The Second Coming (of bailouts)

[TheMercenary]

Dec. 30 (Bloomberg) -- To close out 2009, I decided to do something I bet no member of Congress has done -- actually read from cover to cover one of the pieces of sweeping legislation bouncing around Capitol Hill.

Hunkering down by the fire, I snuggled up with H.R. 4173, the financial-reform legislation passed earlier this month by the House of Representatives. The Senate has yet to pass its own reform plan. The baby of Financial Services Committee Chairman Barney Frank, the House bill is meant to address everything from too-big-to-fail banks to asleep-at-the-switch credit-ratings companies to the protection of consumers from greedy lenders.

I quickly discovered why members of Congress rarely read legislation like this. At 1,279 pages, the “Wall Street Reform and Consumer Protection Act” is a real slog. And yes, I plowed through all those pages. (Memo to Chairman Frank: “ystem” at line 14, page 258 is missing the first “s”.)

The reading was especially painful since this reform sausage is stuffed with more gristle than meat. At least, that is, if you are a taxpayer hoping the bailout train is coming to a halt.

If you’re a banker, the bill is tastier. While banks opposed the legislation, they should cheer for its passage by the full Congress in the New Year: There are huge giveaways insuring the government will again rescue banks and Wall Street if the need arises.

Nuggets Gleaned

Here are some of the nuggets I gleaned from days spent reading Frank’s handiwork:

http://www.bloomberg.com/apps/news?p...d=a48c8UpUMxKQ

[TheMercenary]

And more money for our now Nationally owned GMAC. Yea, our country needs to control companies through ownership of stock. That is what we are all about now, right?

Treasury to dole out $3.8 billion to GMAC, raise stake

WASHINGTON (Reuters) - The U.S. is injecting another $3.8 billion into GMAC Financial Services to help cover mortgage losses, in a bailout that makes the government the majority owner of the auto and home finance company.

http://www.reuters.com/article/idUSTRE5BT06O20091230

[xoxoxoBruce]

Are they helping GMAC or are they helping the people with those loans by allowing GMAC to be flexible with the repayment schedules?

[TheMercenary]

Good question. But now that we are majority owners we can ask them.

[tw]

Originally Posted by TheMercenary

Treasury to dole out $3.8 billion to GMAC, raise stake

Want to see how large GM's money games were? GM mortgaged everything possible over the past 30 years to claim profits and to protect their "largest automaker" title. Money games made legal due to America's defective accounting practices - because profits are more important than products.

Where are those GM customers over the last two years praising their purchase of GM products? Why so much silence?

We are now only just beginning to pay the price for 30 years of crappy and anti-American products. GMAC was only one 'money pit' from which GM invented profits.

How much has GMAC taken? Is it something like $13 billion? And the $20 billion that GM shorted the pension funds (see PBGC). $10billion for health care funds. How many tens of $billions did the government also give for that 61% ownership?

Where was everyone back before the Cellar even existed when I cited GM's obviously crappy products that now make bailouts necessary? Yes, for as long as there has been a Cellar, I have been overtly critical of GM products and those who bought them - even while I worked there.

Someone still has to explain to me why banks are making profits when 14% of this nation's home mortgages are in default (and not in foreclosure). Numbers still do not reflect reality. But then that is why MBAs always get promoted at the expensive of innovators and other product people. That is why George Jr also lied so often. For those who did not know - George Jr was also an MBA.

For some reason, I suspect that others here finally appreciate what I have been saying all along. What's a billion here and a billion there? Nothing until the bills come due four and ten years later. GMAC is simply another example of how we are averting debts that GM has fostered upon all of us – so that management could rake in massive bonuses.

What is the purpose of a company? Profits – especially to top management – no matter how much it screws America. What is good for GM is good for America. That also came from business school graduates.

[tw]

Originally Posted by xoxoxoBruce

Are they helping GMAC or are they helping the people with those loans by allowing GMAC to be flexible with the repayment schedules?

A large part of GMAC's portfolio is home mortgages. Nationally 14% are in default. And do not yet appear on spread sheets because so few foreclosures have started. Despite so much openly declared transparency, the accounting standards continue in a 'business as usual' mode. We do not yet know how bad GMAC really is. It may be so deep that bankruptcy was no longer an option.

We still don't know even how bad AIG was in 2007 - according to their own top management. Executives at 70 Pine knew even that long ago that AIG was on the verge of toppling. They said nothing. And still put forth rosy spread sheets - because "He makes the spread sheets say what they have to say".

Finance people must be some of the most regulated people in America. They are taught even in school to be corrupt - because profits are more important than anything else.

We still don't know how deep this GMAC mess will be because accounting problems exposed by Long Term Capital Management and Enron ten years earlier were ignored - first by the American accounting industry and then by political agendas that did not know how bad (deep) this problem was.

[classicman]

Originally Posted by tw

Where was everyone back before the Cellar even existed
when I cited GM's obviously crappy products that now make bailouts necessary?

Huh?

[SamIam]

What I want to know is now that Taxpayers have become unwilling owners of GMC, will be allowed to vote in shareholder's meetings? Will we get dividends like other stock holders. Can we sell our shares if we don't like the way GMC is doing?

[classicman]

dream on ...

[tw]

Originally Posted by SamIam

What I want to know is now that Taxpayers have become unwilling owners of GMC, will be allowed to vote in shareholder's meetings?

We own the mutual fund. The fund manager already threw out Rick Wagoner for painfully obvious reasons.

Unfortunately, the Chairman who is current in power was previously from AT&T. Enought to worry. Not enough to make a conclusion.

[TheMercenary]

The Obama administration’s $75 billion program to protect homeowners from foreclosure has been widely pronounced a disappointment, and some economists and real estate experts now contend it has done more harm than good.

Some experts argue the program has impeded economic recovery by delaying a wrenching yet cleansing process through which borrowers give up unaffordable homes and banks fully reckon with their disastrous bets on real estate, enabling money to flow more freely through the financial system.

“The choice we appear to be making is trying to modify our way out of this, which has the effect of lengthening the crisis,” said Kevin Katari, managing member of Watershed Asset Management, a San Francisco-based hedge fund. “We have simply slowed the foreclosure pipeline, with people staying in houses they are ultimately not going to be able to afford anyway.”

The Treasury Department publicly maintains that its program is on track. “The program is meeting its intended goal of providing immediate relief to homeowners across the country,” a department spokeswoman, Meg Reilly, wrote in an e-mail message.

But behind the scenes, Treasury officials appear to have concluded that growing numbers of delinquent borrowers simply lack enough income to afford their homes and must be eased out.

In late November, with scant public disclosure, the Treasury Department started the Foreclosure Alternatives Program, through which it will encourage arrangements that result in distressed borrowers surrendering their homes. The program will pay incentives to mortgage companies that allow homeowners to sell properties for less than they owe on their mortgages — short sales, in real estate parlance. The government will also pay incentives to mortgage companies that allow delinquent borrowers to hand over their deeds in lieu of foreclosing.

epic failure at a cost of billions to the American Taxpayer.....

“Are we creating a program in which we’re talking about potentially spending $75 billion to try to modify people into mortgages that will reduce the number of foreclosures in the short term, but just kick the can down the road?”

My point exactly.

http://www.nytimes.com/2010/01/02/bu...modify.html?em

[classicman]

Whats the alternative? We cannot just kick all these people out on the street and the rental prices are not as favorable as one might imagine.
IIRC, the rental prices have actually increased recently, further limiting options.

Is this the lesser evil choice? I've wondered, but don't know of a viable alternative.

[TheMercenary]

So where does it end? You get in over your head you get out on your own. Move to an apartment. Do what ever you have to do. But expect the government to continually bail you out over and over year after year?

All we are doing is delaying the inevitable. Many of these people are just not going to make it.

[classicman]

Originally Posted by TheMercenary

All we are doing is delaying the inevitable. Many of these people are just not going to make it.

and . . . whats the next step? Where do they go? What do they do? Whats the plan?

[xoxoxoBruce]

Originally Posted by TheMercenary

So where does it end? You get in over your head you get out on your own. Move to an apartment. Do what ever you have to do. But expect the government to continually bail you out over and over year after year?

All we are doing is delaying the inevitable. Many of these people are just not going to make it.

Two reasons they can't make the mortgage payments.
1- the interest rate skyrocketed.
2- they are unemployed.
I wonder how the people in trouble divide up?

You're right, in that the corporate balance sheets have to be squared away, to get the business of business back on track more quickly. Although evicting those people leaves the banks with more empty houses that aren't selling, so they are still short on cash. On the upside more empty houses means more opportunities for the homeless to hunt and gather copper and aluminum. Oh crap, that will make my empty cans worth even less.

But like classic said, what are you going to do with families where the breadwinner is out of work, and will be for awhile? Let them be hunter/gatherers? Now the kids can't go to school because they don't live in the district. But the schools might not be there anyway without the tax revenue. Oh, maybe that's what those secret government camps are for? Well, fuck 'em, as long as we're doing OK, eh?

Wait, there's a third group. The three quarters of a million that are bankrupted by medical bills every year. There is hope there though, I mean they're already sick, maybe some of them will die. Then the spouse and kids can, uh, do something. But I Hope they don't wander the streets, jaywalking and shit... that would slow me down.
Hmm, there's lots of room and a milder climate down south... maybe give 'em free railroad tickets, after all we own it... Hmm.