Re: WORTH BREADING How big a bailout?

[David Farber <dave () farber net>]

Begin forwarded message:

From: "Gerry Faulhaber" <gerry-faulhaber () mchsi com>
Date: September 20, 2008 9:18:04 AM EDT
To: <dave () farber net>
Subject: Re: [IP] How big a bailout?

The question of the hour, David.  Even as we speak, Bernanke (Fed) and  
Poulson (Treasury) are preparing a plan to put before Congress; we  
don't know the details of this yet, but the overall outline is clear.   
The government will set up something like the Resolution Trust Corp to  
take questionable debt off of bank balance sheets and individually  
"work out" the loans.  This is what it did in 1989 to resolve the  
savings and loan debacle.

The idea is that "many" AAA mortgage-backed securities have in fact  
turned out to be non-performing, and no one knows how many are bum  
loans or how extensive the problem is.  No one wants to do business  
with a bank that may go under at any time, leaving the counterparties  
(i.e., other banks on the other side of transactions) holding the  
bag.  So, banks can't raise money, etc., etc. (Read the excellent IP  
post with the explanation by Doug Diamond and Anil Kashyap).

What must be done?  Well, many if not most of these mortgages behind  
these securities are probably just fine, and will be repaid.  Some  
will probably end up paying part of what they owe, and some will just  
be complete write-offs.  But we don't know that until we do the  
individual work outs. While the nunber of a half trillion dollars is  
being bandied about, this is the amount of questionable debt that the  
government may have to take over. How much money they can get back  
from these instruments is another question, and one we can't answer at  
this moment.  During its lifetijme, the Resolution Trust Corp closed  
or resolved S&Ls with assets over $375 billion. It was able to achieve  
strong returns while holding these assets and eventually recover much  
of their value.  Unfortunately, I cannot give you hard numbers about  
their recovery rate.

Professor Emeritus Gerald Faulhaber
Wharton. School, University of Pennsylvania

----- Original Message ----- From: "David Farber" <dave () farber net>
To: "ip" <ip () v2 listbox com>
Sent: Saturday, September 20, 2008 5:26 AM
Subject: [IP] How big a bailout?


> Begin forwarded message:
>
> From: "David Lesher" <wb8foz () panix com>
> Date: September 19, 2008 11:13:11 PM EDT
> To: dave () farber net (David Farber)
> Subject: How big a bailout?
>
> Prof F:
>
> I'm wondering how deep in the hole we are all going
> on these bailouts.
>
> Can we compare it to the Resolution Trust Corp?
> How much money was plowed into it;
> how much was recovered?
>
>
>
>
>
> -------------------------------------------
> Archives: https://www.listbox.com/member/archive/247/=now
> RSS Feed: https://www.listbox.com/member/archive/rss/247/
> Powered by Listbox: http://www.listbox.com





-------------------------------------------
Archives: https://www.listbox.com/member/archive/247/=now
RSS Feed: https://www.listbox.com/member/archive/rss/247/
Powered by Listbox: http://www.listbox.com