Student Loans, Car Debt Quietly Added To Bailout

Bankruptcy Law not plastics, he said ... and then I fucked his wife Mrs. Robinson. I was The Graduate. :1orglaugh :thumb:

Student, car debt quietly added to bailout plan
Patrice Hill (Contact)
In the dark of night over the weekend when most people were snoozing, the Treasury dramatically expanded its bailout plan to include buying student loans, car loans, credit card debt and any other "troubled" assets held by banks.
The changes, which were included in draft language that also opened the bailout program to foreign banks with extensive loan operations in the United States, potentially added tens of billions of dollars to the cost of the program.
Although it was a major addition to what was already the nation's largest-ever bailout, it did not become part of the debate between Democrats and the Treasury over details of the program. A Monday counterproposal by Senate Banking Committee Chairman Christopher J. Dodd included such consumer loans as well as mortgages, just as the Treasury's draft did Saturday night.
"The costs of the bailout will be significantly higher than originally considered or acknowledged," said Joshua Rosner, managing director of Graham Fisher & Co., who charged that the Treasury and Federal Reserve have not been "forthright" about the ultimate cost to the public. The plan gives Treasury the discretion to buy the non-mortgage loans and securities in consultation with the Fed.
Conservatives cited the move as a sign that the massive plan to take over bad mortgage debt already is opening the door to further government bailouts.
"Such a large takeover by the government will surely be accompanied by adverse, unintended consequences," said Pat Toomey, president of the Club for Growth, a conservative advocacy group. "Already, other companies and industries are lining up at government's door asking for their own bailout."
Treasury Secretary Henry M. Paulson Jr. stressed that the additions were needed to ensure that student loans and credit cards - which have become indispensable to the spending habits and career plans of many Americans - do not become victims of the widening credit crunch.
Student loans, which Wall Street firms packaged and sold to investors just like mortgages, already were hit hard in the widening credit crisis earlier this year, with much of the private loan market disappearing. That forced the government to step in and beef up its direct loan programs for college students.
Many financial analysts feared that the credit card market would be the next domino to fall. Credit card debt also is packaged and sold to investors in complicated "derivative" securities that have become difficult or impossible to sell in recent months.
Investors are spurning the complex securities because they are worried about rising defaults in nearly every category of consumer loans, which reduce the value of individual loans and have made it hard to determine the value of pools of loans that back the securities.
Many of the unsellable loans have been sitting on the balance sheets of banks, forcing them to take losses and preventing them from making further loans.
Richard Berner, chief economist at Morgan Stanley, one of the investment banks that stands to benefit from the loan buyback plan, said the program will help ease frozen loan markets and ensure consumers continue to have access to credit.
"The Treasury proposal is crucial to the credit and risk-taking repair process," he said, predicting that plan will have "dramatic consequences" in helping to "renormalize" loan markets.
But some financial analysts were not sure whether the massive bailout plan will accomplish its goal of calming markets.
"The credit squeeze gripping the financial market won't disappear soon as a result of this program. Financial institutions will continue to hoard cash, raise credit standards and increase risk premiums" on loans, said Sung Won Sohn, economics professor at California State University.
Sen. Jim DeMint, a South Carolina Republican who announced his opposition to the bailout Monday, said he simply doesn't believe Mr. Paulson when he says it will solve the market problems.
"His predictions have been consistently wrong in the last year," he said. "It's a sad fact, but Americans can no longer trust the economic information they are getting from this administration. ... There are much better ways of dealing with this problem than forcing American taxpayers to pay for every asset some investor doesn't want anymore."

I kind of think bailout is a bit of a misnomer, I mean collection agencies and such buy and sell 'debt' and as I understand the language of some of that, essentially the Government is buying a lot of that debt. Correct me if I'm wrong, but nobody's mortgage is going to be magically paid, nobody's student loans are going to be mysteriously taken care of, all that is likely to change is who the collections are done by. I'm really not an economist by any stretch, but isn't it just a Government asset grab, being paid for with newly printed money, likely to simply devalue the dollar further in the long run?

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Originally Posted by ForrestBlack

I kind of think bailout is a bit of a misnomer, I mean collection agencies and such buy and sell 'debt' and as I understand the language of some of that, essentially the Government is buying a lot of that debt. Correct me if I'm wrong, but nobody's mortgage is going to be magically paid, nobody's student loans are going to be mysteriously taken care of, all that is likely to change is who the collections are done by. I'm really not an economist by any stretch, but isn't it just a Government asset grab, being paid for with newly printed money, likely to simply devalue the dollar further in the long run?

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The government is buying the debt, yeah. Was making a joke vis a vis bankruptcy (I would venture to guess they become dischargable under chapter 7 or some bizarre rewrite of bankruptcy law if they really do this). The "bailout" would be of creditors holding the debt. I couldn't tell you as far as the valuation of the dollar. I'm not an economist either. This more a wtf on my part. I know the situation isn't funny, but it really is simply absurd.

OEC

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Originally Posted by One Eyed Cat

... I couldn't tell you as far as the valuation of the dollar. I'm not an economist either. This more a wtf on my part. I know the situation isn't funny, but it really is simply absurd.
OEC

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Well, any time the government invents more money it devalues the dollar. If you increase the amount of dollars out there, then it requires more dollars to exchange for something of equal value. It's just straight supply and demand really.

I mean the very definition of inflation is "[A]n increase in the supply of currency or credit relative to the availability of goods and services, resulting in higher prices and a decrease in the purchasing power of money.

so,......... the government wants to buy up all these debts? is that whats going on?

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Originally Posted by ForrestBlack

Well, any time the government invents more money it devalues the dollar. If you increase the amount of dollars out there, then it requires more dollars to exchange for something of equal value. It's just straight supply and demand really.

I mean the very definition of inflation is "[A]n increase in the supply of currency or credit relative to the availability of goods and services, resulting in higher prices and a decrease in the purchasing power of money.

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They raised the debt ceiling by the same amount as this bailout plan. I think they're technically "borrowing" it which is why I really don't know if it is the same as firing up the printing presses.

OEC

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Originally Posted by Mr Karl

so,......... the government wants to buy up all these debts? is that whats going on?

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They're buying securities based on bad debts if I'm to understand it correctly.

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Originally Posted by One Eyed Cat

They're buying securities based on bad debts if I'm to understand it correctly.

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they're buying what with what?

just out of curiosity, who's in charge down there?

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Originally Posted by Mr Karl

they're buying what with what?

just out of curiosity, who's in charge down there?

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They appear to be borrowing money to pay for borrowed money that was defaulted on. The Treasury Secretary is trying to call the shots. I don't know that anyone is in charge now.

From what I hear your government is buying out the toxic debts alright... but not at current market value. They are paying the banks or whatnot the price that the bankers would have got at the maturity of the loans which is probably double market value. In other words these Wall Street jokers are ultimately still going to turn a profit on the crappy dealings that they made themselves. $100 cigars all round. What an annoying thought :mad:

Oh and $US700 bill. will turn into $USthousands of bill. for sure.

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Originally Posted by helcyon

From what I hear your government is buying out the toxic debts alright... but not at current market value. They are paying the banks or whatnot the price that the bankers would have got at the maturity of the loans which is probably double market value. In other words these Wall Street jokers are ultimately still going to turn a profit on the crappy dealings that they made themselves. $100 cigars all round. What an annoying thought :mad:

Oh and $US700 bill. will turn into $USthousands of bill. for sure.

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They're claiming they'll eventually "resell" the debts. I have no doubt buyers will be lined up to buy defaults bought up by the federal government. :rolleyes:

OEC

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Originally Posted by One Eyed Cat

They're claiming they'll eventually "resell" the debts. I have no doubt buyers will be lined up to buy defaults bought up by the federal government. :rolleyes:

OEC

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The market is dead. Long live the market.

Actually one interesting effect is that no longer are deregulation and the market supreme. It's funny to hear folk like McCain suddenly talking up financial regulation like they always thought it was a good idea.

So... if it all works out and we can forget about it and go back to normal the bankers will be right to jump back on the same blind fat horse in about, say, 10-15 years max?

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Originally Posted by helcyon

The market is dead. Long live the market.

Actually one interesting effect is that no longer are deregulation and the market supreme. It's funny to hear folk like McCain suddenly talking up financial regulation like they always thought it was a good idea.

So... if it all works out and we can forget about it and go back to normal the bankers will be right to jump back on the same blind fat horse in about, say, 10-15 years max?

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Unless they seriously change the rules of the game, it will again. You start leveraging assets which may or may not exist at 35:1 and this is almost inevitable it would seem. We made it about 15 years after the savings and loan crisis. This is a lot worse though obviously.

OEC

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Originally Posted by helcyon

From what I hear your government is buying out the toxic debts alright... but not at current market value. They are paying the banks or whatnot the price that the bankers would have got at the maturity of the loans which is probably double market value. In other words these Wall Street jokers are ultimately still going to turn a profit on the crappy dealings that they made themselves. $100 cigars all round. What an annoying thought :mad:

Oh and $US700 bill. will turn into $USthousands of bill. for sure.

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i think you unfortunately already mean trillion not billion

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Originally Posted by karyn

i think you unfortunately already mean trillion not billion

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Would be a trillion. I did read an interesting article. The federal government actually purchased equity in some airlines when they "bailed out" insolvent carriers after 9/11. They sold out when the airlines were solvent. They could do that with some of these companies. I don't see how that works with "credit default securities" involving cars, credit cards, student loans, etc. The taxpayer will take a hit on all those. I think the people owning the bad paper should take the hit for their own folly.

OEC

http://www.dtcc.com/about/annuals/2007/

...............just a link to an interesting little company.............don't know if it's relevant or anything but whenever I see the word trillions I think of thier yearly financial statements

Interesting. Some are tagging the bailout "Socialism for the rich". There seem to be 2 extremes to the argument that are holding all the ground.
1. Bail out the big end of town - but in the capitalist society shouldn't you be accountable for your poor business decisions and if you go under then so be it?
2. Bail out main street mortgages etc. for the little people - similarly if you make a decision to take on a loan you can't afford then why should you be bailed out. Isn't that just the way it works? Should you have your mortgage paid off for you?

15 years ago the Swedish financial system tanked utterly and they successfully bailed out their banks to the tune of the equivalent of a third of their defence budget. The trick was to get the price right apparently. Pump too little cash in and it doesn't work and makes things worse. Too much and it sends the wrong message to the fat-cats i.e. we can always do what we like and no worries.

I heard a quote from a single woman living in a Mississippi trailer park with her 2 kids yesterday commenting on the bailout. Basically she said "It sucks. The richest people are quickly getting a hand but no-one helps us when we need it".

This all sounds VAGUELY familiar.

"GIVE US THESE SWEEPING POWERS NOW OR YOU WILL END UP DEAD.... j/k lol thanx for the powers"

"GIVE US THIS WAR IN THE GULF OR WMD DESTROYS SEATTLE.... j/k lol thanx for the war money"

"GIVE MY BANKER FRIENDS $770B or else..... "

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Originally Posted by Bikerpunk

This all sounds VAGUELY familiar.

"GIVE US THESE SWEEPING POWERS NOW OR YOU WILL END UP DEAD.... j/k lol thanx for the powers"

"GIVE US THIS WAR IN THE GULF OR WMD DESTROYS SEATTLE.... j/k lol thanx for the war money"

"GIVE MY BANKER FRIENDS $770B or else..... "

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QFT...

BTW, should Government have a penalty box?

I for one am just looking forward to the day I can move back to the US with 50 Euros in loose change, buy a coffee at LAX and have enough left over to buy back my old house. It's getting closer!

Qft?

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Originally Posted by ForrestBlack

QFT...

BTW, should Government have a penalty box?

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A lot of folks involved in these quasi-govt agencies should be in jail. quite frankly. I see a case bordering on treason.

OEC

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Originally Posted by Bikerpunk

This all sounds VAGUELY familiar.

"GIVE US THESE SWEEPING POWERS NOW OR YOU WILL END UP DEAD.... j/k lol thanx for the powers"

"GIVE US THIS WAR IN THE GULF OR WMD DESTROYS SEATTLE.... j/k lol thanx for the war money"

"GIVE MY BANKER FRIENDS $770B or else..... "

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It's amazing what Paulson wants. He would essentially be Tsar of the US and by proxy the world economy. They won't give him everything, but they will give him way more than is necessary.

OEC

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Originally Posted by Bikerpunk

Qft?

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Quoted for truth.