Bad bank?

Bank Bailout Could Cost Up to $4 Trillion: Economists

http://www.cnbc.com/id/28918543

"One idea that seems to be gaining traction is setting up an entity to buy troubled assets and hold them until they mature or resell them."

So you buy a load of bushlitt, you put it in the bushlitt pile, let it mature and resell it. Except that the label when you resell it doesn't say "bushlitt", it says "compost". Yeah, that's much better.

A sub-prime mortgage scandal sparked this and several thousands of homes are now sitting empty, unmaintained and going down in value. So now, suddenly, because these sub-prime mortgages are sitting in some drawer somewhere in Washington, the value of an unmaintained house is supposed to skyrocket?

Using the same logical deduction, I should create an entity called "Bad Jay". I would then transfer all of my debts to "Bad Jay" which would boost my net worth...yeah right.

There is not enough money in the world to buy up the toxic assets. What is proposed would be like making a couple hundred dollar credit card payment on a 20K balance.

And what kind of job would you need in order to be confident to go out and borrow some money anyway? Auto-worker? Retail manager at Sears? Builder?
Mortgage broker? Real Estate Broker? Microsoft engineer?

The only ones that will be left that can afford credit are government workers and they are all getting new cars anyway.

http://www.cnbc.com/id/28935523 - best job in the world

Look up "resolution trust corp" ...

Linky:
http://en.wikipedia.org/wiki/Resolut...st_Corporation

The situation was a little different tho. The thing is, currently these assets are mostly good... but with a fraction of assets that just can't be valued. With that problem, the entire package is nothing but an opaque ball of trash. Nobody will buy it because they don't want to be the one buying all of the toxic garbage.

What they need to do is go thru and tear open the asset packages and do individual analysis of each mortgage. Basically do the underwriting they didn't do before, and then re-package based on new transparent underwriting criteria.

Until that happens very few institutions will have the cash to invest in mortgages. Which means while we may want to buy a house that's come down 30% in price over the last year, nobody will finance us. So unless we can buy it in cash (which isn't likely for most)... there's going to be a lot of unsold houses on the market. That's an exponential, rather than linear, problem. The decline in price (and related instability) is exponentially proportional to the number of houses on the market, so the more you have... the worse it gets squared. If we fix that problem tho, the number of unsold houses on the market will decrease and the price of homes will go up. Inversely, the improvement will be exponential too.

We do NOT need to buy these assets in order to do this. We just need to pass a law that assumes regulatory control over packaged mortgages, and requires that they meet certain transparency and disclosure requirements. Then establish an organization that aides banks in doing this. After all of the assets have been properly valued we'll have an exact figure for "bad mortgages" and can proceed accordingly. Unless it's a huge number (over 10%) there's no need for the gov't to buy any at all... just write them off and move on.

This whole entire stupid crisis could've been averted if we had done this in January of 08. But instead we have morons at the helm, Hank Paulson was asked if he had any numbers on this stuff... he said no, he hadn't even bothered to do the math. They're lazy, they don't want to do the work, and they're just trying to throw money at it hoping it'll go away. It won't. It's like watching a bunch of spoiled whining kids "but I don't wanna do the dishesssssssss!"

The reason the mortgage market dropped out is because nobody can value mortgages properly. Fix that problem and the market can then value these things properly and we can all get back to business.

This whole entire disaster is due to having idiots at the helm. Our last administration believed gov't was best when it governed least, and to prove that point it would govern the worst it could. Well ignoring the problems didn't make them go away. It's like cancer, if you catch it very early on your prognosis is good, if you wait till it's in the 3rd stage then you're toast. We're in stage 2 right now, the cure is going to be very painful.

Interesting read on the Wiki article. Thanks for that.

I love the cancer analogy. So true.