One bill out. Another one coming up soon. Interesting times.

The Maggie Mae option is basically saying that the market will find a price for these securities. That is not happening. There is no market for MB securities. Which is why the bailout fund needs to be set up.

A reverse auction that finds a price at which the securities can be sold is not “rigged”.

We’ll have to see what the final bill contains, but yes, there is a good chance that in helping people deal with the difficult situation of losing their homes, we will end up rewarding some people who were living beyond their means. A different kind of a bailout, if you will.

There is no question that the economy is going to take it on the chin. And be down for a good part of the count.

The problem with that is that Maggie Mae will be incentivized to pay lowest dollar, which does not help current banks. Banks need the cost to be higher than current bids. And there are current bids from the likes of John (not Hank) Paulson who have raised distressed asset funds.

SInce the price paid will be on a rigged reverse auction basis, there is no chance that the bottom dollar will be paid. Thus, a bailout, but of the banks involved.

What the current bill does is adds serious guarantees and capital/comp limits, which does not help the banks or the bankers. The “bailout” may only help the institutions into a situation not worse than today, but not much better off. Even with the $700 b, nothing much is likely to change - prices of homes, for instance, are not going up. That in itself is a guarantee that what is currently distressed will stay distressed, or go completely down. Even with a mortgage modification - principal or interest - it is unlikely that someone who is 20% underwater will jump at the opportunity.

And this time, the person takign the hit is the government, a non profit organisation who doesn’t really want to foreclose…so why bother paying your mortgage if the government will do whatever it can to defy foreclosure? I think we all underestimate the level of moral hazard this bill has created.

Recession is a given, in my opinion. Perhaps a very deep one . The average Joe will not like it, either ways - and that includes even the average Deepaks in India.

How noble can be the objective of (re)creating market for paper that’s issued on fallacies (like housing market will always go one way, that’s up)? The paper got soggy because it was built on wobbly foundations of marshlands. It met with its destiny. That’s about it.

How will Hank Paulson justify the selective application of bailout? While Lehman Brothers is allowed to founder, Bear Stearns, Merrill Lynch and the FM twins get rescued. Why? Is it because Lehman Brothers did not demonstrate a genius for screwing up? No. Perhaps, the lucky others that qualified for the bailout were too”Chinese” to slip through the cracks?

Financial intermediaries like Bear Stearns and the FM twins function like the heart of the global financial system. If they go into cardiac arrest, the whole body is in danger. Since Bear Stearns was a counterparty to (and guarantor of) trades and financial arrangements with the world’s major financial players, its failure would have triggered a cascade of losses. In the same vein, huge quantities of the $5.4 trillion in debt issued and insured by FM twins sit on the balance sheets of central banks and financial institutions around the globe. For the U.S. government simply to let this debt — which it had been implicitly backing for decades — go bad would have meant inflicting severe damage on America’s most significant diplomatic and trading partners. Fannie Mae wasn’t too big to fail, it was too Chinese to fail.

Paulson can go down a hundred times before Ms.Palosy with folded hands. But average Joe won’t fall for Catholic gimmicks – for he trusts no one now. He’d like to get a life!

It is really a great piece of suggestion for “Joe Concerned Citizens” = American Citizens.

I really wonder what will be there for “Common Man Pathetic Citizen” = Indian Citizens: with the policies, economic “sanction/taxes” of our Harvard educated ministers coupled with the mentalities of our great leaders.

Reason: I am stunned with the fall of Lehman: a company which survived the great depression in early 20th century, two world wars, recent bubble in Y2K, but could not handle this one. And it is no secret that when America sneezes, normally the world catches cold and India can not be immune.

I have read the earlier one - Fog of Economics, but they just do not work now. Labor reform is still a pipe dream even without the Communists at the center! Simplifying things is not in the mind of our leaders - created a Saral (Simple) form to file taxes earlier which is actually complex,moving into fancy ITR types now! People are not actually involved in any decision making at all, rather they are bombarded with hoopla and emotionally charged dramas (=Singur).

I really wonder what will be the current impact of this crisis and above all, what “practical” changes can be done to educate the masses – considering dismantling License Raj was a miracle, education is not of prime importance in many regions of India, politicians have started dividing the nation based on language, caste, ethnicity and of course people with some money (= middle class) have closed their soul long back based on “moral” grounds.

Of course we will still come out of it, like we have done earlier = DO NOTING! But depression is cyclic, and it will be much much harsher in the coming years when India opens up further to the world.

Or leaving for the “still greener pastures” (= the US and other developed countries, short term or long term) is the only solution - like many had done before, doing now or will do in future ???

http://www.informationarbitrage.com/2008/09/transparency-on.html

Chris Cox of the SEC is one gentleman who is getting away big time in all this. Banks that are going belly-up have all built up ginormous amount of leverage all under his watch (Goldman’s Nov 2007 leverage was close to 25:1). Early containment of excessive leverage could have restricted the spread of the disease.

An interesting question to ponder is whether having these derivatives traded on an exchange might have resulted in better (public) pricing and hence liquidity compared to what has happened because they were all OTC.

Sincerely
Subrata

I am also not sure if the follow-up action by lawmakers will come through. They might just go back to their pork-barrel days. Especially, if McCain (good man BTW) gets elected, he might have to return some favors to the big money.