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[personal profile] xthread
Wonders will officially never cease.
As of early this morning, AIG (remember them? the people who thought it was a good idea to insure every mortgage-backed security in the country, and promised to make good to the MBS investors if the homeowners didn't pay their mortgages? used to be the largest insurer on the planet) has prepared a plan for paying back the Federal Bank of New York and the US Treasury. We had expected that AIG was going to be one of the two remaining sources of losses in the 2008 federal bailout of the US financial system.

We were wrong. Now both Chrysler and AIG are expecting to return profits to the federal treasury, instead of losses. The dickering now going on between the Fed, the Treasury, and AIG, is about how much money the US Gov't will make on having prevented the world bond market from collapsing. Pretty neat.

Although it does present a problem for Tea Party governance - if we're actually making money on the financial system bailout, stopping that spending won't improve the state of the federal treasury. (As a side note, we've also come out ahead on the Chrysler deal, which is actually more surprising than AIG making money - a bunch of economists were reporting at the time of the AIG bailout that the Feds should make money on it, but should and three bucks will get you a cup of coffee at Starbucks. No one was nearly that optimistic about Chrysler)

Date: 2010-09-30 06:29 pm (UTC)
From: [identity profile] deirdremoon.livejournal.com
So, all of that is awesome. But how do you boil that down to figures that Joe Average easily understands, AND shout it loudly and provably enough to TELL the Tea Party that?

Believe me, I'm not calling them stupid. I rely on educated synopses from people like you to tell me these things myself. But I think half the friction with the Tea Party is a difference in basic administrative philosophy, and the other half is sheer mistrust of The Other Side(tm) such that I'm not sure you *could* convince them that the bailout was a good idea even if you had the books right there.

Date: 2010-09-30 07:12 pm (UTC)
From: [identity profile] xthread.livejournal.com
You mistake me - I agree, you're not going to convey much of this was a good idea to people who have a committed notion that we just poured a phenomenal amount of money down a sinkhole. But I think that we can have a useful conversation, even with people with vehemently disagreeing points of view, about what we should do going forward. In particular, when they're proposing an objective (reduce public debt) and a strategy that are in conflict (curtail public income), I think asking which of those objectives is more important to you? is a useful question.

But I neglected to answer your basic question, how to boil the bailout figures down: To keep the entire banking system of the country from going under, and to keep the entire Midwest from going into a much, much more serious depression, we've spent less than $200 per person in the country. That sounds like pretty good value for money.

But I still think it's the wrong argument - it's arguing about how they feel about the past, and those kinds of arguments rarely end well.

Date: 2010-09-30 11:37 pm (UTC)
From: [identity profile] feyandstrange.livejournal.com
Can we calculate *profit* per person yet? Because that might work.

Date: 2010-09-30 11:47 pm (UTC)
From: [identity profile] xthread.livejournal.com
Oooh... that's a very interesting argument. We'll definitely be able to once we actually wash into program-wide profit, which may be coming. Until then, harder.

Cue Demon Sheep
In 2008, Washington gave bankrupt Detroit Auto Companies and Wall Street Banks $800 Billion dollars. In 2009 and 2010, they gave $850 Billion back.

Date: 2010-09-30 11:53 pm (UTC)
From: [identity profile] feyandstrange.livejournal.com
I'm thinking soundbite/T-shirt/bumper sticker:

"Democrats earned $25* for me by investing in America"

Date: 2010-10-01 09:09 pm (UTC)
From: [identity profile] xthread.livejournal.com
Even then, we're pushing uphill against the narrative. People in general won't be able to rationally analyze what happened for another generation and a half, possibly three, because it's too tied up with what happened to me. It's not even a matter of waiting for what they did to our Susan to wear off.

Date: 2010-10-01 11:34 pm (UTC)
From: [identity profile] feyandstrange.livejournal.com
Well shit, you want 'em to *rationally analyze* this stuff? You crazy optimist! I was just looking for a catchy sound bite to change their thinking and voting patterns.

Date: 2010-10-01 11:58 pm (UTC)
From: [identity profile] xthread.livejournal.com
No, I just think the current narrative (we gave the banks all this money and look what it got us) is sufficiently well stuck in people's heads that for them to be able to see contradictory data will be basically impossible en masse.

Date: 2010-10-01 11:59 pm (UTC)
From: [identity profile] feyandstrange.livejournal.com
Not if we repeat the contradictory statement often enough on bumper stickers and soundbites. People are swayed by such stuff, at least the ones who can't be arsed to actually think.

Date: 2010-09-30 11:06 pm (UTC)
From: [identity profile] kest.livejournal.com
I think the very fact that the bailout was a *loan* and not a *gift* was something most people missed. I've been throwing 'they're paying us back, you know' into various angry conversations on the bailout pretty much since it happened and people get very confused looks on their faces mid-rant.

Date: 2010-09-30 11:34 pm (UTC)
From: [identity profile] xthread.livejournal.com
I'm certain you're correct. I expect that in general, when people even realize that they were loans and not flat subsidies, they assume they were loans like loans to Aunt Susan - sure, it's called a loan, but we all know better, right?

Date: 2010-10-01 03:12 pm (UTC)
ext_3386: (Default)
From: [identity profile] vito-excalibur.livejournal.com
That is exactly correct. I never thought we'd see a dollar back!

Date: 2010-10-01 12:53 am (UTC)
From: [identity profile] wrenn.livejournal.com
Either purposefully missed, or were lead to miss. The very word 'bailout' is not synonymous with 'loan' in any dictionary.

Now, as some one with Ahem-teen years in the finance industry, and in the investment side, I have always spoken of it as a 'loan'. Especially when people shout about 'bailout Main Street' - I counter with 'so, you want a loan you have to payback in the next 2-3 years? How much do you want loaned to you?'

And, yes, you're right, they get confused. Or they tell you that you're wrong.

Date: 2010-10-01 08:35 pm (UTC)
cos: (Default)
From: [personal profile] cos
Re "bail out main street" - yes, actually. What I wanted Congress to do was pour some money into stabilizing mortgages and making it possible for people whose payments just unexpectedly jumped just as they lost their jobs, to pay back those mortgages more gradually later on when the jobs came back, while staying in their homes. In other words, a very similar idea to the financial system bailouts.

Date: 2010-10-01 08:42 pm (UTC)
From: [identity profile] xthread.livejournal.com
How do you imagine the math working on that?
I'm trying to figure out how a hypothetical homeowner could recover from a 30% drop in the value of their home combined with a need to move to find work, because the region they're in now has far too many unemployed in their sector. I can imagine a middle-income homeowner recovering from a 30% drop in putative home value over 10 years, but certainly not in 3. And that presumes more job and wage stability than is probably appropriate.

Date: 2010-10-01 08:46 pm (UTC)
cos: (Default)
From: [personal profile] cos
It's a risk. Some people wouldn't be able to save their homes even with help, some would. Some would need to move, some could stay where they were. Regardless of how many eventually succeeded, the failures would've been stretched out over a much longer time, making it easier for the economy to recover.

Chrysler was a much bigger risk, but we did it anyway.

Date: 2010-10-01 08:53 pm (UTC)
From: [identity profile] xthread.livejournal.com
Erm, let me try that again -
Can you pose a hypothetical someone who your proposal could help?
Please show your math.

Date: 2010-10-01 08:55 pm (UTC)
cos: (Default)
From: [personal profile] cos
I find that a very weird question. You doubt that replacing "you just lost your job *and* your mortgage payments are suddenly a lot higher" with "you just lost your job but your payments will be lower for a few years" would help? Economy recovers, many of those people get jobs, and they're better able to make payments from that point on. I don't understand what you find doubtful about this.

Date: 2010-10-01 09:03 pm (UTC)
From: [identity profile] xthread.livejournal.com
I do - can you plug in a set of numbers where your proposal can actually work?

The assumption set I'm making is:
  1. The market value of the home has fallen by 30%
  2. It is not expected to recover for >10 years
  3. The family had sufficiently little equity before the collapse that they are now significantly underwater
  4. There has been a structural collapse in the local / regional employment market. For them to reenter the job market, they will need to take a 30% pay cut, or move to a region of the country that has merely had a cyclic collapse.

    In those circumstances, what sort of loan could improve their situation?

Date: 2010-10-02 12:00 am (UTC)
From: [identity profile] xthread.livejournal.com
What we're at odds over, by the way, is not whether financial assistance could be helpful, but whether a loan, which they would be expected to repay, could be.

Date: 2010-10-01 08:54 pm (UTC)
From: [identity profile] xthread.livejournal.com
the failures would've been stretched out over a much longer time, making it easier for the economy to recover

Erm, that only works if the problems are cyclical and not structural - if they're structural, stretching the resolution out over time makes it suck more, not less.

Date: 2010-10-01 08:57 pm (UTC)
From: [identity profile] xthread.livejournal.com
Chrysler was a much bigger risk, but we did it anyway

Er, really? Buying into Chrysler was purely about downside protection - treat the money as simply gone, as the mechanism whereby a serious industrial collapse of the entire Midwest would be prevented, then be pleasantly surprised that we got any money back. The risk was not do we get the money back, the risk was do we destroy the entire US auto economy - and evaluated that way, I'm comparing the guaranteed destruction of 20% of the economy or so vs. merely the possibility of losing 20% of the economy. Which seems like very simple math to run, not so much a risk calculation per se.

Date: 2010-10-01 09:00 pm (UTC)
cos: (Default)
From: [personal profile] cos
I'm obviously not referring to that, because if you judge it by that metric, you also have to judge keeping people in their homes by that metric. We failed to prevent hundreds of thousands of people to be forced to move out of their homes, in many cases with nowhere to go to. The devastation from that was greater than what would've happened if Chrysler had died, yet we let it happen.

Date: 2010-10-01 09:06 pm (UTC)
From: [identity profile] xthread.livejournal.com
That's precisely the math I'm doing. Letting Chrysler die looks like millions of job losses and evictions, not hundreds of thousands, because of the knock on collapse domino-ing across the Midwest and Upper South

Date: 2010-10-01 09:56 pm (UTC)
From: [identity profile] xthread.livejournal.com
Also, what population had mortgage payments jump unexpectedly?

Date: 2010-10-02 12:02 am (UTC)
From: [identity profile] feyandstrange.livejournal.com
That's gonna depend on how you define "unexpectedly" there, but a lot of people were suckered into getting ARMs who had no idea the rate could shoot up like that.

Date: 2010-10-02 12:11 am (UTC)
From: [identity profile] xthread.livejournal.com
Well, and also how you define 'a lot' - if a large but not market-moving number of people were the victims of fraud, or something that looks a lot like it, then we have very different options than if a market-moving number of people were victims of fraud, and so on.

Date: 2010-10-02 12:32 am (UTC)
From: [identity profile] feyandstrange.livejournal.com
I would guess that in the subprime markets at least it was a market-moving number; Fannie seems to think so.

(from WIkipedia's Fannie Mae page, more conveinent than digging through us.gov:)

As Daniel Mudd, then President and CEO of Fannie Mae, testified in 2007, instead the agency's underwriting requirements drove business into the arms of the private mortgage industry who marketed aggressive products without regard to future consequences: "We also set conservative underwriting standards for loans we finance to ensure the homebuyers can afford their loans over the long term. We sought to bring the standards we apply to the prime space to the subprime market with our industry partners primarily to expand our services to underserved families.

"Unfortunately, Fannie Mae-quality, safe loans in the subprime market did not become the standard, and the lending market moved away from us. Borrowers were offered a range of loans that layered teaser rates, interest-only, negative amortization and payment options and low-documentation requirements on top of floating-rate loans. In early 2005 we began sounding our concerns about this "layered-risk" lending. For example, Tom Lund, the head of our single-family mortgage business, publicly stated, "One of the things we don't feel good about right now as we look into this marketplace is more homebuyers being put into programs that have more risk. Those products are for more sophisticated buyers. Does it make sense for borrowers to take on risk they may not be aware of? Are we setting them up for failure? As a result, we gave up significant market share to our competitors. "

We don't have solid numbers on predatory lending, partly because "predatory lending" is a poorly defined term, and partly because it's very difficult to prove that I deluded poor old senile Grandma Susan into signing for an outrageous subprime ARM even though she was eligible for prime. But IMO, the fact that the subprime market was predominantly nonwhite, first-timer, low-education-level signers is indicative that the likelihood is strong that those signers had no idea what they'd gotten into. Add in the incentives that lenders were offering their salesforces (bonuses for selling subprime loans etc) and it looks very ugly to me.
(deleted comment)

Re: Buy low, sell high.

Date: 2010-09-30 06:59 pm (UTC)
From: [identity profile] xthread.livejournal.com
You bet. And people in general seem to spend a lot more time on the sell high side of that aphorism. Which is a problem, since the buy low is the bit that usually makes you the money.

Re: Meanwhile...

Date: 2010-09-30 11:44 pm (UTC)
From: [identity profile] xthread.livejournal.com
Umm, your data does not appear to support your statement - the data you referred to reports that the Title Insurer doesn't want to be in the middle of a bunch of fights about who holds title to property, not that the Insurer is suffering any financial impairment.

Date: 2010-09-30 11:36 pm (UTC)
From: [identity profile] feyandstrange.livejournal.com
I would've bet that we made a small, small profit off of AIG, barely enough to cover costs. My bet was that conservative mainly because I figured AIG would find ways to steal the money.

And Chrysler, yeah, boggled.

Date: 2010-10-01 01:07 am (UTC)
From: [identity profile] wrenn.livejournal.com
Telling people that 'this' is one of the things that the government is for, stopping a free-fall of the economy, they don't understand.

As we've discussed before, Richard, we both know that if there hadn't been support in the forms of loans to BoA and JPM, They would not have bought Merrill or Bear Stearns. Or rather, they likely still would have, later, after their value had dropped far further than it had at the time of the agreements, pennies on the dollar, after an economic freefall. The damage done by that event would have been devastating.

That many more banks were given loans to do other things, and that the government in fact pushed some who did not want to take the loans to do so, is not something that is spoken loudly. But for the most part, what businessman would refuse something offered to them, that their competitor is getting? Why put yourself at a disadvantage you don't have to?

I saw many lies in the media. After the loans were approved, and agreements signed to take over the failing investment companies, but BEFORE they were handed out, was when the politicians talked to the media. They got the first say in. That is something to think on. Also... If not for talking BoA and JPM and others into helping, the Gov't would have had to step in directly. There really was no other option. Letting them fail, people really don't realize what that would have meant to the economy. Politicians did what they do best, spread around the 'blame'.

I also know that a bank I used to work with was worked over in the media for 'taking these bailout funds they didn't need and going and buying another bank (a failing one in Ohio)'. in the end of 2008. I know from internal email, they were planning on buying that bank, had even looked over it's financial position in April of 08. Well before the bailouts. It was planned well before the bailouts were even mentioned. Yet...

Date: 2010-10-01 01:51 am (UTC)
From: [identity profile] johnromkey.livejournal.com
My guess is that unfortunately most people who believed that the money was thrown away will simply not believe that the government made a profit on it, regardless of any evidence you may try to present to them.

Date: 2010-10-01 08:50 pm (UTC)
From: [identity profile] xthread.livejournal.com
Indeed - presenting evidence to them is a non-starter. The only way to communicate that point effectively is to ask them to explain their viewpoint, and to keep drilling down when they say things that don't make sense.

Which is uniquely poorly suited to 30-second soundbite advertising.

Date: 2010-10-01 02:24 am (UTC)
From: [identity profile] achinhibitor.livejournal.com
OTOH, we've plowed over $100B into Fannie Mae and Freddie Mac and the Senate recently declined to cap the losses at $400B. So I expect some serious horrors there...

Date: 2010-10-01 08:39 pm (UTC)
cos: (Default)
From: [personal profile] cos
$100 billion doesn't sound like much in comparison to the money we've spent on the Iraq war and the money we've foregone through cutting income taxes and the money we've foregone through letting the economy slide due to too little stimulus (and starting it too late, because for the first year we had an administration who wouldn't have been interested). Each of those is probably an order of magnitude more than what we've lost on the mortgage companies.

Date: 2010-10-01 08:48 pm (UTC)
From: [identity profile] xthread.livejournal.com
I'm perversely fascinated by the blow up Fannie and Freddie crowd - they seem to react with a level of emotion I normally see restricted for identifiable humans who have personally messed up the emoter's life, not abstract evil institutions that are otherwise far away. (Let me clarify here - I'm talking about the long-term blow up the GSEs people, not the Tea-Partiers and rank-and-file Republicans who've come to the party recently.

The best I've been able to come up with is either a) that the people trying to take out the GSEs believe that those people wouldn't be able to move into their neighborhood if only the GSEs weren't underwriting their mortgages, or b) that they believe the GSEs are undercutting the prices for which they would otherwise offer the same service, and therefore they want the GSEs to stop spoiling pricing in the marketplace. And both of those motivations seem really, really weak.

Date: 2010-10-01 08:50 pm (UTC)
cos: (Default)
From: [personal profile] cos
I doubt they have reasons as logical as those.

Date: 2010-10-01 09:11 pm (UTC)
From: [identity profile] xthread.livejournal.com
Pray specualte further..

Date: 2010-10-02 12:15 am (UTC)
From: [identity profile] feyandstrange.livejournal.com
There is something to be said for the attitude of "Fannie and Freddie are just so fucked up at this time that I cannot see a way to reform them; blow them up and build a new one is my solution". They are a weird sort of "neither fish nor fowl" and suffer both from goo much government pressure to do what the government wants AND market pressures. For things which are supposed to be private enterprises, this is a very wacky place to be. (I'm leaving out Ginnie because Ginnie was explicitly Federal.) There were some wacky ideas in FIRREA and a lot of weird pressure in the Nineties.

I am not necessarily espousing this idea myself, but I can see why folks with some industry knowledge believe that it might be a better idea to just ring-fence F&F and start over a bit more sanely.

Which is not the same attitude as "I don't believe the gubmint should encourage poor people to buy nice homes", of course.

Date: 2010-10-01 01:57 pm (UTC)
mangosteen: (Default)
From: [personal profile] mangosteen
Tangential to the topic at hand, I do believe that the White House has finally hit upon a way to effectively and succinctly communicate a couple of economic realities:


First one is two minutes long. Take a look.

Date: 2011-11-30 05:04 pm (UTC)
From: [identity profile] a-steep-hill.livejournal.com
This thread is more than a year old, so I don't know if you'll see this, but I wanted to respond to this long ago and never had the time. Someone did it for me, so here goes:

Yes, they were loans. But the loans themselves were gifts.

The thing that the article doesn't mention is the big, bad consequence of the bailout: the too-big-too-fail banks are now even bigger and more powerful (relative to the market, and to their competition that didn't enjoy the same level of support).

I do think the bailouts were necessary to avoid total economic meltdown (though only because deregulation - notably the repeal of Glass-Stegal). And in that context, they were a bargain at any financial price. But of the price that was paid, any financial cost is minor relative to the cost of leaving the banks intact so they can do it again, which is the road we are headed down now.

Date: 2011-11-30 08:25 pm (UTC)
From: [identity profile] xthread.livejournal.com
Yes, I've been meaning to post about that article.
It's a somewhat frustrating article, to me - I agree with his basic thesis that the large US depository and investment banks were protected from well-deserved commercial failure. I have severe problems describing it as a 'bailout,' because that term has the connotational meaning gift of money which is called a loan to save face and the reality is importantly different from that. That is to say, I'm on the side of the argument that the problem with TARP et al is that the support was provided at too cheap a price, not that it should not have been done.

And using the term 'bailout' leads, I think nearly inexorably, to the rhetorical position 'no bailouts!'
Which is deeply flawed - if my only choices are a collapse of the banking and monetary system or a deeply corrupt support of that system which allows the existing operators to continue to skim large sums of money off the top, I'm going to have to vote for the latter. Which is not to say that I like that latter choice, just that it's clearly the better alternative.

Date: 2011-11-30 09:49 pm (UTC)
From: [identity profile] a-steep-hill.livejournal.com
You can argue about semantics, but providing something below market cost in a competitive market is a gift of money. Let's call a spade a spade.

At the time of the bailouts, I agreed with you statement that they were the least-bad alternative. Now I am far from sure. The terms of the deal were so generous that they no only did nothing to alleviate the problem, they actually made the underlying structural issues worse. They also served to reinforce the cultural problems within the finance industry, namely that the people there really do think they are doing God's work and should be compensated accordingly. (Yes, I do think that this level of permanent-vacation-from-reality arrogance among leaders is inherently dangerous.) The combination of these two factors means that a repeat performance is simply a matter of time. And the problems associated with living beyond ones means get harder to deal with the longer we put off doing so.
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