Dodd’s Mortgage Buy-Out Counter Proposal

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dodd working.jpg
PublicMarkup.org has just put up Senator Chris Dodd’s counter proposal on a government buy-out of non-performing and failing mortgages.
Thanks to Matt Stoller for sending my way.
— Steve Clemons

Comments

6 comments on “Dodd’s Mortgage Buy-Out Counter Proposal

  1. Liz says:

    Can someone please explain to me what happened to private
    mortgage insurance during this entire debacle ? I understand that
    related mortgage securities would not be directly tied to insurance,
    however what about mortgage pools ? When I bought my house
    for 5% down many, many years ago, I paid P.M.I for years before I
    finally had the 20% in equity required to cancel it.
    I understand that the contortions in mortgage lending led to many
    ways for brokers and lenders to get around the usual requirement
    for P.M.I, however surely there were many mortgages that were
    originated with that requirement ? So are the troubled mortgages
    just those that were not paying P.M.I premiums ?
    Curious if anyone knows the answer since I have not heard a single
    word about this in the press.

    Reply

  2. Carroll says:

    I will stop after adding this other comment from Col Lang and including two comments from one of his very astute readers that explains those “related assets” I mentioned.
    Sic Semper Tyrannis 2008
    Paulson’s Plan
    I listened to Treasury Secretary Paulson a lot this morning as he explained the “plan.” Under his concept, the federal government will buy a great deal of presently worthless securitized mortgage debt, hold it for years and then sell it to someone who wants it, presumably because the value of the underlying real estate has gone up. The institutions from which the federal government will buy the debt will play a large, perhaps decisive, role in setting the price at which they “are willing” to sell the now worthless debt to the federal government.
    Paulson hopes that the institutions that will be unburdened of this worthless paper will once again soar like eagles (wasn’t there a song?). This would seem likely to lead to high profitability for the unburdened institutions with lots of money for all.
    Wait! Not so fast! Paulson is not enthusiastic about requiring the “unburdened” to give the government warrants for future stock sales to the government. Such warrants would enable the tax suckers (us little people) to buy the companies at distressed prices (like, now prices) and sell the stock at later higher prices so that the Treasury of the United States (us tax suckers) could make money out of this whole thing.
    Paulson also does not think that in return for the US government buying the nearly worthless mortgage securities, the “unburdened” should accept restrictions on executive compensation. Why? He believes that such a restriction would cause the presently burdened institutions to refuse to sell the government their “treasured” worthless paper. Hmmm.
    When asked why he thought the presently worthless mortgage “bundles” will become valuable some day “over the rainbow,” he expressed faith in the future of America. Bless him! pl
    If I do not understand this, explain it. pl
    One of the most interesting details of this Paulson scam is that the government is going to buy back “mortgage related securities.” This is really different than buying back the actual mortgage pools that contain real mortgages. A good example of a “mortgage related security” is a forward contract where, say, last september, a trader bought the right to receive delivery of a million dollar mortgage pool this month that, last September, was worth $100,000,000 and now is trading at $50,000,000 or half its purchase price. This contrace IS NOT a mortgage backed contract, but is a “mortgage related” contract. Essentially, it is a direct wager on the future price of existing mortgage pools that has gone sour. Normally contracts such as this are settled, not with the actual delivery of a pool of mortgages, but by a monetary transfer of the difference between the forward price at the time the deal was made and the current market price of such securities. Thousands or millions of contracts such as this must exist in the market place. Probably many more contracts exist than mortgage pools exist to complete them. These wagers are the type of contract Paulson is suggesting that we, the taxpayers buy.
    If the problem is bad mortgage pools themselves, then a better approach for the taxpayers would be for the government to take on the job of guaranteeing payment of the actual existing mortgage payments as they come due with a mechanism for working out the defaulting homeowner’s financial problems and reductions in mortgage interest rates so the mortgages would not have to be foreclosed and the people lose their homes. Over time, such a program could revitalize things.
    Paulson’s plan, making bad bet untied to real mortgages is just theft and has nothing for the citizens.
    Also, the banks such as BOA that are borrowing huge amounts of money from the government at nominal interest rates should be forced to reduce their usureous credit card rates substantially. If a consumer has a credit card with interest running at 30% had that rate reduced to five percent, the consumers could begin to catch up even if their credit card accounst were frozen and they could no longer charge. It is unconsionable that credit card companies can borrow at near zero cost and still charge the consumers such unreasonably high rates.
    Right now, the solutions presented simply are not a good deal for the consumer citizen taxpayer, they are a massive theft by the pirates who run the place.
    Posted by: WP | 21 September 2008 at 01:36 PM
    A further comment on my prior post. There is a huge difference between the government buying back a pool of mortgages actually made up of real mortgges and a mortgage “related” that is essentialy a bet on the future price of mortgages.
    There might be a real recovery for the taxpayers buying back the mortgage pools because those pools are made up of mortgages given by real people who want to stay in their homes, and if not, they consist of real property security, even if some of that real property is overvalued. While some of those mortgages may be overvalued, the great majority will pay off. Also, if the government owns the pools, it can stop the interest rate adjustments and make the interest rates reasonable and make other contract adjustment that will ultimately get the mortgages paid at close to par.
    On the other hand, the derivatives that are not actually backed by specific mortgage pools are just bets and are subject to extreme manipulation and further theft.
    I can imagine that there are thousands working this Sunday planning how their securities firms are going to milk the proposed plan–and they will succeeed if it is not stopped.
    Posted by: WP | 21 September 2008 at 01:45 PM
    >>>>>>>>>>>>
    Make no mistake about this plan…it is one criminal institution, congress, bailing out their criminal brotherhood of money men on WS.
    And once again let me ask….can you imagine investing in one person, whether it be Paulson or an Ass. Sec of the Treasury the sole authority over this crisis and therefore American’s economic future? Congress not only deregulated us into this mess they now are handing off all responsibility for fixing it to people, who just like them, paid no attention to all the warnings and did nothing to stop it even thought they were in a position to do so.
    They should all be excuted..right after they are waterboarded first. Yes, I mean it.

    Reply

  3. Mr.Murder says:

    Dodd already played his part, being in the race long enough to dilute anything Hillary had to say.

    Reply

  4. Carroll says:

    Well! finally! someone has joined me in calling for a Revoultion. Now if Col Lang could round up some of his old buddies at the pentagon we might be able to have the makings of a good assassination team.
    http://turcopolier.typepad.com/sic_semper_tyrannis/2008/09/revolution-anyo.html
    Revolution Anyone?
    “Last week Barclays paid $1.75 billion to buy Lehman’s North American investment banking and capital markets business. It emerged over the weekend that Barclays had agreed to pay $2.5 billion in bonuses to Lehman bankers in the United States in a move that has angered stricken staff in London.” London Times
    ———————————————————————————–
    So….. While we have been told by the future tumbril riders (Paulson et al) that we all should agree to cough up 700 billion dollars to bail out Wall Street, the British bank, Barclays made a deal to pay off the people who wrecked Lehman Brothers so that they won’t suffer the consequences of their own greed and stupidity….
    I never really appreciated before what this country and Britain as well, evidently, have become. pl
    >>>>>>>>>>>>>>>>>>>>>>>>>>>
    As always…BURN WASHINGTON TO THE GROUND AND START OVER….just start over, you can’t reform it…it’s not reformable.

    Reply

  5. Carroll says:

    Here is what we are buying as defined in the “plan”:
    TROUBLED ASSETS.The term “troubled assets” means
    residential or commercial mortgages, and any securities, obligations, or other instruments that are based on or related to such mortgages, that in each case were originated or issued on or before March 14, 2008;
    So it appears we are authorizing not just the buying of bad residential mortages but also “commerical” mortages and all the “securities surrounding them. I take that to mean the high risk mortage packages and the high risk insurance packages held on commerical development by our wheeler dealer investors in the high profit expectation risk market.
    Dodd’s plan doesn’t differ that much from the other “plan, except that the Ass. Sec. of the Treasury would be the one with the “authority”.
    His “authority still would not be questioned…even though it “could” be “reveiwed”…I assume the way congress ‘reviews’ all other things….with a rubber stamp.
    Dodd does call for CEO compensation to also be ‘reveiwed’ and a clawback for the worst offenders.
    He also sets up “entities” to administer all this under the Ass. Sec of the Treasury.
    What I find particulary interesting in this is that Dodd calls for the States to be able (or forced) into buying the default property in their States….obviously to be then “resold’ to the public so it also appears that the taxpayers will take another hit in their respective states by financing the States buyout of the Fed’s inventory of defaults.
    Trickle, trickle,trickle….down.
    So what have we here? A takeover of failed companies in which we are going to buy all their failed and worthless instruments…securities, mortages, insurance defaults…but oh yea, Dodd wants us to take “shares” in return from all these dead companies to make up for buying their junk. Shares in failed companies…how novel.
    Reminds me of the old Eastern Air Lines warrants.
    And then we will spend another billion administering all this through ‘entities” most likely made up of the same ‘entity people’
    who brought us this failure so they can have a second opportunity to rip us off. After they have cherry picked the assets they will shove the garbage property off on the states and we will have our second opportunity to pay for it all again thru out state taxes.
    This is going to be one gaint cluster f*** designed by the very same congress who stood by despite warnings for years by experts such as Buffett and others of what was going to happen and has now happened..exactly as predicted…while they spent their time whoring for campaing contributions and naming Post Offices after themselves and friends and kissing Bush-Cheney ass on Iraq and making up war resolutions on Iran….and holding hearings on
    their sports heros steriod habits.
    Why on earth would I place any faith in this congress? I wouldn’t. We are a hop, skip and jump away from having to ask Russia to send us potatoes to get our huddled masses thru the winter. Couldn’t happen to a more deserving bunch of sheep than the gutless wonders the American public has been for the last two decades. The only reason I can think of for why the public isn’t even more scared than they are is that they are too stupid to understand how stupid our leaders are.
    Steve asked several post ago where Chaffe had gotten such a understanding of foreign policy and policy in general since he was nothing but a horse farrier…well, common sense used to be called horse sense. And there is none of it our government.

    Reply

  6. chopper says:

    The very simple question to ask, is:
    What do the taxpayers, get out of it?
    American taxpayers are supplying the capital in this investment. What do we get out of it?

    Reply

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