Re: Interesting comment on bailout plan

[David Farber <dave () farber net>]

Begin forwarded message:

From: Tom Gray <tom_gray_grc () yahoo com>
Date: September 26, 2008 7:41:41 AM EDT
To: dave () farber net
Subject: Re: [IP] Re:   Interesting comment on bailout plan

Peof Fardr

Reading the text below makes me wonder if people realize the  
significance of what is going on. Credit is drying up. Even sound  
businesses are not being able to access bank credit and whn they can  
their lines of credit are being restricted. The businesses are sound  
but they are having difficulty making payroll. So if the crisis is  
ignored and the credit system collapses, we can, following Krugman's  
example,  all blame the government, Wall Street bankers or just  
someone else not us. This will bring great comfort to the millions  
that will lose their jobs and pensions.

Tom Gray


--- On Fri, 9/26/08, David Farber <dave () farber net> wrote:
From: David Farber <dave () farber net>
Subject: [IP] Re: Interesting comment on bailout plan
To: "ip" <ip () v2 listbox com>
Date: Friday, September 26, 2008, 2:04 PM



Begin forwarded message:

From: "Dave Wilson" <dave () wilson net>
Date: September 26, 2008 3:29:35 AM EDT
To: dave () farber net
Subject: Re: [IP] Interesting comment on bailout plan

Speaking solely for myself, in fact this is the stated point of the  
Administration's plan: Deliberately pay more for these securities than  
they are currently worth. Mssrs Paulson and Bernanke claim to be  
laboring under the delusion -- in my darker moments I suspect they  
don't actually believe this at all, meaning this may quite possibly be  
one of the most cynical ploys anybody has ever attempted in the United  
States -- that the market has panicked and that these items are  
actually worth more than the market will pay for them at the present  
time. They hope to buy them up for what appears to be a premium, wait  
for the market to come to its senses, then resell them at an even  
higher price. What could possibly go wrong?

In truth, I would argue that if this were an *actual* panic, that's  
not a bad plan. But the numbers are pretty clear: You can't afford a  
$400K mortgage on a five figure income. People have overpaid for their  
housing and now new buyers simply can't afford to get in without the  
"free" money that allowed those generous exotic mortgages. Now the  
ponzi scheme that was the American real estate market of the 21st  
century has largely seized up, and we won't see a lot of movement  
until 1) Average housing prices fall to the level of the average  
family income; or 2) Average family incomes rise to parity with the  
price of the average house; or 3) Inflation converts a $500K house  
into the equivalent of a $250K house. Guess which is most likely to  
happen, (the correct answer, in my estimation, is all of the above)  
and place your bets accordingly.

I would argue that, far from being a panic, this is a market that is  
returning to rationality. The apparent suddeness of the collapse on  
Wall Street after two years of declining home prices reflects the  
insane amounts of leverage (borrowing) these firms engaged in, and  
their frantic attempts to raise capital to pay their bills once the  
true magnitude of their bad bets became painfully obvious to the  
market. It's funny, I have lost patience with those who worship at the  
altar of a free market that cannot, by definition, make an imperfect  
choice -- to paraphrase Robert Heinlein's observation about democracy,  
market theory says a million morons make better decisions than a  
single moron -- but in this particular instance it seems clear that  
the market is in fact returning to rationality (or at least has become  
mistrustful of the hype) and that's what's causing the collapse.  
There's never been a better time to buy a house...unless you wait till  
next week.
Oh, and read Princeton economist / NYT columnist Paul Krugman on the  
Administration's rescue plan; the guy keeps knocking them out of the  
park:

http://krugman.blogs.nytimes.com/2008/09/24/a-700-billion-slap-in-the-face/



-dave

On Thu, Sep 25, 2008 at 8:19 PM, David Farber <dave () farber net> wrote:


Begin forwarded message:

From: "David Boyes" <dboyes () sinenomine net>
Date: September 25, 2008 4:11:44 PM EDT
To: <dave () farber net>
Subject: Interesting comment on bailout plan

For IP if you want.

A comment from a NPR Marketplace article posting this morning:

Bill Devine
From Brooklin, 09/25/2008
If our financial markets are true to form, the instant the bailout  
package is approved, the price for these "toxic" mortgage-backed  
securities will skyrocket. Seems to me one restriction might be to  
establish the maximum purchase price at 110% of their street value on  
Monday, September 22 (or other pre-approval date). That or cap it at  
the book value so we at least get the benefit of the investment banks'  
write-downs.


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