[Duckman]

OK, sorry folks, but I have to borrow Flash's soapbox for just a second to comment on the "bail out".



"Fannie Mae and Freddie Mac tried that sort of thing by "guaranteeing" the loans of people who had no business getting them, in the name of "spreading the American Dream of home ownership," and that didn't turn out so well..."



First, Fannie and Freddie didn't guarantee anything. They bought mortgages with capital that was raised through the sale of bonds. Yes, they bought mortgages that should never have been made and that was caused at least in part by Congress passing laws and directing them to buy lower quality mortgages. If Fannie and Freddie had tanked, the bondholders would have lost big.



Now, who do you think the bond holders are? They are folks like you and I, all over America, who either hold them directly or through ownership in mutual funds or through our retirement plans and 401(k) plans.



It is absolutely true that too many bad mortgage loans were made to too many buyer borrowers who shouldn't have borrowed as much as they did, if at all. It is also true there was greed involved on several levels and it should not be overlooked. However, the circumstances we face today is far too complex and the hole we're in far too deep to be glossed over with, "We should have let them fail."



The last comment I'll make is that if anyone has been bailed out, it's we American citizens. If you don't believe me, go back to your history books and look up the Great Depression. No thanks, I think I'd like to avoid another one.

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[flash]

lol - i really have no problem with another depression - would it suck? yes, or course - we would survive it



certainly i agree taht those bad loans should never have been allowed, and that way too many people took advantage of it - i was one of them - fortunately i am in a position to be able to sustain it, in spite of the current situation (lol - at least for now)



the bottom line though, and underlying larger problem, is that businesses should not be allowed to run beyond their means any more than you or i are - if you have the cash and/or real assets, fine - if you don't, too bad - if you make bad decisions, you go out of business - that's the nature of the beast - nobody is bailing me out of my bad decisions - does anybody really think we are ever going to get the money back that we are "lending" them? the government will just raise taxes to pay for their own loan, and again we get to foot the bill



banks being allowed to borrow from other banks, who are borrowing from the people is just a giant pyramid scheme with no basis in real asset or value - that is doomed to fail, just as it has



lately i feel like the country is being run by a bunch of amway people



i could go on forever about how we got here, what i think we need to stop spending money on, how people need to buck up and get a job, how we have become a society of whiners, and how the founding fathers would have been ashamed of us



but, this has quickly gotten off track from the original point of the thread though, and i'll stop here and say that i fully expect gas prices to start sliding back up in january, and take a really big jump in april or so, for what should be obvious reasons - so, enjoy it while it lasts

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[Scott Collins]

A buddy of mine works for a conservative company that our government turned to a couple of months ago. What frustrates him is that the people in the banking industry who made gobs of money but are now benefiting from the bailout still have their profits.



My questions is this... How is this bailout going to stop this from happening again? A soldier gets killed in Iraq defending our liberty and his/her family will receive maybe $500,000. Meanwhile the wealthiest stick out their hands and get

$700,000,000,000. I realize that this may be a stretch for some to compare the two, but it's pretty obvious to me.



I want and better see some vigorous prosecution and major jail time for many people in the banking business and perhaps a few politicians as well.

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[flash]

if only...............

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[Cloud9...68]

[quote name='flash' post='61750' date='Oct 16 2008, 08:06 AM']i fully expect gas prices to start sliding back up in january, and take a really big jump in april or so, for what should be obvious reasons - so, enjoy it while it lasts[/quote]

You're a brave man making a prediction as to where gas prices to be at any point in the future. You may be right, but with the bazillion factors driving the price of oil, including things wholly unforeseen, that's a prediction I would never want to make. Many "experts" were predicting $200/barrel oil as it was sailing into the $140's; who could have possbly predicted they'd be below $70 today? Not me, that's for sure. In fact, I vaguely recall your being among predicting it to go into the stratosphere by now (not that that was necessarily a bad call at the time, given the trends). What exactly are your "obvious reasons?"

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[Cloud9...68]

[quote name='Duckman' post='61747' date='Oct 16 2008, 07:17 AM']OK, sorry folks, but I have to borrow Flash's soapbox for just a second to comment on the "bail out".



"Fannie Mae and Freddie Mac tried that sort of thing by "guaranteeing" the loans of people who had no business getting them, in the name of "spreading the American Dream of home ownership," and that didn't turn out so well..."



First, Fannie and Freddie didn't guarantee anything. They bought mortgages with capital that was raised through the sale of bonds. Yes, they bought mortgages that should never have been made and that was caused at least in part by Congress passing laws and directing them to buy lower quality mortgages. If Fannie and Freddie had tanked, the bondholders would have lost big.



Now, who do you think the bond holders are? They are folks like you and I, all over America, who either hold them directly or through ownership in mutual funds or through our retirement plans and 401(k) plans.



It is absolutely true that too many bad mortgage loans were made to too many buyer borrowers who shouldn't have borrowed as much as they did, if at all. It is also true there was greed involved on several levels and it should not be overlooked. However, the circumstances we face today is far too complex and the hole we're in far too deep to be glossed over with, "We should have let them fail."



The last comment I'll make is that if anyone has been bailed out, it's we American citizens. If you don't believe me, go back to your history books and look up the Great Depression. No thanks, I think I'd like to avoid another one.[/quote]



Duckman,



Thanks for straightening me out on how Fannie and Freddie bought the bad mortgages; I'm afraid my education of how the banking/mortgage system works is all through the media, which I guess explains a lot. And nice overall summary of the current situation; it's inspeakably aggravating, and there's plenty of blame to go around, but you make some very good points, as does Flash about how we collectively need to get out of this cycle of financing so much of what we purchase and practice. You really do learn something every day on this site.

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[Duckman]

Most of you don't know that I've worked in the financial services industry for over thirty-five years. For the last twenty plus of those in the investment side of the business. No, I don't work for a firm that originated, sold, packaged or bought sub-prime mortgages. No, I haven't profited from this mess.



However, many friends have asked me about the "bail out" and just what the heck is going on. I wrote the following as an explanation for them and I'll share it with you. It's long but this situation isn't simple. Read it or ignor it if you wish.



[color="#0000FF"]BAIL OUT OR RESCUE?



Several friends have asked me about the mess on Wall St., so I'll comment on the "rescue plan." The term "bail out" is a creation of the media. That is not what it is.



I'm going to cut through the BS and put this into simple, understandable terms—sometimes bluntly. If everybody already knows this stuff, never mind. However, it's pretty damned obvious that too many of our Congressmen and Senators DON'T, or maybe they only choose not to understand it. The majority of the people I’ve talked to about it don’t understand it.



Credit markets have frozen. Farmers in the mid-west can't borrow to buy and plant seed. Dairy farmers in California and Wisconsin can’t borrow to feed their cows and without feed, they won’t produce milk. That means we won't find bread on the supermarket shelves or milk or beef or--well, I could go on about manufacturing and distribution and wholesaling and retailing but you get the idea.



Our economy is interdependent--every small link is intertwined with the others. Access to credit keeps it moving. If credit stops, the economy stops. Production stops. Unemployment soars. Without paychecks people stop buying. Without payroll withholding taxes, our governments at virtually every level slide further and further into the crapper. That's a technical economic term I learned at management school. Whatever you choose to call it, it's bad stuff.



Why is this bad stuff happening?



Among other things it's caused by financial standards and reporting practices. Assets must be marked to market and carried on the books of the owner at their market value. If I bought a 4% $100k bond at par and interest rates on similar quality and duration bonds jumped to 5%, my bond would only be worth $80k. If I had to sell it today, I'd only get $80k, so the Financial Accounting Standards Board (FASB) and the SEC say I have to carry that bond on my balance sheet as an asset worth only $80k. Bummer.



That doesn't seem fair. I can choose to hold that bond until maturity, at which time I'll be paid par value of $100k, plus I'll continue to be paid the semi-annual interest payments at a rate of 4%. Hey, I'm no idiot. I'm going to hold that sucker. Right?



The problem occurs when the holder isn't me or you. The problem occurs when the holder is a publicly-traded financial services company which is required to maintain a capital base to continue operations and continue to finance itself through borrowing.



So, which companies are we talking about?



To start, we’re talking about Fannie Mae and Freddie Mac. That's exactly what busted their bubble. How about Washington Mutual, or Lehman Brothers, or Indy Mac Bank, or AIG? Yeah, it includes them, too.



How did this happen?



It started decades ago when the home loan business shifted from a market in which lenders approved, funded and collected the loans they made, to a market in which loan originators made and sold loans to packagers who securitized them as mortgage-backed bonds and resold them to investors, individual and institutional, all over the world. This phenomenon grew and grew to a point that almost all mortgages were processed in this fashion.



Then the most recent real estate boom started and home values starting escalating really, really fast. Loan originators kept making and selling loans with fewer and fewer requirements so more and more people could afford to buy homes. Among other things, in 1999, a Republican-controlled Congress passed and then-president Clinton, a Democrat, signed a bill requiring Fannie Mae and Freddie Mac to make higher-risk loans to less qualified buyers. That proved to be a really bad idea but at the time an overwhelming majority of our politicians of BOTH parties thought it was really the cool thing to do.



At the same time, the Feds decided it was cool to lower the capital requirements of these big financial specialty firms. In some cases the new standard was an incredible leverage ratio of 30:1. Yeah, if you realized that meant they had capital equal to a little over 3% of assets, you did the math correctly.



The home buyers bought homes in which they planned to live and they bought vacation homes and they bought homes speculatively as investments. They did so because the qualifying standards were relaxed more and more: No down payment required; no verification of income; no credit checks; crazy adjustable-rate mortgages with terms such as 3.0% for the first eighteen months, at which time the interest rate would jump to 10.0%. People kept getting the mortgages and buying the houses because, hey, they had eighteen months to worry about refinancing or selling the house. Besides everybody KNEW that the house was going to double in value in eighteen months--didn't they?



They thought. They were wrong.



The problem with that strategy was that as home values flattened and mortgage rates reset, homeowners and investors starting defaulting. Oh, wait--that's not supposed to happen. No but it did.



As mortgages defaulted and home values fell, the collateralized mortgage obligations that included them began to fall in value and were required by SEC regulations, to be marked to market. As bond holders needed cash, they needed to sell those bonds, NOW. Other more well-capitalized holders were able to continue holding but they, too, had to mark the bonds to market, which caused their capital to fall. The death spiral had started.



With me, so far?



So what's the rescue plan all about and why should we stop whining about it?



First, the government has the ability to buy and hold these mortgage-backed securities without the requirement to mark them to market. The government, like an individual investor, such as you and I, can buy and hold them until they mature. The only problem is that NO individual investor has the bucks to do it. Warren Buffet commented about the rescue plan prior to its passage that if he had $700 billion, he'd step in and buy the securities in a heartbeat. He knows it’s an investment opportunity, rather than an expense, but even Berkshire Hathaway, as big and successful as it is, doesn’t have enough bucks. Too bad but that's the way it is. Only our government has or can raise the amount of money required AND can continue to hold without the requirement to mark them to market.



Next, this plan isn't anything new. It's been used before and it's been successful before. During the '80s, the S&L industry was sliding into the crapper, which had potentially dire consequences for our economy and society. The government created the Resolution Trust Corp. (RTC) to deal with the problem. Guess what? They bought troubled assets, such as risky mortgages and mortgage-backed securities. Sound familiar? They bought lots and lots and lots of them between 1989 and 1995. Although the final dollar count varies depending on whom you ask, by some estimates, the dollar value approached $400 billion. The RTC was able to hold the mortgages and securities and they wound up making a profit for the taxpayers--that means us.



Is a rescue necessary? Yes, allowing the economy to stop isn't an option. Does anybody remember their history books and reading about the Great Depression?



Will this rescue plan work? Yes, although it is likely to take several years to return a profit to the taxpayers, it will take the problem assets off the balance sheets of the financial companies upon purchase. Without the Sword of Damocles hanging over their heads, companies can and will begin lending again. Life, credit and the economy will keep rolling along. Yes, we are sliding into a recession but with the rescue plan in place, it’s not likely to be a depression, a la the Thirties.



How much will it cost? I don't know how much total investment will be required but in the long run the cost will be minimal. It is not improbable that the government will make a profit for the taxpayers.



So, getting back to the "bail out", please remember exactly who this rescue plan bails out. We are the ones who will benefit and are the ones being bailed out.



Does anybody know and play Craps? Many people have told me they don't play Craps because it's too complicated and they don't understand it.



I love Craps. It's really a very simple game. You put your money on the table, some other guy rolls the dice, and another guy picks up your money. What could be simpler?



The Rescue Plan is no Crap game. It's not rolling dice. It's a sound policy that can work and make a profit for the taxpayers. More importantly, it can prevent a catastrophic fall of our economy and help return financial stability. All of the people who claim the Rescue Plan is a bailout of Wall St. fat cats and crooks are full of crap.



I cannot be plainer than that.[/color]

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[94SilverCab]

Since this thread originally started about falling Gasoline prices I am lead to wonder...



With the price of Oil falling below $70/Barrel, how long before we will need to Bail out the "failing" petroleum industry???



Jay

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[rhudeboye]

[quote name='94SilverCab' post='61782' date='Oct 17 2008, 06:32 AM']Since this thread originally started about falling Gasoline prices I am lead to wonder...



With the price of Oil falling below $70/Barrel, how long before we will need to Bail out the "failing" petroleum industry???



Jay[/quote]



I think all those months of gouging will hold them over for quite some time.

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[flash]

of course the bailout is the only "viable" solution, because people aren't willing to make the real sacrifices necessary to really fix the problem



the problem i have with the bailout is that we will NEVER see our money back - we might if we could have made a condition of the loan that WE made to the government, that we never saw any tax increase - the problem is that a tax increase is exactly what is going to happen, so we get to pay for it twice



that 700 billion had to come from somewhere - it comes from you and i - i want my money back WITH INTEREST - think i am ever going to get it? no way- at the end, the dollars lent today will have cost me money - they should have either given us bonds in exchange for our share of the bailout (stock in the country) or something tangible, with a written agreement for us to be repaid



thank you, but i would rather have seen another depression - my grandparents went through it, so could i



letting the government get farther in our pockets is a bad idea - they don't know how to spend our money - all they know is quick-fix perpetuation of things that line their pockets and are bad for the long run - i would rather see the entire system crash and burn, everything crumble, anarchy ensue, and start the whole country over again, with the PEOPLE in charge



lol - viva la revolution



ok - i've waxed long enough



back to gas prices, and to answer the recent question - every time we have a presidential turnover (not an incumbent election) like this election, gas prices drop before the election - standard "look at what our party is already doing for you" tactic - it makes the people "feel better" about things - some candidates have made comment - some let it play in the background - the prices will come back up when the new regime gets settled in, and it's time to start making money again



we will probably see an interest rate drop soon too - then they will go back up



the housing market follows this trend too

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[p65356sc]

Regular (87) dropped to $2.96 here in CT. The better news is that (93) dropped to $3.23 a gl.

Ross

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[Cloud9...68]

[quote name='flash' post='61785' date='Oct 17 2008, 09:14 AM']back to gas prices, and to answer the recent question - every time we have a presidential turnover (not an incumbent election) like this election, gas prices drop before the election - standard "look at what our party is already doing for you" tactic - it makes the people "feel better" about things - some candidates have made comment - some let it play in the background - the prices will come back up when the new regime gets settled in, and it's time to start making money again



we will probably see an interest rate drop soon too - then they will go back up



the housing market follows this trend too[/quote]

Flash,



Take a look at my post #8 in this thread. The scenario you describe happened in only three of the last eight elections, in 1992, 1996, and 2004, but only 1992 had a presidential turnover, so it only held one in the last eight elections. Not something I would place any money (what I have left, anyway) on. I happen to agree with much of what you're saying throughout this thread, but I disagree with your premise the the individual or party in the White House has a whit of influence on oil/gas prices - there are simply too many factors at play. Anyway, this is not a matter of opinion - just take a look at the data.



A far as going through another depression, I understand and share your sentiment and frustration with the status quo, and feel that no punishment is too severe for the countless irresponsible individuals who layed the groundwork for the financial turmoil we find ourselves in, but you have to think back to what finally ended the Great Depression - a little affair known as World War II. If it hadn't been for that, who knows how long the depression would have lasted - 20 years? 30? 50? Sacrifice is often necessary, and even desirable, but to take that sort of risk with an entire generation, or maybe multiple generations, is simply too much. I hate the thought of muddling through this mess with so many of our tax dollars at risk, but I'm afraid the best we can hope for is that we learn enough lssons from this experience that we never repeat it, or anything like it.



On a side note, it's occurred to me how valuable having hobbies is to ones' psyche. I've enrolled in a racing academy (Driveway Austin), and am in the midst of attending a series of ten practice sessions prior to taking my Level 1 test. It's amazing how the complete focus required to drive around a track at the limit in my 968 blocks out everything else going on in the world, so that for 20 minutes of pure bliss, I can completely forget about finances, politics and politicians, oil prices, everything. The closest thing to heaven on earth I've found.

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[flash]

well, my data contradicts that (my extremely anal retentive mom still has the receipts to prove it), and i know for a fact that the white house can easily influence gas prices, but that's another discussion for a different thread on a different day, and would require introducing some internal memos i have seen on the subject between those in the position to influence prices, and clearly shows from whence came the directive - it's not hard to follow though - pretty much a no brainer



frankly i'm hoping for nuclear war and the complete start over of society



but....about those gas prices..........

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[Cloud9...68]

[quote name='flash' post='61799' date='Oct 17 2008, 04:46 PM']frankly i'm hoping for nuclear war and the complete start over of society[/quote]

You're not the first person I've recently heard express that opinion. But who's to say "startng over" would produce any better outcome, with flawed humans still making all the rules? Wow, this is getting deep...



As far as gas prices (and other things), I guess it's best to take it day by day. I'm definitely enjoying burning a slightly smaller hole in my wallet as I burn through petrol flogging my car around the track. But who knows how long it will last? I can easily paint scenarios for sub - $2.00, >$4.00, and everything in between.

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[ds968]

Top grade available around here ( 91 oct ) now going for around $ 3.00 /gal. <img src="/forum/images/smilies/968/ohmy.gif" class="smilie" alt="" /> $ 3.30 looks to be par in most of San Francisco, I've seen it as low $ 2.70 at various stations in the South Bay ( San Jose ) and guessing you guys in Los Angeles may even be seeing $ 2.40s or less for 91 lately ? Talk about a rapid and deep plunge . Won't last long though <img src="/forum/images/smilies/968/dry.gif" class="smilie" alt="" />



I heard some stations in Il were selling at $ 1.70 ?!

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[flash]

paid 2.59 for regular the other day, and i think we just got 91 for 2.79



a buddy in missouri said reg was down to 1.79 there



lol - i figure we have about 8 more hours of that

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[Anchorman]

I just paid $2.159 for regular.



I'll get into the other issues some other time - maybe.

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[DaveN]

[quote name='Anchorman' post='62662' date='Nov 4 2008, 02:06 PM']I just paid $2.159 for regular.



I'll get into the other issues some other time - maybe.[/quote]



You guys make me chuckle. Anywhere else but the US and we have all but given up talking about gas prices <img src="/forum/images/smilies/968/wink.gif" class="smilie" alt="" /> . North of you we are used to 5.50 a USG (this summer) for regular and 6.00 USG for 94 in my 968.

We just fell to 3.80 regular today for a USG and still dropping.

Don't even want to tell you about Europe.

Just close your eyes so you don't see the total. <img src="/forum/images/smilies/968/happy.gif" class="smilie" alt="" />

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[Anchorman]

That's one of our biggest problems - our fuel prices have been too low for too long.



Had we taken steps some time ago - and I know some senior folks who wanted to start increasing gasoline taxes after the first oil shock in 1973 - we'd be in a staggeringly different (and, IMHO, much better) place than where we are now.



Europe is, in many ways, an excellent example - that we happily (and, to our detriment) ignored. Fuel in Europe is much more expensive than in the US - but there's no shortage of vehicles, or of miles driven. It's simply that the average vehicle is different from that of the US - and there are also trains that work. Don't start telling me that the countries are smaller - that's an easy excuse. There are many steps that we could have taken, that we should have taken, and that we didn't take.



Hopefully we won't get lulled into yet another period of doing the wrong thing because prices are, once again, falling.

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[flash]

ah yes, but it worked before, so....................



i'm such a cynic

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