Send Geithner the Case-Schiller chart showing the bubble. http://carolan.org/wp-content/uploads/2008/06/case-chart-062408.gif

If the mortgage market values are artificially depressed, that's true enough. But that's the opposite of having been artificially inflated so it does sound crazy on the surface. And of course there are carrying costs. Let's say the government buys mortgages with borrowed money (ironic, buying borrowing with borrowing) at 4% simple interest. In 5 years that will have cost 20%. So even if the mortgage has risen 20% above the purchase price, it's still a loss on the books. And if Baker is even half right and we have 10% to go down still (painting with a broad brush here) ...

There seems to be a big bid-asked spread, between 30% and 60% from buy to sell. If the 30% is artificially depressed, it might be possible to legislate (rather than finance) some solutions. But what about CDS and CDO on the MBS, has that all been unwound or paid off?

From the article: "The key protection for taxpayers, according to people briefed on the plan, is that the private investors will bid in auctions against each other for the assets. As a result, administration officials contend, the government will be buying the troubled loans of the banks at a deep discount to their original face value."

That doesn't make sense. Who is buying what from whom??

If I get the gist, the government is going to take fractional positions and/or give non-recourse loans at up to 85%, thus totally socializing the purchases.

The problem here is that investors, naive or not, got screwed and borrowers made out like bandits (even as some borrowers got left hold the bag too). Now the government wants to give the investor class not a shot at making their money back, but a plain giveaway. Meanwhile almost nobody is talking about the gamblers and crooks while AIG merrily keep funneling money to them.

Too weird.

The problem for banks is not longer a cash deficit. The problem is the valuation of assets on the books. Why not let them operate with reduced reserve and let them slowly unwind what they choose to unwind or sell off? That is, regulate a temporary shift in capital requirements.

The question is, is this about saving banking or is it about repaying the investor class?

The $8 trillion bubble assumes that housing will return to the Shiller historic average. What happens if it drops 20% below that average as it did in the GD? Well it will mean $10 trillion has dissappeared from the economy. Then there is CRE, credit card debt, autos and LBOs. The total losses could be close to $12 trillion. If half of this lost collatoral is supporting asset backed securities, then we looking at $6 trillion in losses in the debt market. The most pessimistic estimates (i.e. Roubini) has those losses at about $3.5 trillion.

The above are just very rough estimates. But if real, can the US treasury even begin to make these losses whole without setting off hyper inflation? I have no idea. But does anyone?

It seems to me the Geithner plan to buy and hold toxic assets until "somebody" wants to buy them is intimately related the story about the amount of debt the CBO is predicting for the next decade over and above what the Obama Administration forecast only a few weeks ago. The new CBO forecast says $1 trillion additional per year for the next ten years. If you valued the toxic assets in 2020 dollars--which will be hyperinflated-- buyers of toxic assets may think they got a real deal. Oh wait a minute....we're the buyers.

Actually this is beautiful.We can all just live in University Towns! Capitalism survives ( I can still go buy a hamburger cooked and served by people with no health insurance struggling to pay rent) but the logic of capitalism has been irreversibly damaged. ( see previous posts trying to explain supply and demand)

For those of the "Summers and Geithner are Jerks" persuasion, your allies are here, here, and here.

cially inflated so it does sound crazy on the surface. And of course there are carrying costs. Let's say the government buys mortgages with borrowed money (ironic, buying borrowing with borrowing) at 4% simple interest. In 5
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I was looking for Oakland apartments when I found your article here. Some people made a lot of profit from the over-inflated real estate prices. They knew that at some point the market would crash. The ones who took the hit were the normal people who had mortgages and now they can't get a refinance on their loan because the price has gone down a lot.

wow..$8 trillion housing
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