The US State Credit Responsibility Elimination We (they) Demand Updated

I will refer to it as the U.S. SCREWeD bill for short.  I know it is a stretch for the name - the creative juices don't seem to be flowing tonight.  I am concerned about the direction our country appears to be heading.  The United States is looking more like the communist states we all love to hate.

So how much debt are they trying to get us to swallow?  The flavor of the day is $700,000,000,000 (thats B for Billion) to one trillion dollars.  Maybe even more.  That is a lot of zeros.  For example:

• A million seconds ago was 11 days - The ECU Pirates were still undefeated and Hurricane Ike was about to slam into Galveston Texas.
• A billion seconds ago was 31 years - Apple Computer was formed - not many people in the world had this thing called a personal computer.  Jimmy Carter had just been elected President.  Aerosmith had a hit single called Walk this Way - So did Captain and Tennille with Muskrat Love.  I still don't understand why that song was a hit.
• A trillion seconds ago was roughly 31,600 years ago.  Scientist believe the last of the Neanderthals were dying off - (think of the Geico Caveman without the nice clothes). If you stacked one trillion dollar bills - the pile would be over 67,000 miles high or one quarter the way to our moon.

The details are still sketchy - I am going to simplify things in figures most of us can really understand.  The dollar bill.

• Banks took a dollar and loaned it to Dick and Jane to buy a house.
• The banks bundled the dollar loan with a bunch of other dollar loans and sold them to investment banks in the US and abroad.
• Firms such as Lehman Brothers and Bear Stearns (remember them - they were so last month) bought and traded those securities that were now worth $1.15 each.
• Subprime mortgages were a little riskier (which means higher profit margin) started to fail.
• Values dropped quickly - investment firms spent $1.05  to buy the loan but could only sell the loan for 80 cents.
• Trouble spread to Conventional loans - think Fannie and Freddie.  A huge bailout that nobody seems to even care about now.
• Firms have tons of cash tied up in securities they can't afford to sell. 
• Markets react to worries and the value of the securities continues to drop.  Massive bleeding and no band aids. 
• The markets are so scared that nobody wants the bundled $1 loans for what they are truly worth today (around 75 cents).  They are trading at 50 cents - values that reflect a market in much worse shape than what we are in. 

The government is proposing to the Congress (and the public) to allow them to buy the securities and hold on to them long enough for the markets to bounce back.  The question I have is how much are they (really we) going to pay for that $1 loan that is now worth 50 cents.  If they offer 75 cents, the banks still lose at least 25 cents.  Or do they offer the full $1.05 and a get out of jail card to Wall Street.  I am sure the devil is in the details and we should all know more by the end of the week. 

Update:  I found a great article on the Mortgage Insider about how the plan could actually work.  The article quotes Bill Gross from Pimco and below is an excerpt and the key to this possibly working:

Q. But how can the government make money if Bernanke is saying the government will pay above market prices for the assets in order to recapitalize the banks?

A. “He is right,” Gross said. “There is this delicate balance.”

Gross said the government must find the right price between the market value of the assets they are buying and the value they have on paper at the banks holding them.

As an example, Gross said Pimco recently paid 65 cents on the dollar for a pool of mortgage-related assets. He said distressed loans and securities can trade anywhere from 20 cents on the dollar to 80 cents on the dollar, but 65 cents is a good benchmark.

Pimco expects to earn a double-digit return on its money for the 65 cents on the dollar it paid. The trick for the government is to find the right price between 65 cents and 100 cents on the dollars. The closer it gets to 100 cents on the dollar, the better banks will like the deal. But the closer it stays to 65 cents, the better for taxpayers. Gross said government must be careful and find the best compromise price, which means taxpayers will not lose money and may earn a profit.

Gross said 65 cents on the dollar assumes as many as 30 percent of the loans being purchased will end in foreclosure, and for every home that ends in foreclosure the investor gets as little as 40 cents on the dollar.

“It’s certainly possible if done right for the Treasury to make money for the tax payer,” Gross said.

 

Saw a funny offer today:

SUBJECT: REQUEST FOR URGENT BUSINESS RELATIONSHIP

DEAR AMERICAN:

I NEED TO ASK YOU TO SUPPORT AN URGENT SECRET BUSINESS RELATIONSHIP WITH A TRANSFER OF FUNDS OF GREAT MAGNITUDE.

I AM MINISTRY OF THE TREASURY OF THE REPUBLIC OF AMERICA. MY COUNTRY HAS HAD CRISIS THAT HAS CAUSED THE NEED FOR LARGE TRANSFER OF FUNDS OF 800 BILLION DOLLARS US. IF YOU WOULD ASSIST ME IN THIS TRANSFER, IT WOULD BE MOST PROFITABLE TO YOU.

I AM WORKING WITH MR. PHIL GRAM, LOBBYIST FOR UBS, WHO WILL BE MY REPLACEMENT AS MINISTRY OF THE TREASURY IN JANUARY. AS A SENATOR, YOU MAY KNOW HIM AS THE LEADER OF THE AMERICAN BANKING DEREGULATION MOVEMENT IN THE 1990S. THIS TRANSACTIN IS 100% SAFE.

THIS IS A MATTER OF GREAT URGENCY. WE NEED A BLANK CHECK. WE NEED THE FUNDS AS QUICKLY AS POSSIBLE. WE CANNOT DIRECTLY TRANSFER THESE FUNDS IN THE NAMES OF OUR CLOSE FRIENDS BECAUSE WE ARE CONSTANTLY UNDER SURVEILLANCE. MY FAMILY LAWYER ADVISED ME THAT I SHOULD LOOK FOR A RELIABLE AND TRUSTWORTHY PERSON WHO WILL ACT AS A NEXT OF KIN SO THE FUNDS CAN BE TRANSFERRED.

PLEASE REPLY WITH ALL OF YOUR BANK ACCOUNT, IRA AND COLLEGE FUND ACCOUNT NUMBERS AND THOSE OF YOUR CHILDREN AND GRANDCHILDREN TO WALLSTREETBAILOUT@TREASURY.GOV SO THAT WE MAY TRANSFER YOUR COMMISSION FOR THIS TRANSACTION. AFTER I RECEIVE THAT INFORMATION, I WILL RESPOND WITH DETAILED INFORMATION ABOUT SAFEGUARDS THAT WILL BE USED TO PROTECT THE FUNDS.

YOURS FAITHFULLY MINISTER OF TREASURY PAULSON

I found another interesting graphic that really shows the amount of damage that has already been done.  Good night - I am out.

Comments

[Colleen]

Man, I've missed you. Thanks for the great info, and the smile!