for youse guys.

One of the parts of the proposal that puzzles me is the limitation on executive earnings. I understand that the American people don't want to see executives like Raines making off with fifteen million a year while the taxpayers are shelling out. heck, I AM one of the American people. But how do you draw the line? An executive with a $30K/month house payment in the Hamptons and two kids in pricey private schools isn't going to be able to work for $400K. At the same time, a lot of the American people are going to think $400K is a damn fine salary. So how are we going to satify both Main and Wall Street? It is widely held that to get the best people in various jobs, you must pay better money. We hear this theory a lot in relation ot education - raise teacher's salaries and attract better teachers. Same thing for college football coaches, etc. So why do we think that lf we limit executive salaries we will retain all the best and brightest? Or attract the best and brightest to replace them? Sure, an agrument could be made the people in place are not the people we want running things, but who will take the jobs if they leave? Some idealistic 25-year-olds fresh out of Harvard Business?

So my questions to you are:
1. How do you determine a pay level acceptable to Main St that will attract the talent needed to handle 700B correctly?
2. what do you think this level is?
09-25-2008 12:08 PM
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Post: #60
RE: OT- the bailout
Two notes to OO, as it would take too long right now to write up something else, on your question:

1. Personal opinion is that a lot of this markup in pay (particularly in the executive suite) is somewhat of a self-fulfulling prophesy, or bidding against oneself. (You see it in pro sports a lot.) Yes, the pool is somewhat limited, and yes, the cash is technically available, but do you absolutely, positively have to have that guy/gal high up the chain? Sometimes yes, oftentimes no. (And I'm speaking broader than just the CEO context.) I'd say that because someone else gets X money, then the next person in a similar role has to get X+Y. There's a lot more that goes into it, but that's the simplistic way I view it (rather disgustedly, if you ask me).

2. I think where the real restrictions are going to come are in bonus payouts and trying to recoup obscene bonuses paid out in prior years for what turn out to be inaccurate metrics (like earnings). The accounting at some of these public firms (no shock) have been manipulated, albeit within the structure of allowed accounting. A lot of these contracts that are close to worthless now have been marked in internal accounting as being valued much higher than they probably would have been if there were an active market for the securities (as opposed to a one-to-one sale approach more typical). Things have been escalating because some of these things were needed to be sold to raise appropriate capital levels, which resulted in pricing being available for certain classes, raising capital requirements further because assumptions had to be worse now in the accounting, which led to more sales, which people started not wanting, driving prices down further...

It's an ugly cycle. And until there are buyers willing to pay X price, it gets worse. That buyer of last resort may have to be the US Government, in this case. Otherwise?

BTW, personal opinion - this is not the end of things. Things are going to get worse. This will be a decent stop gap, but more damage remains to be unearthed and dealt with. I'm not ready to use the D word yet, but something ugly this way comes.
09-25-2008 12:34 PM
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