Sven, I realize that the “no cash” scenario seems silly as it did to me. I asked the teller who these people were and why they were doing it. She told me some were just scared and some had more than the $100K guarenteed amount and were taking it our for that reason. I have a co-worker, not a stupid guy (did 11 million in volume last year) who took all of his $ out yesterday and had a 5 foot steel safe delivered to his home today. I was dumbfounded when I heard that. On the news last night a story about a safe company in Indianapolis that sold more safes in the past week than in the past 6 months. It doesn’t make sense but it’s still happening. By the way the banks were Chase and Huntington in my experience and Regions per an email from a coworker.

Considering I’m grudgingly for this, I still have to say in all candor I can give you 50 examples (based on fraud no doubt) where homes with notes over $100,000 are probably worth 5K in parts of Indy. Do we throw the bill out because of all of the fraud and screw the legit home owners right now? I’m also not thrilled about the money going to the Puerto Rican rum distributors and the Wool association as part of this bill (yes, it’s true and God knows who else). I don’t know what the right answer is but being proactive by nature, I think not doing anything is ultimatly worse than doing something however imperfect it may be.

Many of you have great suggestions. I don’t have the answers…just the frustration of feeling like it may well be a lose – lose.

Steve,
This is a giveaway because if the assets had a higher value these banks would not be selling them to the US Government. The mortgage baked securities are being revalued based on now depressed property prices. What a lot of people aren’t understanding is that the reason we are having so many banks go under this year is because of legislation that was enacted last year. A law was passed last year requiring that banks “mark to market” their assets. Suddenly, all these MBS’s needed to be revalued at the current property prices (security values), and this made many banks upsidedown on their balance sheets. The bailout plan has a provision that in 5 years, the president is supposed to act to recoup any losses from the banking industry, but you and I both know that this will get brushed aside in 5 years. At least the SEC will now have the authority to suspend “mark to marketting” if this passes, but it’s something that should exist. It just needed to be implemented in a more gradual way.

You just asked the intelligent question, “why do you think this is a giveaway?” If we can understand that answer then we can craft more fair solutions. I can provide my viewpoint through an example. Suppose a bank lent $100 on a house that is now worth $40. Let’s assume that the loss of $60 puts the bank in peril in that it now has assets less than liabilities (its “bankrupt”). We don’t want this mythical bank to go out of business because it creates unemployment etc. A reasonable solution might be for the gov’t to buy the loan for $80, which is $40 more than it is worth. However, the gov’t also insists that it gets a, say, 20% equity stake in the bank in exchange for the excess it has paid for the loan. This generates a win-win situation. The bank gets enough money to stay in business and the government gets a piece of the ownership of the bank. If the bank does well, then the govt gets its money back at a later date when it sells the 20% equity stake.

This is just an example. Many other methods are possible if we take the time to create a fair program that addresses the credit problems while protecting tax payers.

There is a reason that the market price is so low. Your LOC “theft” example is a very good one. Much (most, all?) of the Heloc loans may indeed have zero secured value – if you can’t get some of it back from the borrower, it’s gone. Will anyojne bother to go after these people? Will there at least be taxes owed to help re-coup some of the loss that the government is refunding to the bank shareholders and bondholders? Oh, how unfair that the government tax heloc money (I hear the whining – not yours – as I type this).

If purchased at a “discount” …. the government is going to buy way-overpriced crapola. It may have some value, but the Paulson’s of the world want the government to pay a trillion more – get those bondholders and shareholders some money so they will not hold us hostage. “It might go up in value in the future”? – if that was believed, it would already be taken into account in the current market price.

The bankers/bondholders need a sucker, the ultimate bagholder: the last one in to pay the full price in the pyrimid scheme. Only the government, using its credit card, would do such a dumb-a$$ “investment”. The bankers/bondholders have leverage: “pay us back the losses incurred from our stupid decisions to give away LOC money, or we will hold our collective breath and withold credit from even the credit-worthy.”

You know it. I know know. They know it. Just add it to the U.S. credit card balance – let someone else pays that. It’s the American way.

Smithers – One question: Why do you consider the government purchase of the devalued mortgage securities to be a giveaway? These notes are secured by assets (homes) that, while admittedly now devalued, are not worthless. If purchased at a discount, which I believe is the plan, there is a decent chance that they could be worth more in the future, even if it takes a few years to get there. To me this is an investment, not a giveaway, and it gets cash back into a cash-starved credit system.

I said nothing about “unsupervised”. I’m ok with supervising. In fact, where FDIC guarantees were involved, an obvious lack of supervision took place.

That’s not what this is about. This is about a huge hand-out of money. Biggest ever. I realize that much of what the government does is hand-out money. It’s called wealth re-distribution. I’m not saying all wealth re-distribution is bad. I’m just calling it what it is. The government takes away and gives away. Politicians derive their power by being controllers of who gets taken from (and how much), and who gets given to (and how much).

The government gives away to whomever politics dictate be given to (e.g., the old, the sick, the victims of natural disasters – if enough of them to make a political necessity, etc). the government also gives to individuals and companies astute enough to play the game (e.g., AIG, GM, Ford).

The government takes away in the form of taxes: pay or go to prison (citing in re “Snipes”), and takes even more away from the future (citing in re $10Trillion+++ deficit).

In this case, those who “play game” knew exactly how to play it: stir outright panic and confusion and urgency. The government could grease the skids in the form of loan garantees for companies/individuals that qualify (I think that is Jacob’s point) without bailing out shareholders and bond holders (and, yes, 401K bag holders – I am one of those).

But, this is extorting a huge transfer of wealth from the future to the present bankers. Will it cause me personal grief if not passed??? Absolutely. But it will cause more – much more – for me and my kids (and you and your kids) in the long run if it does pass. I know you love your children and want them to lead happy lives. Why do you want to do this to them? Why can’t our generation take the lumps instead of passing them on to our kids?

If wall street bankers and bond traders deserve a bailout then everyone deserves a bailout. Make a profit? great, we’ll tax you and give it to those who did not (plus borrow four times as much to give that away, as well). Why work for the government, when the government will work for you?

Sorry about the rant, but that’s I how I feel. This has precious little (nothing) to do with residential real estate in Scripps Ranch, and I do appreciate your lending your blog for folks like me to voice their opinion.

By the way, thank you for all of the very thoughtful and informed comments. It is a lot to think about. I do see both arguments, but no matter how long and hard I look at this, I still can’t see everything just “working it self out” without some significant measures being taken on the national level. It is going to cost us all, but we are going to pay a much bigger price if we sit idly on our little soap boxes screaming its not our fault.

Smithers – In California, the number is about 1 in 50 adults, but that number is shrinking. And for the record, my position is mine, not NAR’s. I am painfully aware of the long road ahead, but just letting boys be boys with no parental intervention got us here. How can we possibly think that leaving the whole thing unsupervised is suddenly going to result in a better outcome?

It’s early. Go easy.

I realize there’s a great deal I don’t understand about all of this mess but what I do understand is if large numbers of people are taking their money out of banks, justifiably or not, something has got to be done. If we don’t get the populus calmed down fundamentals won’t mean squat by early next week.

Now, that brings back some great memories from my high school days. There was I.P. Freely, Mister Completely, and, of course, Claude Bawhls.

Noboby wants short term pain, so we throw another couple of trillion on the debt pile for the eventual (not if, just when) BK of the U.S. We are collectively (often individually) pathethic. I don’t know why the NAR is doing the (”don’t blame just pass it”) campaign. Since one in three adult Americans is a realtor(s) (something like that – I may have understated), I don’t see how this helps their membership.

Guess we’ll find out.