Tuesday, September 23, 2008

My Take on Bailout

First a disclaimer:
I took 2 classes with Dr. Biven in 1983, one of them was pass/fail.  The thing I remember most was a skinny 6'9" basketball player (who had no handle and no jump shot) telling another basketball player "man, all I need to know about economics is how to spend my million dollar NBA contract" after getting a D on a test.  I decided after the 1986 draft that John Salley knew more about economics than I did.

Treasury Secretary Paulsen has proposed a $700 billion bailout for Wall Street on top of all the other bailouts that Hoy mentioned today. Ben Stein had mentioned that "The amount of subprime that defaulted was at most - after recovery in liquidation - about $250 billion."  

Foreclosure rates are at 2% nationally and delinquency rates are at 6%. and US median price home is at ~$200k. For purposes of using round numbers we will work with 50 million as total number of mortgages in US.

$700 billion would seem to cover $14k/mortgage and would seem to be able to buy goverment ownership of 7% of every home.

If we are going socialist anyway why not try "Bubble Up Economics".

Give homeowners option to opt into program where current mortgage holders can choose to have goverment buy up to 10% of homes, in event of future foreclosure goverment gets sum invested back ahead of any recovered money to homeowner.
The 10% payment from goverment goes directly to mortgage holder and applies towards equity but a 1 time chance to refinance into fixed rate mortgage is also offered.  If there is future sale goverment gets (up to)  10% of gross. 

All the bundled mortgages and derivatives become stronger which reduces the banks issues.

All of this is a bad beat for me as I sold my house in 2007 anticipating the sub-prime mortgages would drive housing prices down and I would be able to buy after the dip in San Jose area.

My preference is still no bailout as I have prepared myself for it but if there is bailout rewarding those who stupidly overextended to get house seems better than rewarding thos who stupidly created  "weapons of financial mass destruction." (Warren Buffet's name for the financial derivatives).

On financial note I bought Asta Funding which is a company that is 78% off it's 52 week high and makes it's money buying "bad debt" at a discount and recouping more than expected.  Just in case Goverment is just giving money away.


Alan aka RecessRampage said...

I don't get it (insert LJ's smart ass comment about me being a tard here). You sold your house, the housing prices dipped, so what's the problem (in terms of you buying house at lower cost)?

Bayne_S said...

housing prices are down but if free market forces were allowed to operate they would be down more.

StB said...

That is the pisser in the end. What about the people who didn't get in over their head and have made their payments? It used to be that we would get a better rate. Nowadays it means we have to pay more to make up for the other idiots. sigh