Bailout Bill

  • 25 Sep 2008 at 11:29 AM

Perverse Incentives

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We’ve had a cautious eye on Clusterstock since our old friend John Carney went over there to do “mature work.” (It better pay better, because where’s the fun in that?) Seems voyeuristic of us though, doesn’t it? Spying on our old friend’s new digs? That’s why we only read Henry Blodget’s pieces. (We kid, we kid).
Yesterday, Blodget penned a mostly insightful piece on Warren Buffett’s bailout take. Blodget points out:

Warren Buffett, meanwhile, thinks the appropriate price would be the “market value,” which he believes is below the price at which the banks are currently carrying their trash:

[If] they do [the bailout] right, I think they’ll make a lot of money…. They shouldn’t buy these debt instruments at what the institutions paid. They shouldn’t buy them at what they’re carrying, what the carrying value is, necessarily. They should buy them at the kind of prices that are available in the market. People who are buying these instruments in the market are expecting to make 15 to 20 percent on those instruments. If the government makes anything over its cost of borrowing, this deal will come out with a profit. And I would bet it will come out with a profit, actually…

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  • 23 Sep 2008 at 1:55 PM

What Happened Around 11:30?

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Oh yeah.
Chart after The Jump.

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  • 23 Sep 2008 at 11:33 AM

Liveblogging (Sort Of) The Bailout Hearings

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Paulson and The Beard are facing the panel. What glee!
11:30: Lots of hammering away on the issue of mortgage foreclosure assistance. If the issue was bad lending, the argument goes, why aren’t we doing more for foreclosure assistance?
What other plans did the Treasury consider before adopting the plan that is before the congressmen and congresswomen now? (This should be good).
Paulson: Oh, the market, baby, the market is the answer. Except when it isn’t. When you “have to buy mortgages or securities way above fair value” (emphasis mine).
Bernanke: “As you know I am a student of financial crisis and financial history.” Indeed!
The situation we have now is unique and new. It’s not about failing institutions. Our amazing financial innovation is so amazingly complex, we can’t handle it like those simpletons, the Japanese.
Q. What banks would be eligible to participate?
All of them. (Ahem).

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  • 23 Sep 2008 at 9:06 AM

(Prematurely) Grading The Bailout

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In the wake of the worst single day performance on the Euro stage in recent memory for the Dollar, you might sit up and take notice. Of course, an injection of $700 billion is going to impact the dollar however you do it, so I say ignore the European foreign exchange nerds all together. Still, some are tempted to read this as a mandate on the bailout and (by extension) those doing the bailing.
I guess we should expect to see certain congressional democrats, fresh from the scrapyard holding shards of their favorite legislative wreck skyward in hopes the heavenly bailout magnet will pick them up, citing with authority the nuances of global foreign exchange to belittle Hank and his brethren in the hopes the might get some scraps that will keep their mouths busy with chewing.
That’s not to say we turn our nose up at changes designed to increase transparency, make the bailout financially painful enough to try and encourage firms to use it as a last resort, rather than a wheelbarrow of money for the taking, allow the Treasury to keep warrants in the bailees (not to be confused with the Baileys, Hank, take it easy). But when we start slipping into stimulus programs (which tend to be pretty useless even when you just write checks to taxpayers), price controls on executive pay, and the kitchen sink, well, someone should point to yesterday’s market performance and note that, while index futures seem to have the market set for a flat open this morning, the clock is ticking.
All this presupposes that Hank knows what he is doing, and that throwing cash at the problem will fix it. It seems pretty clear that, in order to do any good, the Treasury is going to have to buy assets at significantly overvalued prices. Perhaps, in fact, this is why transparency is still an issue. If, as the UK has been prone to do in similar circumstances, purchases or borrowings are shielded, there isn’t any new pricing data to trigger mark-to-market write-downs. Hmmmmm.
Will it help? That, I think, is far from certain. Time will tell. And you can always short the indexes (for now).

A Primer On The Mortgage Bailout Bill

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Over the weekend the Senate overwhelmingly passed a the mortgage bailout bill that includes a government rescue plan for mortgage finance giants Fannie Mae and Freddie Mac, grants to states to subsidize local real estate markets and extends government protections for refinancing troubled mortgages. The legislation amounts to one of the most far-reaching government expansions in the real estate and financial markets in decades. Surprisingly, there has been very little public discussion of the details.
So what does the 700 page bill do? We’re not sure anyone knows since hardly anyone–perhaps no one at all–has read the entire thing or had a chance to evaluate how it will interact with existing laws. Here at DealBreaker we’ve discerned a few of the lowlights at Bailout Bill. (If you want to read the bill, click here and God bless you.) After the jump, we run through them.

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