The $700 billion bailout debate began in earnest yesterday. There is much to consider - the amount of the bailout, the wisdom of risking tax payer money to bail out the market, the inclusion of foreign financial institutions, the details of what loans can be purchased, what form the purchasing agency will take, how long the agency will last, the need for and the type of tax payer safeguards.
What is being debated though is additional provisions.
This bill needs to be focused, quick, simple.
Presidential candidate Obama says, "Swift and unprecedented action to shore up Wall Street must come alongside equally swift and serious efforts to help struggling families on main street, create new jobs, and grow our middle-class once more."
Frankly, Presidential candidate Obama is still a Senator. He can introduce any legislation needed to shore up main street that he feels is necessary, but this bill needs to be clean and quick.
The Housing and Economic Recovery Act passed in July was loaded down with excessive legislation. It was much too large for anyone to know what was included into the law.
This bill should not be weighed down with excess. It is a simple.
One idea is to provide warrants for equity in institutions that would receive these bailout funds. That would seem to me to be a deterent for institutions to participate. It seems to cloud the measure, and lead to the US nationalizing commercial entities.
Choices that financial institution would have in dealing with these assets.
- negotiate their own modification
- negotiate short sale
- foreclose
- sell to this bailout agency
Likely, if warrants are required to sell to the bailout agency, then foreclosing is a better financial decision for the institutions.
My understanding of the plan is that the purchases would not enrich the coffers of Wall Street. These debts would be purchased at a discount, giving a significant loss on each sale.
The program is just to purchase assets, at this point not just mortgage assets. These assets have value, and should at some point become liquid again. The federal government is in the best position to modify these assets in such a way that they can become performing assets.
This plan is to restore liquidity to the global economy, by removing underperforming assets. Foreclosures will be stopped, not by extra legislation, but by loan modifications making payment affordable.
Treasury fact sheet for bailout.
Richard Smith
American Acceptance Mortgage, Inc
Toll Free 888-474-9920 Cell 423-280-0345
Home financing in Tennessee, Georgia, and Alabama.
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Richard this is a good blog and raises as many questions as it answers. However this is well thought out and I enjoyed reading it. Thanks
Richard: Great article - Will reblog it on my blog. The topic does raise significant questions, like stop talking Congress and do something if you are going to. Let's not let this be a political issue to win votes during an election year - Just TAKE ACTION, quick, simple and decisive!
Great Blog ,,,, I am not exactly sure what will happen in the future ,,,, Hopfully the new President and his Buddys will make the nessary change ,,,,
Do you belive that ?
Just kidding ,
OOHOHO ,,,,,, What president will get the blame for all the Banking stuff that is happening ,
Possible me ? The Mortgage consultant from Hawaii ? but ,,, I dont understand , None of my Costumers are in foreclosure?
Who is to blame ? Broker i guess , hahaha
Richard,
Don't forget the earmarks and the added provisions. Can't have a bill that just addresses the speciifc need. It has to be far-reaching and cover much more ground.
Steve
Richard.. Great post... It will be very interesting to see the over all out come of this bail out
Richard, so far, I am not pleased with what I am hearing. Instead of surgical, we are going to get the same old shotgun approach from our congress critters.
Listening to the discussions intermittently on the radio. The concerns seem to be
add measures to help foreclosures (not sure what, maybe a ban??)
add measures protect tax payers (such as warranties to purchase equity positions on lenders that are involved)
more details on the purchase program (the bill is very vauge)
oversight on who would be the new most powerful man in the world - Henry Pauson (sounds like a decent idea)
The debate on the specifics of the proposal seem well grounded. The debate on side agendas need, in my mind, to be part of another piece of legislation.
Richard
Richard,
Thanks for the post. I would agree that we need to move forward with the core legislation and addres the sides issues subsequently.
William,
The side issues are important, but I think they can stand on their own, as should the debate on this bill.
I wish that were standard operation for all legislation. I wonder how much would be not be spent if each piece of legislation were voted on its own merit.
Richard
I haven't seen anyone discuss the cost to he banks. It would seem to me that the banks would pay the Fed Funds Discount rate on loans sold to this entity as well.