I just got finished reading the Senate bail-out bill and it still has the same fundamental flaw as the just defeated House bill. Both versions will have the Government buy up mortgages and mortgage backed securities.
Why do we want to have a bunch of Washington bureaucrats trying to handle hundreds of thousands of mortgages ? Supposedly, Paulson is organizing a staff of thirty to "manage" the assets. ARE THEY ON GLUE ???????????
30 people managing hundreds of thousands of mortgages from all over the country ? Something STINKS.
This tells me that one of two things are REALLY going to happen: A- A lot of Paulson's buddies are going to get fat contracts to manage the assets. You need a live body to set up a sale; to decide whether or not to sell; to keep the property in a saleable condition or B- The Federal government is going to be the largest real estate company in the country. What is all that going to cost ? Somebody has to pay the basic upkeep.
I haven't even touched on all the "sweeteners" in the Senate Bill including raising the FDIC limit to $250,000. Remember what happened when they raised it to $100,000 ?
Why don't we emulate the most successful investor we've seen in recent times ? Warren Buffet. He just bought $5 billion in PREFERRED stock from Goldman Sachs in return for 1. A good look at their books 2. Management reforms and 3. Compensation limits. Why doesn' t the Treasury do the same thing with the banks ? Buy and hold preferred stock for the taxpayers and LET THE BANKS CLEAN UP THE MESS THEY MADE ! Let them go crazy trying to unwrap some of those wild and crazy derivatives that some PhD's in Mathematics can't figure out. I am serious. Chase hired a group of physicists and math whizzes to try and decipher some of the securities held by some of the banks it took over.
History has shown us what to do and what NOT to do. When the RTC was set up to clean up the S & L mess it hired the Account Managers from the failed banks to handle the properties and after they were sold off the taxpayers saw a "profit". The FDIC paid off the depositers in the billions and billions after issuing bonds to cover the costs but the RTC was able to hold and then sell the underlying properties and return the proceeds to the Treasury.
We should be doing the same thing. Inject liquidity by buying stock and let the MARKET set the prices for the foreclosed homes instead of a bunch of bureaucrats or government paid contractors.






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