What are the “risky assets” worth?
This is the 700 billion dollar question that no one has answered.
Repeatedly I have heard the Secretary of the Treasury say that no one knows what these assets are really worth since they are bundled into complicated packages. Yet, he wants to buy them with 700 billion dollars that will have to be borrowed which will increase the National Debt. The question is how much are they worth?
The two most recent batch of “toxic assets” were sold at a fire sale for 22 cents on the dollar and 27 cents on the dollar. Mark Souder said on WOWO that he talked to a local banker who felt that in general toxic assets are worth 95 cents on the dollar.
I am not sure what they are worth and the truth of the matter is that each batch of “toxic assets” would have to be individually valued and the valuation will be very difficult.
That being said there is no way these “toxic assets” are worth 95 cents on the dollar and I will show you why.
Alternate House bailout plan from a few Democrats
A few House Democrats have unveiled an alternative plan to the “socialist” 700 billion dollar bailout. This plan is not perfect; however, it is much better then the plan the Bush Administration and the Democratic and Republican leaders of Congress came up with. Far better.
1. For financial institutions require the Securities and Exchange Commission (SEC) to require an economic value standard to measure the capital of financial institutions rather then using mark-to-market accounting rules. I feel the wording on this would have to be tightened up; however, it would work.
2. Require the Securities and Exchange Commission to restricting naked short sells permanently. I think I am in favor of this; however, I would have to research it further.
3. Require the Securities and Exchange Commission to restore the up-tick rule permanently. I think I am in favor of this; however, I would have to research it further.
4. This bill will require FDIC to implement a net worth certificate program. The FDIC would determine banks with short-term capital needs and the ability to financially recover in the foreseeable future. For those entities that qualify, the FDIC should purchase net worth certificates in these institutions. In exchange, these institutions issue promissory notes to repay the FDIC, counting the amount “borrowed” as capital on their balance sheets. This exchange provides short term capital, with not cash outlay. Interest rates on the certificates and the FDIC notes should be identical so no subsidy is necessary.
Participating banks must be subject to strict oversight by the FDIC including oversight of top executive compensation and if necessary the removal of poor management. Financial records and business plans should be subject to scrutiny while participating in the program.
This provision is not something I would normally favor; however, it is far better then purchasing 700 billion dollars of risky assets that no one wants. I think this is an interesting idea and I think it could work.
5. Increase the FDIC limit from $100,000 to $250,000. I am in favor of this as long as the fees are increased to keep the fund solvent.
This solution comes from a few House Democrats. It is not the plan I would choose; however, it is “head and shoulders” better then the “socialist” 700 billion dollar bailout bill that the Bush Administration along with the Democratic and Republican leadership came up with.
I hope the conservative House Republicans come up with a plan soon as well.
The Democrats who came up with this plan should be congratulated because they came up with something far better then the bill that was voted on yesterday in The House.
I still cannot believe the “rush to judgment” that the Bush Administration along with Democratic and Republican leaders in Congress insisted on. It is just mind boggling.
Mike Sylvester
More on Mark Souder
He has a radio interview on WOWO that you really should listen to. I am not sure how long WOWO will keep the link up for, so I suggest you listen to it soon.
Some highlights (My comments are in bold):
Mark Souder did not think the bailout vote would be brought to the floor unless they had enough votes to pass it. Either he was wrong or people changed their votes.
Mark Souder said there was “minimal risk and taxpayers may come out ahead.” This is laughable at best.
Mark Souder said that “most people believe assets are 95 cents on the dollars. Warren Buffet is buying at 60 cents on the dollar. I would like to meet some of these people that believe that the risky and bad mortgages the bailout would direct the Treasury Department to buy are worth 95 cents on the dollar. Mark Souder is the first person I have heard say that. Please realize that some of these baskets of bad mortgages have greater then 50% of the homes in foreclosure already. There is no way that all of these mortgage assets are worth 95 cents on the dollar. There is also no way that the average value of these bad assets are worth 95 cents on the dollar either. If they were worth 95 cents on the dollar the banks would not be in the situation they are in.
Mark then went on to say that he supports the bailout because he wants a “Recession not a Depression.”
Later in the radio interview Mark Souder clarified that his figures (60 cents and 95 cents described above) were based on a local banker who in turn made them up since no one really knows what these assets are worth. I doubt that any local banker could possibly believe that a portfolio consisting of sub prime or alt-A loans that was written in 2005 or 2006 and had 50% or more of the houses in foreclosure could possibly be worth 95 cents on the dollar. I would believe that a banker MIGHT beleive that SOME of the baskets of bad loans are worth 95 cents on the dollar. If he does believe that the bad mortgages and loans that the banks want to get rid of are worth 95 cents on the dollar; I hope my money is not deposited in that bank!
I do not think Mark Souder is a fiscal conservative. I do not think he believes in smaller Government. I do not think he understands the value of sub-prime and alt-A loans that are bundled together.
Mike Sylvester
Mark Souder - How Much Longer?
Mark Souder voted for the failed $700 Billion Wall Street bailout on Monday which doesn’t come as much of a surprise to me but his logic is a little odd:
Indiana Third District U.S. Representative Mark Souder says his office has received approximately 800-calls in the last 48 hours, and that “hardly anybody” wants him to vote for the bill.
Nonetheless, Souder feels that some type of package is needed, although he’s not sure it’s the one on the table. “I don’t necessarily think it has to be $700-billion and I don’t necessarily agree that it has to be done tomorrow,” Souder said.
“We’ve already seen multiple bailouts,” he said. “We’ve already taken over Fannie Mae, and Freddie Mac, we’ve already taken over 80-percent of A.I.G. Now they’re coming back with this, and the question is hey, explain this a little better than you’ve been doing. We’re tired of writing blank checks.”
Uh? In the real world votes matter and not political rhetoric. Surely I’m not the only one sick of his hedging by saying one thing and doing another. I mean if you support the damn bailout then just say so but stop treating us like we’re all a bunch of easily-misled automatons.
We get it Congressman. We understand that you’re no conservative and have consistently voted throughout your career to increase our national debt and the role of government in general. We understand that you were for term limits before you were against them.
We understand that you’ve become a typical career politician scared to move back into the private sector where you might have to actually earn your keep. We understand that after 12 years in the majority you couldn’t gain traction with the party leadership and thus never achieved any clout.
We get it. I think Republicans also understand, or at least some do, that the best way for them to get better representation is not through the primary process. No, their best chance is to send him packing now and regroup for 2010 with a fresh, and likely better, candidate. Sometimes, when the dog is painfully sick with no hope of recovery, you have to do the humane thing.
Congressman Mark Souder? How much longer…
Harper Tops First FWP Poll - Mayor Henry’s Approval Up Next
Our first poll asked which member of city council readers found the most impressive thus far. The results were interesting:
| Harper | 25% |
| Brown | 20% |
| Goldner | 17% |
| Didier | 14% |
| Pape | 11% |
| Smith | 7% |
| Shoaff | 3% |
| Hines | 3% |
| Bender | 1% |
I think we’ll continue doing polls and see how it works out. Please take 2 seconds to answer our latest polling question regarding mayor Tom Henry’s job approval…
Crybaby Republicans
I have never seen such a laughable argument as the one being made by the Republican House leadership - specifically John Boehner. If you don’t know what I’m referring to then you can read Mike Sylvester’s post or I’ll summarize it for you:
The bailout bill failed the house vote today because Nancy Pelosi was too mean to the Republicans. Sounds like the whiny response of a local newspaper editor I know.
I’m not making this up. Republicans claim that 12 of their own switched their vote, conveniently the exact number needed to pass the bill, because Speaker Pelosi’s floor speech was mean. Is that really the narrative they want to use here - that they’re a bunch of crybabies?
You don’t base your decision for the most serious vote since the Iraq war on whether or not somebody said something mean to you. That’s not what somebody with conviction does - that’s what a political coward does. This is serious business and the American people deserve congressional representation that is willing to make the hard decisions and vote their conscience.
I guarantee you that the leadership won’t release the names of the “Crybaby 12″ because they don’t exist.
Here’s the truth. Boehner is completely ineffective and couldn’t deliver the necessary Republican support to pass the bill. Instead of admitting that perhaps the bill had issues that he simply couldn’t reconcile with the conservative caucus he chose the cowards play - blame it on Pelosi.
I doubt there’s a single person on this planet that honestly believes this bill didn’t pass because of Pelosi was a meany. If they do then they also have to admit that those Republicans are conviction-less sissies that aren’t fit to serve the people they purport to represent. Below the fold I’ve linked to video of Democrat Barney Frank’s response to this ridiculous talking point.
One more issue that must be addressed. In a separate post Sylvester suggested that Pelosi was looking for “political cover” to pass the bill. The truth is she didn’t have the votes and she knew it. Furthermore any solution must be bipartisan to inject the necessary confidence into the markets that the bill attempts to achieve (whether or not it’s a good idea is certainly a different argument).
I think the result of today’s vote unambiguously shows the “political cover” argument to be wildly off the mark.
Nancy Pelosi likely “sinks” bailout Bill while trying to get it passed
Before the massive bailout vote occurred Nancy Pelosi asked for one minute to address the House. She instead took over five minutes and delivered a vicious, in-accurate, partisan attack on Republicans in general and the Bush Administration in particular. She delivered this speech before a vote she considered critical and that she has repeatedly said must pass and in fact she has repeatedly said that it must pass and the she insists on having 80 - 100 Republicans vote for it because she did not want the bailout bill to be “blamed” on Democrats.
Many people, myself included, feel that Nancy Pelosi likely irritated enough Republicans to where the vote failed.
Realize that Nancy Pelosi did not ensure the bill failed on purpose, she just made such a partisan and inaccurate attack that she killed it by accident.
I am glad that she irritated many Republicans and killed this “socialist” bill.
I first heard the audio from Nancy Pelosi’s speech today on the Pat White show on WOWO.
I am not a historian; however, I think it very likely that Congressional History was made today. I imagine it is the first time that a high profile bill has failed that had the support of:
Socialism temporarily averted in spite of Nancy Pelosi
Thank goodness the House of Representatives voted the “700 billion dollar Wall Street Bailout” down by a vote of 227 to 206.
I cannot wait to look at the exact percentage of Republicans vs Democrats against the bill. There is no doubt that some “big Government” Republicans voted for the bailout; however, a size-able number of fiscally conservative Democrats voted against this monstrosity.
Nancy Pelosi was so desperate to pass the bill that she held the vote open past the allowed time frame and she immediately started trying to “twist Democratic” arms to force passage of this bill. She only got two Democrats to switch after time expired.
Do you remember Nancy Pelosi and her promise to run “The most ethical Congress in History?”
Maybe Nancy Pelosi thinks it is ethical to hold votes open past the allowed timeframe so that she can “lean on” Representatives in order to “convince” them to change their votes.
Nancy Pelsoi is an embarassment to the Democratic Party.
THIS POST WAS UPDATED AT 7:06 PM. PLEASE READ THE POST
I think that ABOUT 80% of Republicans voted against the “bailout” along with ABOUT 25% of the Democrats.
Tonight after work I will analyze the vote and put up more accurate information concerning the vote.
This morning Mark Souder said on WOWO he was planning on voting for the “bailout.” It will be interesting to see if he voted for it or against it. My guess would be that he voted in favor of it since he is a “big Government Republican.”
Mike Sylvester
700 billion dollar bailout
I have had three readers contact me and ask me to explain why I feel both Republicans and Democrats are at fault in this crisis.
As I wrote in a previous post I believe that the Republicans and Democrats share the blame for this mess. I still think reasonable people can argue about what exact percentage of the blame goes to each Party; however, the truth of the matter is both Parties contributed significantly to the problem.
Pretty much every economist agrees that the current financial crisis can be summarized as follows (They may not agree with my commentary in italics):
Nancy Pelosi has been an awful House leader
As readers of this blog know I have been extremely disappointed with Nancy Pelosi and the Democratic Congress. The Democrats swept to power on a platform of restoring ethics to Congress, ruling in a bi-partisan fashion, working harder, and getting the people’s work done.
By any-one’s measure except the most partisan Democrat they have failed to implement the above promises in the last two years.
Over the last couple of days Nancy Pelosi has shown herself to be more interested in politics and increasing her Democratic majority then in passing legislation that she believes must pass.
Per Reuters,
