(no subject)

[which_chick]

It's said that people who respect the law and enjoy sausage should never watch either one being made.



Students of the government (which I am not) are aware that spending bills are SUPPOSED to originate in the House of Representatives. The "House Appropriation Bill" is frequently mentioned in this light. Stuff that spends money is supposed to come out of the House first and then travel to the Senate for review and stuff, but whatever. (See here for a discussion of who should be originating spending bills.) That said, I expect that Congress will conveniently ignore precedent and tradition in the face of an Economic Emergency the Likes of Which Has Never Yet Been Seen!!! The Senate apparently has votes on board to pass this thing where the House of Representatives demonstrably didn't as of Monday when they voted. I guess passing the bill in the Senate (they're the cool kids, after all) will make the House of Representatives fall in line. Or something.

Anyway, on this bailout thing. Secretary Paulson submitted a three page bailout bill proposal or plan or something to Congress last week sometime. By the time the House of Representatives got done with it, it was about a hundred pages long. When they voted on Monday, the House of Representatives said "Uhm, no thanks" to the bailout bill in its hundred page glory. Their Nay was followed by a huge dive in the stock market. After voting No, the House of Representatives adjourned for Rosh Hashanah (Jewish holiday. Has nothing to do with marijuana.) and there's been no substantive action on that front since. In the meantime, action on this Vitally Important Bailout Economic Rescue Package has moved to the Senate.

In the Senate, the Bailout swelled from about a hundred pages to four hundred and fifty one pages as our dear Senators tried to make the bill more palatable for members of the House who hadn't passed it the first time. Sorry, senators. A shit sandwich is still a shit sandwich even if you add a layer of BLT and mayo to the thing, hold it all together with those cute cellophane toothpicks, lay a couple of sprigs of parsley alongside, and call it a Club Shit Sandwich. I'm still not going to eat it.

Want to read the bill? It's fascinating, really.

Here are some things that are included in the new, improved bailout bill:

* Broker reporting of customer’s basis in securities transactions.
* Transportation fringe benefit to bicycle commuters.
* Increase in limit on cover over of rum excise tax to Puerto Rico and the Virgin Islands.
* Exemption from excise tax for certain wooden arrows designed for use by children.

Would you have expected dishwashers to be covered in this vitally important and super-critical and totally urgent Economic Rescue Bill? There are dishwashers in the bailout bill. Srsly. Dishwashers.

See P. 218 of the linked pdf file.

21 ‘‘(1) DISHWASHERS.—The applicable amount
22 is—
23 ‘‘(A) $45 in the case of a dishwasher which
24 is manufactured in calendar year 2008 or 2009

(continued on p. 219)

1 and which uses no more than 324 kilowatt
2 hours per year and 5.8 gallons per cycle, and
3 ‘‘(B) $75 in the case of a dishwasher
4 which is manufactured in calendar year 2008,
5 2009, or 2010 and which uses no more than
6 307 kilowatt hours per year and 5.0 gallons per
7 cycle (5.5 gallons per cycle for dishwashers de-
8 signed for greater than 12 place settings).

Dishwashers? Yeah, it's in there. Wow! They thought of *everything*...

Fortunately for us, for makers of wooden arrows designed for children, for makers of rum, and for those who own energy--efficient dishwashers, the Economic Rescue Bailout passed the Senate 75 to 24. (Senator Kennedy has brain cancer and, with a note from his doctor, was excused from voting.) Senators Casey and Specter (the Pennsylvania senators) both voted Yea. I sure feel safer now.

The most recent stuff I've seen on What Happens Next is lots of not-very-visible action over at the House of Representatives, where party leaders like John Boehner (R) and Nancy Pelosi (D) will be out twisting arms and saying things like "You'll never work in this town again if you don't support the Very Important Bailout Bill!" to the holdouts over the next day and a half. That not-very-visible activity will be followed by a happy and amusing and very public vote on the Fatted Bill on Friday. Thing is, the House isn't allowed to make changes to the Bill or the works get gummed up again while someone (a Committee, maybe?) tries to iron out the differences between the House version and the Senate version so that everybody can vote on the same thing. (Thank you, Schoolhouse Rock!)

Comments

[brni.livejournal.com]

huh.

and then there's this: (pg 34)

(3) PRIVATE SECTOR PARTICIPATION.—The
Secretary shall encourage the private sector to par-
ticipate in purchases of troubled assets, and to in-
vest in financial institutions, consistent with the pro-
visions of this section.

ain't the idea of this thing that we're trying to suck the "toxic debt" OUT of the private market? rather than encourage yet other companies to sink money into them?

[which-chick.livejournal.com]

The idea of the thing, near as I can tell, is to provide a (governmentally-funded) "market" for the bad paper wherein the government pays too much for the bad paper to get it off the books of banks and stuff. Once there's a market, goes the feeling, then other people and entities will follow the government's lead and all will be well again.

I have a problem with this because free markets means *free to fail*, damn it, and we're not letting that happen. It is wrong to socialize the risk while allowing the rewards to remain private. A policy like that encourages risky and stupid behavior.

Also, I am not sure how having the government overpay for bad paper is going to make OTHER people line up and buy bad paper at the same overprice. (I do not have a guarantee that the government will pay too much for the paper. Putting a value on this stuff is very difficult b/c the default rates are already a lot higher than traditional mortgage default rates but nobody is very sure how bad they are going to get. Estimates that may be "scare-mongering" put the price at something near ten cents on the dollar... but Bear Stearns sold its crap at twenty-two cents on the dollar and that was fairly early on in the current difficulties. Mortgage repayment rates have not improved since Bear Stearns. Banks are not selling their crap at ten cents on the dollar because if they did that, they'd have to admit that the crap wasn't worth anything and then they would not be able to make their reserve requirements.)

Finally, the amount of money in the bailout is not going to be enough (I don't think) to do what Secretary Paulson and Chairman Bernanke think needs to be done. I fully expect that if this piece of shit passes, they will be back, before Christmas, hat in hand for more money to really fix things For Sure Real Soon Now You Betcha.

[brni.livejournal.com]

I'm not one who is really sold on the whole "free market" idea - a free market tends to put real people through the meat grinder for the sake of profit, as evidenced in the industrial revolution - but this socializing of risk with privatized gain seems like a recipe for additional disaster. (Which is to say, weren't we supposed to learn from the S&L crap?)

IMO, this bailout addresses the symptoms without dealing with the root of this particular crisis. If they want to stabilize things, they maybe should be thinking of ways to prevent the mortgages from defaulting in the first place, perhaps through a combination of no/low-interest deferred payment loans to borrowers in trouble and an adjudication system such as Philadelphia's which helps renegotiate the terms of mortgages so that borrowers can afford to pay and lenders get paid, in a manner such that nobody loses too much.

Just buying the debt that is toxic and internalizing it seems to me to me like sucking the poison out of a snake-bite and then swallowing it, and hoping for the best.

Me, I'd rather see a trickle-up solution.

[which-chick.livejournal.com]

I'm against renegotiating the terms of the mortgages (Full disclosure: We write mortgages as part of our business undertakings... but we write those mortgages with our own money and we do not repackage or sell them. Further, we write predominantly commercial property mortgages, not home mortgages.) because that's a bit like pulling the rug out from under the other party (the "bank") in the deal. I could see the government renegotiating the mortgage if it had bought the mortgage from the mortgage owner, but not if the mortgage owner was supposed to just ACCEPT the government's renegotiated terms.

I also can't see giving no/low interest loans to people on the grounds that they "need" them. That's unfair. What about all those people who bought houses they could afford (or rented and rent still) because they didn't want to take on huge debt that they didn't think they could pay for? Where's my free money? I have a paid-for house that is, quite honestly, tiny and falling-apart. I bought it because it was what I could afford at the time. Am I going to get a bailout? No. I just get to PAY for the bailout.

Both of these efforts to solve the crisi will also work to stabilize and maintain house prices that are unsustainable. People have never, historically, been able to pay more than about 3x income for a place to live.

Some people are born renters. Trying to broaden home ownership to include people who aren't really capable of owning homes... well, it sucks. How can you tell who is "really capable of owning a home"? It's easy. They come in with 20% of the purchase price to put down and they want to sign a thirty-year fixed rate mortgage.

When my nephew goes to Hershey Park, he stands up next to the little measuring sticks that the park has at the entrance to all the "big kid" rides. He is "Hershey Bar" sized, which means he gets to go on most of the cool stuff these days. The height requirements, annoying though they be, exist so that he and other children do not get hurt riding rides that they aren't really big enough to handle.

Requiring 20% down and a 30 year fixed mortgage is like having a little measuring stick thing outside the amusement park rides, except for home ownership. Would you like to own a home? Great! You must be at least *this* financially solvent in order to own a home. If you don't measure up to the Hershey Bar of home ownership, well, go home and save your pennies and you can come back and try again next year. Some people may never get tall solvent enough to ride the Home Ownership ride. Them's the breaks. Letting them on the Home Ownership ride when they're not big enough means that they can get hurt, some of them quite badly. It's not doing them any favors.

[brni.livejournal.com]

Fair? Since when has Capitalism been about Fair?

Nothing in this is fair. It's not fair for me (who didn't buy a house I can't afford, and who has not gambled wildly upon the stock markets) to suffer the effects of people who did buy houses they can't afford, and who have gambled wildly upon the stock markets.

It's not fair for me to pay for those folks to keep their homes. It's not fair for me to pay to keep the banks solvent that made or purchases said bad loans.

And when we say "made bad loans" let us be truthful: we mean encouraged (when we were buying this house the mortgage folks and the real estate folks teamed up to make sure that we knew we could buy a house that was 2.5x more than the one we got, and oh look at all the shiny -- trust me, the 'i don't care what the bank says, we can't afford another $100k for the house you love' conversation with the spousal unit is not one you wanna have).

Is it fair for me to have to pay to prop up a system that let these assholes make money this way?

Is it fair for me to have the value of my house drop because of the actions of all these other people? Or to have people cut back on buying my goods and services?

There's no "fair" solution, as far as I can see. Only different ways to try to mitigate the damage.

The people who now have homes they can't afford can't sell them, and have no real way out. They lose all their savings and their homes and go bankrupt. AKA have the rug pulled out from under them. And then the bank ends up with no money and a house they can't sell for what they still have owed to them.

And shouldn't a bank that gave (or bought) stupid/bad loans deserve to have the rug pulled out from under them?

Doesn't it make more sense to try to renegotiate things so that the bank gets a bunch of its money? If they can get $.75 on the dollar instead of selling it to Paulson at $.22 on the dollar (or less), isn't that better for the banks as well?

[carv1982.livejournal.com]

I'm going to be very brief in my reply. I think the owner of this journal will respond with many of my thoughts in a far more articulate way than I'm capable.

Capitalism *is* mostly fair. The market rewards you for good financial decisions and punishes you for bad ones. It's far from perfect and it's sometimes needs restraints. But I'm convinced it's by far the most effective economic and fair system we have. If you borrow more than you can afford, you get punished by foreclosure. It's only when this punishment is socialized and distributed to the rest of society that those who have made good financial decisions like the original poster and myself are punished. How is this somehow more fair?

Whatever happened to exercising a little personal responsibility and only borrowing what you can afford to repay? No one made them sign the mortgages. At the very worst, these lenders are merely enablers. They are not wholly responsible for our economic situation or the inability of the borrowers to repay.

I actually agree with many of the things you say, but I don't understand your endless pity for idiot borrowers who are being foreclosed on. They are fools and their money being parted. This has happened since the dawn of time and will continue regardless of socialism or capitalism.

[brni.livejournal.com]

One could say that the heroin dealer is merely the enabler, and should be held harmless for the user's overdose, and that the government should perhaps help him out if too many of his customers die.

At the very worst, the lenders were predatory - lying and hiding the real terms of the loans from the borrowers and then selling the loans to other banks before the true nature of the things are discovered.

As far as capitalism being fair... Imagine this scenario. Bob works for Ford. Doing ok, bought a modest house 15 years ago, now has some equity in it. Meanwhile, Eric, Fritz and Elmo all bought houses that they can't afford. They lose their houses, the banks that bought their mortgages freak out and stop lending money, and nobody can get car loans, so car sales tank (Ford sales down 35%). Ford lays off Bob. Since all the automakers dump employees on the labor market at the same time, there's no jobs to be had. Bob now can't pay his mortgage. If he could renegotiate his loan, he could manage it, but no new loans are written. Also, he can't sell his house, because nobody can get a loan to buy it. So he's screwed. He loses his job, his savings and his house because of the actions of other people. How is this fair to Bob?

[cousinsue.livejournal.com]

Um. Did this http://www.investopedia.com/articles/03/071603.asp have anything to do with the current crisis?