SERVING THE QUANTITATIVE FINANCE COMMUNITY

twofish
Posts: 4944
Joined: February 18th, 2005, 6:51 pm

QuoteOriginally posted by: TraderJoeBailout could cost the US taxpayer $1trillion - while the fatcats who created this carnage walk away with their huge bonuses ! Looks like capitalism bailed out by socialism yet again.Ummmm..... You to realize that you can change the tax code to hit fatcats. I think that people will realize this over the next few weeks. TraderJoe Posts: 11048 Joined: February 1st, 2005, 11:21 pm ### Credit Derivatives & Subprime Crisis QuoteWASHINGTON - Faltering financial institutions whose toxic assets have brought markets to the brink of catastrophe could unload their bad debt on the government, and in turn the taxpayer, under a half-trillion dollar bailout being crafted by the Bush administration and Congress. Top Republicans and Democrats and their aides planned to work through the weekend with administration officials to hammer out the proposal  the most sweeping government intervention to rescue failing financial institutions since the Great Depression. They hoped the bill could pass the House and Senate as early as next week.The administration is asking Congress for far-reaching new powers to take over troubled mortgages from banks and other companies, including purchasing sour mortgage-backed securities.President Bush on Friday acknowledged risks to taxpayers, but he declared, "The risk of not acting would be far higher."Bailout Plan. Last edited by TraderJoe on September 19th, 2008, 10:00 pm, edited 1 time in total. TraderJoe Posts: 11048 Joined: February 1st, 2005, 11:21 pm ### Credit Derivatives & Subprime Crisis How to save the financial system.QuoteI am astounded and deeply saddened to witness the senseless destruction in the U.S. financial system, which has been the envy of the world ... Traden4Alpha Posts: 23951 Joined: September 20th, 2002, 8:30 pm ### Credit Derivatives & Subprime Crisis QuoteOriginally posted by: twofishQuoteOriginally posted by: TraderJoeBailout could cost the US taxpayer$1trillion - while the fatcats who created this carnage walk away with their huge bonuses ! Looks like capitalism bailed out by socialism yet again.Ummmm..... You to realize that you can change the tax code to hit fatcats. I think that people will realize this over the next few weeks.At the Federal level, the US system is already strongly skewed to taxing fatcats both in rate structure and in actual tax revenues.Poor people in the U.S. don't pay any income tax, only their share of the flow-through of corporate income taxes on consumer goods.

twofish
Posts: 4944
Joined: February 18th, 2005, 6:51 pm

### Credit Derivatives & Subprime Crisis

QuoteOriginally posted by: Traden4AlphaAt the Federal level, the US system is already strongly skewed to taxing fatcats both in rate structure and in actual tax revenues. Poor people in the U.S. don't pay any income tax, only their share of the flow-through of corporate income taxes on consumer goods.So it seems that a taxpayer bailout wouldn't be such a bad thing, socially speaking.

Martinghoul
Posts: 3255
Joined: July 18th, 2006, 5:49 am

### Credit Derivatives & Subprime Crisis

I found this rather funny (this from ML Economist):Taking stockTreasury buying mortgage-related assets: $700bnPotential supplementary stimulus package favored by Democrats:$100bnInsuring money market funds: $50bnTreasury fortifying the Fed's balance sheet:$100bnExpansion of temporary swap lines with central banks: $180bnLoan to AIG:$85bnFed purchase of agency discount notes & ABCP: amount not specifiedFed loans through the Primary Dealer Credit Facility: $20bn through sep 17Fed's discount window:$33bn balanceTreasury purchase of GSE MBS this month: $10bnPotential cost of Fannie/Freddie bailout:$200-\$300bnFinancing the US current account deficit: priceless

Traden4Alpha
Posts: 23951
Joined: September 20th, 2002, 8:30 pm

### Credit Derivatives & Subprime Crisis

QuoteOriginally posted by: twofishQuoteOriginally posted by: Traden4AlphaAt the Federal level, the US system is already strongly skewed to taxing fatcats both in rate structure and in actual tax revenues. Poor people in the U.S. don't pay any income tax, only their share of the flow-through of corporate income taxes on consumer goods.So it seems that a taxpayer bailout wouldn't be such a bad thing, socially speaking.Perhaps, perhaps not. Whether the bail-out is socially good/bad depends on the extent that added taxation stifles the economic growth needed to pay off these accumulated deficits. If the bail-out increases the perceived risk of default of the US, increases unemployment rates, hurts the dollar (causing inflation of imported goods), then the bailout might be socially bad. On the other hand, no one could argue that the collapse of the financial system would be socially good, so a bailout is probably the lesser of the two evils.At the very least, a taxpayer-funded bailout is largely fair because, in many ways, the American consumers/taxpayers only got what they asked for -- cheap money to buy big houses, big cars, and lots of Chinese-made consumer products. Where did all the "lost" billions, now trillions go? The "lost" money went into the pockets of tens of millions of consumers/taxpayers that sold or refinanced houses, borrowed to buy SUVs, and lived life on their credit cards. The money then filtered down to the millions of consumers/taxpayers that make/renovate houses, build cars, and make/sell consumer products. Every user of debt in the the U.S. (and the people they buy from) owns a piece of this problem because every one of them benefited in recent years from the flood of easy money in the system. For all the talk of excessive executive compensation and greedy Wall Street players, very little of this lost money ended up in the pockets of the so-called fat cats.The housing bubble was one massive (ultimately government-funded) economic stimulus package which definitely succeeded (in the short-term) of lifting the U.S. out of the post dotcom, post 9/11 slump. And I suspect that the amount of "benefit" given to the average consumer during the years of the housing/credit bubble is not too different from the effective tax rate of that consumer (i.e., richer, bigger-home-owning people benefited much more than poorer renters). Naturally, some have benefited or suffered unfairly, but to the first order of magnitude, future taxpayers will only be paying off their own debts from their own housing-bubble party.

torontosimpleguy
Posts: 1011
Joined: July 12th, 2004, 5:51 pm

### Credit Derivatives & Subprime Crisis

Strange view on the origin of Credit Crisis (IMHO):QuoteNot being willing to have a real recession. After Greenspan wrongly changed his mind and let the tech bubble grow to a dangerous level in the late 1990s, policy-makers decided instead to pump/print tons of free money to support the economy, creating a massive real estate bubble and the accompanying derivatives bubble.Cliff Asness in N.Y.TimesI think that actually Greenspan pumped "tons of free money" but money just went into 'wrong' direction.Edit: Sorry, I misread him.
Last edited by torontosimpleguy on September 21st, 2008, 10:00 pm, edited 1 time in total.

gardener3
Posts: 1496
Joined: April 5th, 2004, 3:25 pm

### Credit Derivatives & Subprime Crisis

QuoteOriginally posted by: Traden4AlphaQuoteOriginally posted by: twofishQuoteOriginally posted by: Traden4AlphaAt the Federal level, the US system is already strongly skewed to taxing fatcats both in rate structure and in actual tax revenues. Poor people in the U.S. don't pay any income tax, only their share of the flow-through of corporate income taxes on consumer goods.So it seems that a taxpayer bailout wouldn't be such a bad thing, socially speaking.Perhaps, perhaps not. Whether the bail-out is socially good/bad depends on the extent that added taxation stifles the economic growth needed to pay off these accumulated deficits. If the bail-out increases the perceived risk of default of the US, increases unemployment rates, hurts the dollar (causing inflation of imported goods), then the bailout might be socially bad. On the other hand, no one could argue that the collapse of the financial system would be socially good, so a bailout is probably the lesser of the two evils.At the very least, a taxpayer-funded bailout is largely fair because, in many ways, the American consumers/taxpayers only got what they asked for -- cheap money to buy big houses, big cars, and lots of Chinese-made consumer products. Where did all the "lost" billions, now trillions go? The "lost" money went into the pockets of tens of millions of consumers/taxpayers that sold or refinanced houses, borrowed to buy SUVs, and lived life on their credit cards. The money then filtered down to the millions of consumers/taxpayers that make/renovate houses, build cars, and make/sell consumer products. Every user of debt in the the U.S. (and the people they buy from) owns a piece of this problem because every one of them benefited in recent years from the flood of easy money in the system. For all the talk of excessive executive compensation and greedy Wall Street players, very little of this lost money ended up in the pockets of the so-called fat cats.The housing bubble was one massive (ultimately government-funded) economic stimulus package which definitely succeeded (in the short-term) of lifting the U.S. out of the post dotcom, post 9/11 slump. And I suspect that the amount of "benefit" given to the average consumer during the years of the housing/credit bubble is not too different from the effective tax rate of that consumer (i.e., richer, bigger-home-owning people benefited much more than poorer renters). Naturally, some have benefited or suffered unfairly, but to the first order of magnitude, future taxpayers will only be paying off their own debts from their own housing-bubble party.I agree something needs to be done. But the current approach leaves the taxpayers with all the downside risk with very little upside. Here is nice anlaysis of the plan. Perhaps inject capital in exchange for equity: something like this the other day.

fars1d3s
Posts: 451
Joined: August 14th, 2004, 12:28 pm

### Credit Derivatives & Subprime Crisis

If Barclays bailout Lehman, or if JPMorgan bailout Bear Stearns, or if Bank of America bailout Countrywide, etc ... they usually set, or even dictate, the terms. Therefore, a government bailout of AIG or any other financial institutions should follow the same methodology. It's a good precedent.

penguina
Posts: 174
Joined: August 17th, 2008, 11:36 pm

### Credit Derivatives & Subprime Crisis

QuoteOriginally posted by: fars1d3sIf Barclays bailout Lehman, or if JPMorgan bailout Bear Stearns, or if Bank of America bailout Countrywide, etc ... they usually set, or even dictate, the terms. Therefore, a government bailout of AIG or any other financial institutions should follow the same methodology. It's a good precedent.erm, Paulson's latest plan leaves the taxpayer screwed with no legal or congressional oversight. It is criminal.Now both Paulson and Bernanke are trying to railroad it through Congress.

ppauper
Posts: 70239
Joined: November 15th, 2001, 1:29 pm

### Credit Derivatives & Subprime Crisis

QuoteOriginally posted by: penguinaQuoteOriginally posted by: fars1d3sIf Barclays bailout Lehman, or if JPMorgan bailout Bear Stearns, or if Bank of America bailout Countrywide, etc ... they usually set, or even dictate, the terms. Therefore, a government bailout of AIG or any other financial institutions should follow the same methodology. It's a good precedent.erm, Paulson's latest plan leaves the taxpayer screwed with no legal or congressional oversight. It is criminal.Now both Paulson and Bernanke are trying to railroad it through Congress.indeed.Hank Paulson is part of the problem.(like Robert Rubin before him) Paulson is part of the GoldmanSachs gang. (Rubin was co-chairman, Paulson was chief executive).GoldmanSachs of course is one of the owners of the Fed, so it is no surprise that Paulson would decide to help Bernanke and the Fed screw over Mr and Mrs America
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