$700 Billion Bailout Explained....

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  1. #21

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    Bail out number two

    http://media.mcclatchydc.com/smedia/...filiate.91.pdf

    Here's my favorite part, beginning on page 300: EXEMPTION FROM EXCISE TAX FOR CERTAIN WOODEN ARROWS DESIGNED FOR USE BY CHILDREN.

    Subparagraph (A) shall not apply to any shaft consisting of all natural wood with no laminations or artificial means of enhancing the spine of such shaft (whether sold separately or incorporated as part of a finished or unfinished product) of a type used in the manufacture of any arrow which after its assembly-

    "(i) measures 5⁄16 of an inch or less inѠ diameter, and "(ii) is not suitable for use with a bow described in paragraph (1)(A).''.

    "(b) EFFECTIVE DATE.-The amendments made by this section shall apply to shafts first sold after the date of enactment of this Act.

    I wonder how much debate that generated?





    yo gunsnroses
    7000 crores comes to only 10 zeros, while 700 billion is 11 zeros, so should it be seveny thousand ten millions? see why I am impressed by the cantonese version?

  2. #22

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    Quote Originally Posted by kombuchakid:
    yo gunsnroses
    7000 crores comes to only 10 zeros, while 700 billion is 11 zeros, so should it be seveny thousand ten millions? see why I am impressed by the cantonese version?
    700 billion = 700,000,000,000, right?
    so its 7000 crores alright.

  3. #23

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    Schilff don`t like the bail out... here`s why

    His example of the condo is what my son was telling one of the young stock traders he knows did with his Las Vegas home. He is now trading stocks on the beach in Thailand as his home value fell below the mortgage and he didn`t see it coming back soon.

    I remember the huge housing market crash in 1981 in British Columbia where mortgage rates were rising to 17-18% and house prices soared only to crash over night. It took until 1992 for some towns house prices to reach `81 levels (Nanaimo which has boomed in recent years was one). It got a boom as Vancouverites decided to commute to work and Americans got in the tech bubble bought second homes and the rest was local economic growth from all that. So the reality of the bail out is that some will still not be able to see their house values approximate their mortgages. The cold hard reality is homes like stocks get more buyers at the frenzied highs than on the way up.

    October 3, 2008

    Liquidity is in Eye of the Holder


    ....The idea of the plan is to transfer these supposedly valuable, but currently unmarketable, assets to the government so that private institutions can freely lend once more. The monumental flaw in this argument is that the mortgage backed securities are in fact highly liquid, just not at the prices the owners would like to receive.

    Mortgage bonds are just like houses. They won’t sell if the owners stubbornly refuse to drop the price. However, they can find buyers if they acknowledge reality, and lower their expectations accordingly.

    The government tells us that if these assets are held to maturity their full value will eventually be realized, and that it is only because of a lack of current liquidity that their value is not reflected in the market. However, as many private transactions have shown us in recent months, these assets will find buyers at the right price. These are not overly exotic assets but relatively straight forward mortgage obligations. The inability to find buyers is not a function of liquidity but simply of price. The government is seeking to “create liquidity” by overpaying.

    The government’s assumptions about the “held to maturity” value of these mortgages completely understate the likelihood of widespread default. Some of the “illiquid” assets represent tranches of mortgage-backed securities that will be completely wiped out. Even the higher quality tranches will suffer severe losses due to mortgages that will inevitably go bad.

    For example, take a $500,000 adjustable rate mortgage on a condo in Las Vegas that has a current value of only $250,000. To assume that this asset can be safely held to maturity is absurd, when in all likelihood the borrower will default shortly after the rate re-sets, even if the borrower has not yet shown signs of distress. Of course such a mortgage would be completely illiquid if one tried to sell it anywhere near par, but would be extremely liquid if priced to reflect a more realistic value; say 35 cents on the dollar. But if the government pays prices that fairly factors in likely defaults, it will bankrupt the very institutions it is trying to bail out.

    Another factor that has not yet been considered is that that the government has already indicated that it will try to avoid foreclosures by reducing the principal and interest rates on the loans it acquires to levels current homeowners can afford. This will immediately eliminate the delusion of the government recouping its “investment” as even if held to maturity the mortgages will never be worth anything close to what the government pays.

    Also missing in the discussion is the concept of the time value of money. Even if a substantial percentage of the $700 billion is eventually recovered, it will still represent a huge loss for taxpayers who theoretically have to come up with the cash today to buy the mortgages. Further, the inflationary nature of the bailout ensures a substantial rise in long term interest rates. This will further suppress the present values of the low coupon mortgages the government will be restructuring.

    The moral hazard implicit in the government’s willingness to re-write troubled mortgages ensures that the plan will spark a wave of new delinquencies by borrowers looking to cash in on the windfall. Since troubled loans will no longer be foreclosed by lenders but instead sold to the government, the rational choice for many homeowners will be to stop making their mortgage payments and wait for a better deal from the government. This reality will eventually push the cost of this bailout well above $2 trillion.

    In addition to the government bailout, distressed lenders are looking to the suspension of “mark to market” accounting rules as a means of salvation. These rules require institutions to value their mortgage assets according to the most recently traded price. However, suspending these rules will not make the losses go away. Rather it will simply allow lenders to pretend that the losses do not exist.

    Armed with such fantasies, banks could pretend that their mortgage assets had more value, and that their balance sheets were well capitalized. They would not need to raise more capital in order to fund new loans. But, just as a person with no sensitivity to pain runs the risk of catastrophic injury, such a move would encourage financial institutions to take greater risks which, in the end, will produce more bankruptcies and greater losses.

    In fact, the Senate version of the bailout bill, which authorizes a suspension of mark- to-market, also increases the dollar limit on FDIC insured deposits from $100,000 to $250,000 (with no extra money budgeted to fund the increased taxpayer liability). Only in Washington would a bill pass which simultaneous makes banks more likely to fail while increasing taxpayer exposure when they do!

    Euro Pacific Capital : Because there's a bull market somewhere.


  4. #24

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    Quote Originally Posted by gunsnroses:
    700 billion = 700,000,000,000, right?
    so its 7000 crores alright.
    crore is 10,000,000
    so 7000 crores
    is still one zero short

  5. #25

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    [ame=http://hk.youtube.com/watch?v=gnbNm6hoBXc&eurl]YouTube - Fear Mongering exposed by Mr. Sherman on CSPAN[/ame]


  6. #26

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  7. #27

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    logically written article with assumptions but fair guess.


  8. #28

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    didn't realise a whole mess of people read this thread

    [ame=http://www.google.com/search?source=ig&hl=en&rlz=&=&q=WOODEN+ARROWS+DESI GNED+FOR+USE+BY+CHILDREN&btnG=Google+Search]WOODEN ARROWS DESIGNED FOR USE BY CHILDREN - Google Search[/ame]

    see comment #23 if confused or bemused


  9. #29

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    When 700 billion is actually 1.8 trillion

    Bailout bill loops in green tech, IRS snooping | Politics and Law - CNET News

    The bill so far PLUS how to make 3 pages into 442 pages in two days.

  10. #30

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