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Post a Comment On: Steve Sailer: iSteve

"Dear Mr. Buffett: I will sell you my share of the bailout"

10 Comments -

1 – 10 of 10
Anonymous Anonymous said...

"But if they buy them at market prices, how do insolvent banks get bailed out?"

This is the question I keep asking over and over when I hear talk of how the bailout will save us.

Either you overpay for the properties, in which case taxpayer dollars are flushed down the toilet, or you pay fair value, in which case you don't actually help anyone.

10/2/08, 11:13 PM

Anonymous Captain Jack Aubrey said...

"If they buy them at market, they will realize a significant profit over time . . . but the key is buying at market prices."

And who's to say they will? How are you supposed to ensure the government buys $700 billion of real estate, all at market prices? There is a powerful incentive for banks to maximize the price. Will the Fed have that power - will the folks involved get a cut of the differential between what the govt pays and what the govt sells it for - or will it be salaried schleps making all the purchases? My guess is the latter. This is government, after all.

We should also get every last damn congresscritter on the record, telling us how much it'll actually cost us, so they have no excuses 2-4-6 years from now. We should be generous, and give them a $50 billion margin or error.

For so very may reasons, we do not want the government buying any more real estate. If they do, can't you just see that as one more argument they'll use for mass immigration/amnesty? "But...we've got all this real estate we need to sell. We can't kick them out now!"

Trust me on the latter point: you heard it here first.

10/2/08, 11:37 PM

Anonymous Anonymous said...

You know America is past it's peak when the Sage of Omaha not only:

(a) bets against America (see his position re the dollar and US securities a few years ago), but also

(b) actively propagandizes for the oligarchs as a naked profiteer

10/3/08, 6:10 AM

Anonymous Anonymous said...

I would suspect a relatively decent chunk was spent on illegal drugs, as well as Nikes, etc.

10/3/08, 7:17 AM

Anonymous Anonymous said...

http://www.lewrockwell.com/blog/lewrw/archives/023260.html

I quote, from Dr. Rozeff:

Bernanke spoke recently of the Fed or the government or the tax payers creating liquidity in markets for assets that have closed down or locked up as prices have tumbled drastically. Another case is the interbank loan market that is drying up.

Bernanke is not talking about simply hyping the money supply. That is not the liquidity being referred to. He's talking about the volume and depth of trading in an asset market.

Unfortunately, the Chairman's knowledge of finance is abysmal. There is no way that the government or the Fed can create liquidity or jump start liquidity in a market by injecting liquidity. This is a false medical analogy. The Fed would have to enter the market and become an active participant in it, a dealer with a bid-asked spread. And once it did that, it could not make a price higher than the market price or else the rest of the traders would dump enormous amounts of securities in the Fed's hands. The market would no longer even resemble a free market.

The financial concept that the Chairman is missing is that liquidity is endogenous to a market. It is not exogenous. Markets develop liquidity from within their own trading. It's not something that is imported from outside of the actual trading.

Bernanke should search google for "endogenous liquidity" to find some research on this subject. Congressmen, pay heed. Do not attempt the impossible.

The rest of us should not accept the idea of an outside agent being able to "save" a market by injecting liquidity.
____________________________

This is why I think your spreadsheet based on rents wouldn't work, Steve. Simply by entering the market, the Fed/Treasury changes it--kind of like quantum physics. Also, the rents themselves are distorted to some extent by being cheek-by-jowl with overpriced homes. Or maybe not. And what sort of geographic line do we draw to consider as the local "market" for housing? IOW, it's too complicated to do by committee. The market just has to sort it all out.

--Senor Doug

10/3/08, 7:31 AM

Anonymous Anonymous said...

Buffet also claims that people should pay more taxes yet I have yet to hear of him writing a check to pay extra to the treasury. Instead he says he will put much of his money into Gate’s charity which will protect his wealth from the very taxes he says should be increased.

DJ

10/3/08, 8:29 AM

Anonymous Anonymous said...

"But if they buy them at market prices, how do insolvent banks get bailed out?

They won't be buying houses, they will be buying CDO's, and the really toxic mortgages will be folded in with a lot of loans which were perfectly sound. As you yourself pointed out, sub prime loans represent only 12% of the total. Even if all of these went into foreclosure and the lender were unable to recapture any of his losses by reselling the houses, a CDO with that mixture of assets would be worth 88% of its face value.

What is the market value of these assets now? Merrill Lynch sold itself to BofA for 22 cents on the dollar. In the present market panic, CDOs are worth zero cents on the dollar because they can't be sold at any price. If the government can't make money by buying these assets now at the prices which banks will be willing to offer them in a reverse auction, then the situation is indeed hopeless.

This will not "bail out" the banks in the sense of making them whole again, but it will keep them functioning, and they will ultimately have to take the losses not the taxpayer.

In other words, I think Buffet is right. The bail out can work without costing the taxpayer anything directly. We will have to pay for this speculative binge in other ways, of course. By having a shitty economy for a few years and by inflation a few years after that, but it is better than the alternative.

10/3/08, 9:54 AM

Anonymous mq said...

No, Steve's spreadsheet idea would work. Something very much like his idea was implemented during the Depression -- the Home Owners Loan Corporation. The government sent appraisers around the country to value homes at their Depression prices, paid those prices in exchange for the mortgages, then sold the stuff at a profit in the late 30s. Very straightforward way to get the bad mortgages off peoples' books.

10/3/08, 11:43 AM

Anonymous Anonymous said...

"But, I'm driving a 1998 Accord with 105,000 miles on it, while a lot of other people on the freeway are driving 2008 Lexuses with $4,000 rims, so it seems as if other people took the market price of their homes more on faith."

Do white people in CA buy rims for their cars? Here on the East Coast, only lower class blacks and puerto Ricans do that. The typical cars they are seen on are Honda Civics or older Nissan Maximas. Maybe an old Integra or Trans-Am too. If you see a Lexus with expensive aftermarket rims, it would probably a ten year old used one with 120k miles and a young black guy behind the wheel.

I get the impression from TV that white CA residents are more trashy, stupid and superficial than white Americans in general. Is this accurate?

10/3/08, 1:36 PM

Anonymous Anonymous said...

"No, Steve's spreadsheet idea would work. Something very much like his idea was implemented during the Depression -- the Home Owners Loan Corporation. The government sent appraisers around the country to value homes at their Depression prices, paid those prices in exchange for the mortgages, then sold the stuff at a profit in the late 30s. Very straightforward way to get the bad mortgages off peoples' books."

The HOLC actually lost money when you take into account interest costs and the time value of money, and it wasn't liquidated until the early 1950s. Also, the pre-HOLC mortgage tended to be short (less than ten years) balloon payment loans that the government exchanged for 30 year mortgages. What would the government exchange 30 year mortgages for in this case, 60 year ones?

10/3/08, 6:09 PM

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