New Super Agency Proposed To Buy Up All The Very Bad Loans And Save Our Financial System

Markets rallied in late trading in the biggest gain in six years, emboldened by news that Washington wants to create a new agency that will buy up ALL the bad loans on these financial companies’ books. The initiative would be an attempt to fashion a holistic solution instead of bailing out each individual bank as it fails. This would cost many more billions of dollars and require Congressional approval. In order for all those CongressCritters to keep their jobs, there is talk that the deal would be packaged with another stimulus package perhaps including more rebates, along with food stamps and unemployment benefits.

Stocks Post Huge Late-Day Surge [CBS]

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  1. crazydavythe1st says:

    I don’t know. This seems like too much. Why not buy up all loans and make the entire thing state run?

  2. kingmanic says:

    Hey! lets fix our problem with the baking industry inventing wealth from nowhere by having the government invent wealth form nowhere. I’m certain there is no problem with this idea.

    /do I really need a S tag here?

  3. laserjobs says:

    The bailout I have been waiting for is finally here.

    Nobody should ever lose just because they took on risk.

  4. mpacuk says:

    I didn’t realize our cookies were in mortal peril.

  5. This shows how pro mom and pop business our government is. I’m sure very time a small business is on the brink of failure someone will be waiting to absorb all their bad debt..

    Where’s my bailout. I still have 50K of student loans to pay back. I definitely consider it bad debt and I’m entertaining offers to be bought out at twice my share value.

    • veronykah says:

      @johnarlington: I have 70k in student loans, bail me out bail me out!!!!
      I took a risk and in this economy it just isn’t working out, where is the line for the gov’t to assume my debts too?

  6. that’s ‘every’ not ‘very’

  7. Jeff_McAwes0me says:

    The government doing this would be the worst idea in the long sad history of bad ideas, and I’m gonna be there to see it.

  8. ciscokidinsf says:

    New plan, every American pulls a tooth out and the Tooth Fairy will leave us enough money to bail everyone out. WTF? The more I hear about these plans the more I want to move out of the country.

  9. humphrmi says:

    It should be pointed out that the last time the government did this (go Wikipedia “Resolution Trust Corporation” if you don’t already know about this) the “bad bank” took on loans and liquidated assets. So it’s not much more than an Uber-Bankruptcy agency, and there will be no lines forming by banks to unload their bad loans and then walk away.

    Still, it does provide an orderly unwinding of these complex liabilities. There’s a reason this caused a rally, and it’s not because pit traders give a crap that I-Bankers get bailed out.

    • Ben Popken says:

      @humphrmi: It should also be pointed out that the RTC ended up turning a profit. So if it all works out, taxpayers could actually end up earning on their investment and the money isn’t just vaporizing.

    • yasth says:

      @humphrmi: It should also be pointed out that RTC was something that was required. The deposits were FDIC insured. The government was on the hook one way or another.

      This is something else entire. Something like…. gift.

      As a matter of fact I am near positive this is against WTO rules.

      • kc-guy says:

        @yasth: Given the plunge of multiple global indexes in response the Wall Street’s nosedive, I think the WTO will eagerly turn a blind eye to this one.

  10. ludwigk says:

    So this is more of a ‘revolving bailout’ rather than a discrete bailout that might need to be repeated and re-assessed on an individual basis? So, giant corporate-socialism bailout?

  11. 11hawkinst says:

    Where does the government get all of this money? Who needs an economy when our government can magically make money appear!

    sucks to be an American tax payer! (crap, that’s me)

    • ironchef says:

      @11hawkinst: Same place where we wasted $2-3 Trillion on the War on Error.

      This bailout is a drop in the bucket.

      BTW, capitalism and the power to “self regulate” is the reason why you have a disaster. Also the fact that shady subprime lending and sloppy oversight by the current administration complicated everything.

      • Xerloq says:

        @ironchef: Capitalism isn’t the problem, neither is the self-regulation. Failure is an inherent part of the system; it gets rid of the bad/broken businesses. People only like capitalism on the upswings.

        You want to investigate and prosecute those that caused the mess, fine. Cut the golden parachutes and make those guys, but don’t take MY tax-money to bail the bad businesses.

        Is it too late for me to take out a loan that I can’t afford so I can get a house I can’t afford so the government can bail me out?

        • ironchef says:

          @Xerloq: Self regulation is the problem here. All those mortgage backed securities are the invention of wall street, where they were able to finance low quality loans.

          You know why the credit unions aren’t in this mess? Because they were barred from creative financing deals like what Bear Stearns, Lehman Bros, etc where selling as mortgage backed securities.

          As for your tax money…it’s necessary to prop up AIG because so many retirement plans, construction bonds, government financed projects will collapse. You have to put a stop gap. In the end the money isn’t a bailout. Even McCain had to REVERSE himself after realizing THIS WAS THE ONLY WAY TO PREVENT A COMPLETE COLLAPSE of the American financial system.

          • chrisjames says:

            @ironchef: The big disaster firms were actually the ones buying the worthless securities. They didn’t scrutinize them close enough, and when their value was exposed, it pulled the foundations out from underneath them.

            Why did they buy them without a close inspection? Because the government promised to back the bad securities from the beginning. First it was a little deal with Fan/Fred, then a panicky “Oh God, we can’t possibly cover that. We can’t help. Oh, and bye-bye Lehman,” now it’s right back to backing the loans, but this time they’ll plop down an agency that requires them to pay out. It’s like someone in Washington isn’t even listening, just coming up with ideas founded in ignorance, or maybe just copy and pasting memos from twenty years ago.

            Not that anyone’s really for this. It’s a press-release move; probably a half-ass plan that’s been in the works for ages, but released now to stabilize the stock market. People are already pulling investments, the media is running day-to-day contradicting advice, and the market fluctuation exacerbates it all. Next week, it’ll be doom and gloom again and they’ll pull another stunt.

      • joel. says:

        @ironchef: I’d like to point out that GWB proposed better oversight and regulation for Freddie and Fanny back in 2003 and it was derailed by Congress. source

        I’m not convinced it was “sloppy oversight by the current administration” that did this.

    • ELC says:

      @11hawkinst: Amen – the U.S. Govt mint – “printing money whenever we need some.”

  12. Landru says:

    Will prices still come down to where regular people can afford houses? Or will this send them back up to the stratosphere?

  13. rnr181 says:

    Please let it be noted, and fully appreciated, that the bankers who created these products are only as stupid and shortsighted as those who took out ginormous mortgages they could not afford, who are, in turn, as stupid and shortsighted as the regulators, who failed to curb these irresponsible practices. We all let it happen, dear Americans. Now we (taxpayers) pay for it.

    Also, please consult a 20 year chart of the S&P 500 (which includes ~1987, the last time an action similar to this was taken) and, with that as a rough judge, let me know if it is your opinion that this move by the government may not be such a poor one.

  14. corkdork says:

    So, it seems that we’re in the business of privatizing profits, while nationalizing losses, as a commenter on Fark said the other day?

    Seems like a strange kind of socialism to me.

  15. laserjobs says:

    Amazing, these banks aren’t even dead yet and they want to let them offload their bad loans.

    Privatize the profits and socialize the losses is truely correct comrads!!!

  16. ironchef says:

    So much for privatizing Social Security, eh?

    LOL.

    • Trai_Dep says:

      @ironchef: Oh gawd, I forgot. Yeah, that’s right: Ownership Society, baybie. Who needs those musty stacks of “just paper” and those Old Fogey notions of Social Security?
      Privatize it all and watch the Magic of the Marketplace lift all boats!!

      • ironchef says:

        @Trai_Dep: and sink like the titanic just like the banking runs of the great depression.

        Ironically, it is the Communists in China that’s propping up all that debt America is drowning in. They seem to have better fiscal management than wall street right now, sitting with a massive surplus and a better savings rate.

  17. Gopher bond says:

    Let’s just give all our money to the Government and we can eat cheese sandwiches twice a day, for FREE!

  18. Trai_Dep says:

    (four more years of the next eight years!!)

  19. Judge_Smails says:

    Note to self: Crime DOES pay…

  20. Trai_Dep says:

    The US Republican Party has become more Socialist than the entire Kremlin, People’s Great Hall and Fidel’s lush beach villa, all rolled into one.

  21. silver-spork says:

    Yay – more socialized losses! This is much better than socialized medicine. /sarcasm

    I guess I can hope that keeping the value of my 401k artificially high will eventually balance out the giant temporary refund adjustment we all have coming to pay for this.

  22. Triborough says:

    Just what we need another black hole for taxpayer’s money.

  23. TangDrinker says:

    Is this like the Marshall plan, only for ourselves?

  24. laserjobs says:

    Now a Short Selling Ban is in the works. I am pulling all my money out of the markets ASAP!!!

    [online.wsj.com]

  25. UTnick says:

    Dear China,

    Here is our economy. Feed it three times daily and let it out in the mornings and evenings.

    <3 America.

    PS
    Don’t let it play with Russia.

  26. Jevia says:

    Isn’t it nice that the regulations put in place after the Great Depression were removed that allowed the current debacle to happen. Another great depression in the future? I guess this should also put to rest that silly idea of privatizing social security.

    Funny how people fear and loathe ‘socialized medicine’ but love ‘socialized economic bail-out.’

  27. gliscameria says:

    YAY! Let’s reward the thieves! Forget about sending a message to wall street that the days of cooking books are over… let’s just give them a mulligan on this one.

    If it’s too big to fail it’s too big to be private. Capitol hill should run wall street, not the other way around. Someone needs to close down the casino.

  28. humphrmi says:

    I really love all the armchair economists predicting or calling a depression. 25% unemployment. Millions of deposits lost in bank failures. Produce prices falling 40%. Export declines due to protectionist tariffs. A shrinking supply of money. These were the five major contributors to the great depression, and I haven’t seen one of them yet today.

    • metsarethe... says:

      @humphrmi: +1. Cheers, the sheer lack of understanding in some of the comments is remarkable

    • laserjobs says:

      @humphrmi: I can tell you do not work in the finance industry or even have the first clue about how the financial market functions. History does not repeat itself, it rhymes. This is not the normal situation of too much inventory, it is a deleveraging of the financial markets.

      Maybe you should do a little research before you call people armchair economists.

      • humphrmi says:

        @laserjobs:

        Deleveraging is not a depression either. RTC contributed to an orderly deleveraging of the S&L industry and made a profit while they were at it, and despite armchair economists calls for a depression then, none happened then either.

        I double-majored in economics and wrote my masters thesis on elasticity of demand in public transportation. And I’m currently gainfully employed in the financial sector.

    • thewriteguy says:

      @humphrmi:

      “25% unemployment” — The actual unemployment rate in this country is higher than the government cares to report. If you are unable to find work after 6 months, you are no longer counted as “unemployed.” Also, there are many citizens who are under-employed (working part time, or occasionally) who simply cannot find full-time employment.

      “Millions of deposits lost in bank failures” — That was back before the days of the FDIC. Today when a bank fails, the FDIC steps in, takes it over, rehabilitates it or dissolves it. Account holders are reimbursed their money. But where does this money come from? Taxpayers.

      “Produce prices falling 40%” — Debatable factor today, considering that most of the nation’s food supply is produced by corporate agribuses, and not family owned farms, like the way it was before the Great Depression.

      “Export declines due to protectionist tariffs” — Irrelevant since we voluntarily import more than we export today to other nations, especially China. But we have been importing far more than we export… for decades now.

      “A shrinking supply of money” — No, it’s not shrinking… instead, the Fed Reserve issues more money and sells off the debt packaged in the form of bonds to foreign investors.

    • nyaz says:

      @humphrmi: Well Black Monday lost 22.8% of the stock market in one day. We’ve done 25.3%(so far) in one year. And if you knew anything about the unemployment numbers. Bush started counting unemployment differently a long time ago, look it up. So what they say is 6% unemployment could be more like 10% and we don’t know it cause they’re cooking the books. Thanks to Richard Nixon we don’t need gold to back our money and can print, and digitize, unlimited amounts of wealth. But with that you get Hyper-Inflation. O wait what have we been doing the last month? Just wait till inflation hits we’ll all be knocked to our knees.

      • humphrmi says:

        @nyaz: Black Monday was not a precursor to a depression either. The big crash prior to the depression saw a combined 89% drop in the DJIA. Sorry, still don’t see evidence of a depression.

    • ameyer says:

      @humphrmi: Actually, there have been millions of dollars lost in bank deposits.
      “NetBank had approximately $109 million in 1,500 deposit accounts that exceeded the federal deposit insurance limit.” (source: [www.fdic.gov] )
      “At the time of closing, IndyMac Bank, F.S.B. had about $1 billion of potentially uninsured deposits held by approximately 10,000 depositors.” (source: [www.fdic.gov] )
      Of course, in both cases, they’ve already given uninsured depositors 50% of their uninsured deposits and it’s possible the depositors will eventually get all their money.
      On the other hand, 2008US$554Million is probably more like 1929US$1.50 or something.

  29. thewriteguy says:

    I got a better idea: How about our Federal government buy up all these corporate debts, including every citizen’s credit card, student and other loan debts, pack them all together into a giant ball and shoot it into the sun?

    “Trickle down theory” my ass — what trickles down to the masses is not money but debt.

    If it isn’t apparent to everybody already: The American government no longer practices true capitalism nor true (as we will see once again in November) democracy.

  30. quail says:

    I wish the media’s headlines would scream “LOAN” instead of ‘bailout’. The average joe on the street’s thinking that Uncle Sam’s handing out the cash for free. There’s an interest rate attached to the loan along with tons of string, like sell off your assets to get this loan payed off pronto.

    And if I read one more person throw out a plea for their credit card or student loan debt to be magically wiped cleaned by the government I’m going to hurl.

    • Parting says:

      @quail: Uncle Sam is loaning money he doesn’t have. Do you know, how much money USA owns? Especially to ”communist” China?

      Any sensible person would cut expenses, to gradually pay off debt. USA’s government is on a spending spree, which is getting worse and worse. Basically, USA is going broke. By itself.

      ”I’m my own worst enemy…”

    • SinisterMatt says:

      @quail:

      Ah, but LOAN doesn’t sell as many newspapers as BAILOUT. And LOAN doesn’t get our friends in Congress reelected either.

      But you are right, I suppose.

      Cheers!

  31. nyaz says:

    I never said anything about the great depression, but I fear this is only the beginning. With WAMU looking for someone to buy them out, possibly China. The possible Wachovia merger. Russia has had to shut down it’s market 2 times this week cause they were being hit so hard, I didn’t catch what they did today or yesterday. I’ll bet you we’ll see the DJIA at 90′s levels in no time.

  32. Invective says:

    Can’t buy up all the debt, it would require all the banks to come clean and they’re never going to do that. Anyway it’s not realistic and neither is this idea. Nobody knows, nor will they how far gone the banks, or the insurance companies are, so short of tea leaves, I doubt much will be done. The government should first deal with the oil industry. IF we don’t get gas prices down to happy days are here again prices, all the rest won’t mean anything. Since the oil companies really are in charge of the false market, they’re the only ones who can drop prices. They deserve the hit anyway. I believe in a fine profit, but what they’ve been doing is beyond all reason by any measure. Enough with the off shore drilling squeeze and help America out before it’s too late, which it may be. But first! I want some butts! Fried, on one of those prime time reality shows. How about ‘Make the Senator Squeal’, or ‘Thermo-Electro Senator Water Games’?

    • Parting says:

      @Invective: Price of gas won’t go down. China is developing, and wants more and more of it.

      It’s time to use alternatives. And for USA, learn that there are fuel efficient cars. Like the rest of the world.

      Unfortunately, reserves are not infinite, so time to find alternatives. Before time runs out.

  33. dkush21 says:

    Maybe they sold the debt overseas and we’re now owned by another country! HAHAHA

  34. lrbreckenripple says:

    Your Republican led Government at work. Proud? Vote McCain for More of the same…or worse!

  35. I have a 7+ Million buck commercial mortgage that I would like to dump on the American People, just let me know where to sign up.

    Sorry for the sarcasm, but why should big businesses get a bailout (special loan package or whatever you wanna call it) for taking on risk and then screwing up, while at the same time small businesses in this country take on the same risk and then have to close our doors when even the most minor event happens?

    I say, if they (the big companies) screw up then just go ahead and let them fail. It is a dog eat dog world out here and I don’t think the government should be giving out doggie treats to those that don’t deserve a treat.

  36. nerdychaz says:

    Even as a socialist, I see this as a bad Idea because the profits are privatized. argh…

  37. synergy says:

    Who are they kidding. Throwing a bone with that package isn’t going to make it any prettier.

  38. Parting says:

    Just let them sink. Let the market work it out.
    It will cost in taxes, on long term.

  39. Cary says:

    Here’s a neat idea people: if you can’t afford it, don’t buy it.

    I go without then have to give that money to the government so they can give it to your bank because they were stupid enough to give you a mortgage on a house you couldn’t afford?

    I have just one question: why was I so stupid? I’m the one asshole who ISN’T getting a free house.

    • nyaz says:

      @Cary: Hah tell that to the Financial Institutions like AIG and all the others that are on the brink because they borrowed the money, to lend money in the first place. Don’t forget people, AIG isn’t just Insurance. It’s also one of the biggest, private, buyers of Boeing Jets. They also have a Jet Renting company among other things. That’s why they have $1,000,000,000,000 in assets.

      • lightaugust says:

        @nyaz: Why the hell is ok to lacerate individual, non financially knowledgeable people for the risk they took and perfectly ok to bail out the banks here for a cool trillion? Risk is risk is risk. We either believe in it, or we don’t.

    • @Cary: Sure, it’s easy to blame it on the person who took out the loan. But here are some more ideas:

      1. If you have some money to lend, don’t give it to someone who won’t be able to pay it back, thinking that you can just charge enough interest to make up for the ones who default.
      2. If you ignore #1, don’t repackage all those loans as some sort of a Bank-Underwritten Loan-Leveraged Security and High-Income Transaction (a BULLSHIT, as they’re called in the financial sector) that looks like it has high-yield and low risk.
      3. If someone suggests that invest in BULLSHIT, don’t do it, even if everyone else is doing it.
      4. If you ignore #3, don’t worry. The government will step in at some point because you just fucked up the economy.

    • @Cary: Or, to put it another way, guess where you are in this cartoon.

    • mac-phisto says:

      @Cary: where exactly does one get a “free house”? i was under the impression that when people couldn’t pay for them anymore, they lost them.

      has something changed? if so, please notify the banks in my area – they’ve just started distributing the REO signs…

    • Jean-Baptiste Emanuel Zorg says:

      @Cary: Here’s a neat idea people: if you can’t afford it, don’t buy it.

      I think I’ve got it. I buy something I want, and then hope that I can pay for it, right?

  40. endless says:

    I like it!

    Once the government buys all these loans, they can THEN instate a tax on anyone who helped create the bad loans: the borrowers.

    they could pair this on some sort of retribution against the banks and everyones happy!

  41. Canino says:

    …there is talk that the deal would be packaged with another stimulus package perhaps including more rebates, along with food stamps and unemployment benefits

    In other words, once again the middle class, self employed, small business owners and single individuals are about to get screwed.

    I’m going to start giving my clients a rebate if they pay cash under the table so I can not report the income.

  42. Where the bloody hell is the government getting all this money!?!? Seriously Big Brother, this is getting ridiculous. In a year, the government will probably print out so much money in “economic stimulus” checks, bailouts, and whatever false hope they pump into us that we won’t have a rainforest left. Extreme prediction, but it wouldn’t surprise me. I think requiring students in my state to take Economics in high school happened 20 years too late.

  43. ironchef says:

    [docs.google.com]

    The Mortgage Crisis in a nutshell

  44. Panamapeter says:

    U.S. saved from ruin. McCain says its wrong.

  45. Wormfather is Wormfather says:

    I just want to ask something. Am I allowed to blame the victim(s) here? Because I really want to.

  46. TMurphy says:

    So who bails us out when we realize we’re spending all of this money and have no place to get any?

  47. SpitfireM1 says:

    Socializing the financial system doesn’t seem like a good move to me. We’ve all seen how well the Fed has handled things over the last decade.

    Financial institutions failing may be a bitter pill to swallow, but if it’s the one that cures us in the long-term, that’s the one we need to take. I’d much rather see us have to deal with a recession than have to deal with potentially trillions of dollars of additional debt. These institutions have made their beds and should be forced to lie in them.

    This morning during the Treasury secretary’s speech he stated multiple times that giving people credit so they were free to spend was the key to growth. This stuff makes me sick. Credit is not the answer and can only ever drive growth short-term until everyone’s credit is maxed out, at which point a crash happens because no one can pay for anything but their minimum balances. In the long-term, saving is the true key to growth but you don’t see them proposing incentives to help max out your 401k or IRA.

    This is is blatantly targeted at bailing out cronies and making Joe Public feel better, but solves little. It creates significant moral hazard issues, saddles even the responsible taxpayers with huge sums of public debt, and will significantly weaken the dollar.

    Please write to your congressmen and senators and urge them not to support such a plan.

    • johnva says:

      @SpitfireM1: I agree. What I think we are actually witnessing is the greatest theft in the history of the world. Maybe they’re doing this now because they fear that the next Administration won’t be so pro-deregulation.

    • Trai_Dep says:

      @SpitfireM1: Although, as running FEMA proved, it’s less that public sector agencies can’t be run well, it’s that if a political party’s primary selling point is that they hate gov’t and it’s always the cause of problems, they’ll predictably be the worst possible managers of them.
      Obvious solution: get them out of government and keep them out of government.

      For instance, the head of the SEC, Christopher Cox, has patiently been waiting for – how many years has it been – to do something – anything – related to his role as the so-called Top Wall Street Cop. He was even asked by a Congressional committee if the SEC needed additional powers, resources, anything, to clean up the subprime mess, and this was a half-year ago. Of course, this shining example of Republicanism said, “Nope. Everything’s peachy!”

      > When hiring for your Fire Department, don’t choose pyromaniacs. That’s all.

  48. u1itn0w2day says:

    How are you going to find out WHAT THE SOLUTION is if you don’t even know what THE ACTUAL PROBLEMS are yet.

    Yes,you have to do something BUT a TRILLION or so dollar bailout? WHERE WAS THE SEC?.After the crash of 1987 I thought that computers were supposed to halt trading after a certain amount of activity.And do these companies actually have to declare bankruptcy?

    I want to see someone lay everything out in one swoop.I want to see a copy of an actual subprime mortgage that someone signed.I want to see the actual wording that confused them.I want to see their signature and initials on the 50 or so pages of documents.

    I want to see the actual information these banks and brokers had when they decided to buy/back these loans(not talking who approved the original mortgage). I want a list of mortgages. I want to see the chain of custody from the home owners first bank to the current owner.I want to see the value placed on them at each ‘sale’.Lay it out.

    They always say if you want to know what’s going on just FOLLOW the money.

  49. u1itn0w2day says:

    One of the things I noticed about the media coverage is that the talking heads are doing a very poor job of explaining what actually happend or how things are supposed to work.

    And yet when I search on the internet I can find plenty of print media stories that include explanations.

    What’s one of the things you are frequently told in school-explain it in your own words.In other words think about what you are saying and show me you understand it.Tell it to me so I can understand it.

    Perhaps the media types understand this in their own minds but they’ve done a poor job of explaining it to the public.And that’s part of the reason the public and politicians are very reactionary right now.But it was their job to understand this stuff the minute they took office.

  50. vladthepaler says:

    US Gvt to major banks: Make all the shady, risky deals you want: you’re covered!

  51. LogicalOne says:

    I’ll drop my total opposition to this corporate welfare when there’s sufficient punishment of those who’ve perpetuated these bad business decisions:
    “Welcome to the Federal Financial Bailout Corporation. In order to process your bailout request, you must forfeit to the government either a) your golden parachute (if valued more than $1,000,000) or b) yourself to a federal penitentiary for a period of not less two years. If you’ve laid off more than 20% of your workforce, or sold significant assets to a foreign entity, then both a) and b) apply. Please make your selections below:…”