Monday, September 29, 2008

Let's talk bailout - and election - and politics, etc.

Before I get started, let me express that it is in my best interests for house prices to tank another 20 or 30 percent.  I would love to buy a cheap house, and I don't care if the value of every home in the city fades away.  

My job is likely to still be here, so I don't really need job growth, either.  And I don't have a whole lot of cash deposited, so if our credit unions fail and the NCUA can't meet their insurance obligations, then we're not out a whole lot.

Of course, I will need to make sure that financing is available so that I can buy a home, but I have full confidence that the next president will have plenty of time to throw together a first-time homebuyer program that will enable me to jump into a beautiful home in a beautiful neighborhood for half the price that my (new) neighbors paid a couple of years ago.

Call me selfish... it's true.

But let's ignore all of this and talk about why the bailout (as currently written) doesn't make me happy:

1.  Price of mortgage-based securities:  As written, the treasury under the instruction of Paulson can buy the worthless mortgages from banks until they use up their $700Billion.  But the problem is that there is no set price for these failing mortgages.  The reason that we have this credit crisis is because banks can't sell the mortgages to anyone.  The prices offered are crazy low and the banks are demanding buyers that want to pay way more than the failing mortgages may be worth.  So the government is willing to jump in and buy them.  And although I know that Ben and Hank are smart guys, they want to pay "up to" original value of these failing mortgages.  Let me explain:
Banks bought mortgages like gold; they expected them to be worth even more, failing to realize that those paying the mortgages couldn't keep paying the mortgage.  They put them on the books at, let's say, present value of $250k for a $200k mortgage, since they would get so much interest.
Homebuyers started defaulting and home values sunk, meaning that homebuyers owed $200k for a house that is only worth $160, and their creative financing agreement meant payments go up.  Since they owe more than the house is worth, the homebuyer couldn't refinance because they had negative equity.  So they had ballooning payments but no extra income to meet the payments.
Now the mortgages are going into foreclosure.  Some people are willing to buy that $200k mortgage at, say, $40k, hoping to work with homeowners to make partial payments or just hoping that a few of those bad mortgages can somehow make their payments.  But banks valued it at $250k, and $40k seems insulting.  So they go into foreclosure, kicking out the homebuyers, ruining their credit, and trying to sell the house in a market where there's no bank willing to finance any new mortgages.
So Ben and Hank want to pay "up to" original book value, or $250k for this mortgage, knowing full well that it is not worth $250.  They say that they are not going to actually pay $250k, but the bailout plan needs to say that anyway so that nobody can interfere with the surgery.
In my opinion, the mortgages are worth what is being offered.  So it is obscene for anybody to offer more than $40k for this bad mortgage.  Now I consider that my tax money is going into buying these mortgages, knowing full well that the price will be higher than the present value of expected future cash flows (there ya go, finance buddies).  Which means it's a dumb investment, which Ben and Hank think is a necessary sacrifice for the better good.

2.  Reworking mortgages.  I do not like the idea of the government reworking the contracts of these purchased mortgages.  If a homebuyer agreed to pay 18% interest on their mortgage forever, then they deserve to pay 18% interest on their mortgage.  I do not believe that people should be absolved of their agreements.  EVERYBODY knows that you're supposed to understand the mortgage before you sign it.  It is well known (and often joked about) that you may be signing away your life, and yet the government feels that we should absolve homebuyers of any responsibility that they agreed to at the time that the mortgage was signed.

3.  Nancy Pelosi.  If she likes something, I don't.  I thought her speech today on the floor of the house was distasteful and overly partisan.  And then, upon failure of the bill, she came out with fighting words about partisan politics, which she had absolutely no room to speak about.  I do not know of one good thing that has come from congress under her Speakership, and with all due respect, I fully believe that she and Harry Reid are the two people responsible for congressional approval ratings camping below presidential approval ratings.  It makes me sick to hear of all of the times when the Republicans have screwed things up in congress (with the exception of filibusters), since there is Democratic control of both houses.  There is absolutely no excuse for the Dems to not pass a climate change bill.  There is definitely no excuse for this bailout to not get out of the house in one day flat.  The reason is that Nancy Pelosi is labeling the legislation as partisan, even though the bailout plan did not even have legitimate Democrat support (at least not among those representatives that have a tight race this election).

So what's silly is that the government is going to buy these mortgages at an inflated price.  Then they will adjust the terms so that they are worth even less.

Let's talk Obama a bit.  Every time he mentions "John", I can't help but think "same ol', same ol'".  His campaign isn't a change at all.  It is the exact same campaign that every other old-school candidate has ever run.  I don't even care what his "real" issues are; everything he says is exactly what he says he's trying to get rid of.  

The debate...  I hated the format, full of unstructured interruptions.  I thought that Senator Obama was more rude than I would have liked to see.  I was impressed with the frequency of Senator McCain's calm responses continuing through the frequent and rude interruptions of Senator Obama.

So Senator Obama seems to be the quintessential partisan presidential candidate, which says many things to me, none of which are "Change".

And limiting short-selling of securities still makes me very unhappy.  I think that today shows that the market can drop significantly even without short-sold financial companies.  In fact, short sellers have to buy back sometime, and I think that the short-squeeze potential has the same potential at boosting prices as the original sale had to reduce it.  I find the limiting of short sales to be morally repugnant.

Okay... So I bashed the bailout.  What do I think is acceptable?
1) Capital injection through other means, such as the Federal Reserve is already fully capable of doing and is doing today in combination with other central banks.
2) Purchase of securities at a set price.  This will be hard to do, as nobody knows what mortgages are bundled in the mortgage-based securities (aka "mortgage-backed...").  But it's only fair, and it will stretch my tax dollar further while offering hope for a return (even though I do not think that the government should be in the mortgage business).  We cannot have "up to" original book value used, as the legislation dictates and Ben supports.  We must also make the purchase price at a low enough level that it is in the bank's best interest to try to negotiate the mortgage.  Once the mortgage is purchased by the government, I do not believe that there should be any negotiations of mortgage terms.

Anyway, Haylee's hungry, so I'm going to leave this and make some dinner.

Many of you might find this post to be boring,
and the rest of you may be strongly opposed to my statements.

Either way, let me know and I'll explain why I'm right.  (Yeah... I'm selfish AND prideful!)

Tuesday, September 23, 2008

I'm here

Funny how many of the good names for blogs are taken.
I was looking for a new name for some of my more individual thoughts and rants, and I seriously had like 20 in a row that were already taken that I thought were original.  I noticed that most of them hadn't been edited since 2001 or 2002.  Jerks.  Stealing the good names and camping on them For-Ev-Er.

So the economy is rough.  We're looking to buy a house.  I figure house prices are pretty good.  So now we need to see if we can get a mortgage.

We would really like our own place.  It'd be spectacular.  But I still don't know if the time is right.  An Oppenheimer analyst said today that prices should go down another 25%.  I would hate to jump in now if that's the case.  But then again, the new socialist bailout proposals are sure to keep foreclosures down, which means prices go up.  Which means more expensive houses.  Good for banks, bad for me.

Actually, I'd like to rant on that for a minute.  I had a rant typed up but I deleted it because it makes me angry.  Suffice it to say that I find the bailout plan, capping short sales, and and this last minute response to be reckless, harmful, and overly socialistic.  And McCain's comments have kinda made me sad.

The Office starts in 2 days.  And Pushing Daisies starts October 1.  These are our favorite shows. 

In other news, Haylee is not enjoying some of her classes at school.  Apparently music theory can be a beast.

I start work at 6:30, so I'm doing pretty good at getting to bed by 9:30, but Haylee's been staying up later working on homework.  

In fact, I'm going to go to bed right now and she's still at her choir practice.  Poor Haylee.