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Post by PushyGuyFanClub on Sept 23, 2008 14:04:16 GMT -5
What's likely to happen if no bailout at all gets passed? Cats and dogs sleeping together...total anarchy! I really have no idea. My job is finding companies that don't suck and calculating the price at which it's a good deal to buy shares in them. That's somewhat reliant on making some macro forecasts, but it's not really my competency. I have passing knowledge of the stuff, but I'm guilty of underestimating as recently as a few months ago the severity and breadth of the current crisis (see me thinking CarMax was worth buying at $17 to $18). That said, the "bailout" as I understand it would have the government spend between $700 billion and $1 trillion to buy up mortgage products from banks and other companies. By doing so the government would ostensibly give the banks cash in return for illiquid loan products which would then allow them to start making loans again (hopefully in a more responsible way this time around). If the bailout does not happen, then my guess is that banks currently with capital stresses would not be able to make loans (since they would be short cash). This would have the effect of slowing down the economy since businesses would not be able to tap debt markets in order to grow, meaning there wouldn't be as much innovation, no job growth etc. Housing prices would likely also decline severely in many markets since the demand side would slacken given limited access to mortgages. So, it's likely that in a worst-case scenario, we'd see a substantial economic slowdown with lots more home defaults (as more mortgages go underwater) and rising unemployment. The dollar could also stand to fall since sovereign wealth assets would flee the country, effectively pushing up the cost to us of anything that we compete with other countries to purchase (food, oil, etc.) aka inflation. So, that's all pretty bad. Now, I was on a bunch of planes yesterday and today, and I did some additional reading, and to be honest, I'm not exactly sure I have a strong opinion (yet) on the bailout. As I've said previously, there is a lot of cash on the sidelines. If banks like WaMu start failing because they can't make additional loans and are stuck with a portfolio of garbage, well, it seems like there are people who would step into their place given the fact that mortgage rates would spike upward. But then we get back into the political issue of homeownership. Everybody seems to think it should be encouraged, which means we want to keep a lot of players in the space so competition (and subsidies) keep rates and barriers to homeownership artificially low. Now, I also said in a previous post that the government *could* make money on this deal. I think I'd like to retract that statement. First, it supposes that the government employs enough competent financial analysts to value complex derivative securites that even the big brains at Lehman et al could not handle. I've worked in the government. They don't have that caliber of personnel (cough*vote for limited government*cough). ;D Second, even if the government had personnel who could accurately value these things, it assumes it would pay firesale prices. That probably wouldn't help the banks (the aim of the bailout) because it wouldn't give them enough capital back to stay in the loanmaking business. So I think the government will overpay, thereby diminishing their returns. Finally, it assumes the government is willing to hold these things (which they have the luxury to do since we don't have to report a balance sheet every quarter). More likely, the next administration will try to sell these things ASAP, making them a motivated seller who will probably lose money on the deal. So, the bailout probably doesn't stand up to snuff as a wise business decision in the government's hands. But back to the question at hand. We actually had people from Congress calling our office today to ask how they should vote. We politely told them that we're not their advisors. But it's somewhat shocking that on this enormous issue, the people about to vote on it have very little handle on the issues. So, who knows if it passes. My guess is it will since we're so afraid of a massive downturn, but in passing a bill like this we're going to add to our deficit, diminish our dollar, and we probably still won't see full benefits of liquidity because everyone is so risk averse now and won't get confident again until some time passes...and there's nothing we can do about that. Either way, we're looking at a tough few months. But like I said before, I have very little track record in terms of accurately predicting how the economy will behave over short time periods. That said, I'll confidently say that in 10 years we'll have recovered from this and screwed something else up. |
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Post by sleepyjackson21 on Sept 23, 2008 16:35:44 GMT -5
All i can say is the short sale ban for options market makers is the most asinine rule ever implemented. Are they crazy? Do they know how the options market works. Do they know how many funds use options as a way to hedge their portfolios? What market maker would provide a market if he isn't allowed to protect himself. All liquidity would immediately dry up.
As far as the bailout is concerned, i am very pro free markets but in this case i believe that we have to do a bailout. We almost have no other choice. These companies are too intertwined with the economy and there is way too much at stake. We have to get the system unclogged and back moving otherwise i really believe we will see a severe recession.
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Post by PushyGuyFanClub on Sept 23, 2008 16:56:13 GMT -5
I believe the ill-conceived ban on short-selling has already been modified to allow shorting when someone is doing so to hedge another position. I mean, what a total debacle. As someone in my office said today, it's like the government is playing Calvinball with the stock market. (You may remember Calvinball from Calvin & Hobbes. It's the game where he just makes up rules as he goes along. I liked the analogy.) I read someone else refer to the SEC as a bunch of amateurs. Pretty embarrassing. Kudos, however, to Diamond Hill Investments (Nasdaq: DHIL), a small asset manager that was the ONLY firm that rejected the SEC's short-selling protections: www.cchwallstreet.com/NASDAQ/pdf/nasdaq-regalerts/2008/2008-022.pdf |
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Post by sleepyjackson21 on Sept 23, 2008 17:12:53 GMT -5
Calvinball, i like it and i think in this case appropriate. You are right, this is a total debacle. Like i said before, i am a believer in free markets but we have to have a bailout. What really are the alternatives. If we don't get a bailout, consumers and bussinesses won't get loans as all lending will freeze, the stock market will crash and our economy will crawl to a stand still. Oh, one more thing, all these recent events can't be good for NYC real estate.
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TC
Platinum Hoya (over 5000 posts)
Posts: 9,480
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Post by TC on Sept 23, 2008 17:13:50 GMT -5
What does everyone think of this provision :
"(c) Sale of Mortgage-Related Assets.--The Secretary may, at any time, upon terms and conditions and at prices determined by the Secretary, sell, or enter into securities loans, repurchase transactions or other financial transactions in regard to, any mortgage-related asset purchased under this Act."
So basically, although the plan is limited to $700B at any one time, the assets in the plan can be sold out at any price, ensuring that the plan wastes the full $700B - or possibly even more money.
There is no way in hell this plan makes the government money - I would argue that the purpose of it is to waste the full $700B and transfer it to the investment banks to shore up their balance sheets.
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Post by sleepyjackson21 on Sept 23, 2008 17:21:46 GMT -5
BTW, Warren Buffett just invested 5 billion in Goldman Sachs.
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Post by sleepyjackson21 on Sept 23, 2008 17:32:51 GMT -5
TC, that's the price you pay to keep the ship afloat. There were alot of mistakes made and certainly some abusers will unfortunately benefit. However, if we don't do anything then we all suffer. We can't go back in time so we might as well try our best to clean up this mess.
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SirSaxa
Silver Hoya (over 500 posts)
Posts: 747
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Post by SirSaxa on Sept 23, 2008 17:46:25 GMT -5
BTW, Warren Buffett just invested 5 billion in Goldman Sachs. Buffett also recommended a new independent govt. agency with a Czar to manage all of the $700b bailout money and re-sales, and he suggested Mike Bloomberg as the best guy to run it. Interesting thought. I can see very well how the $700b can be viewed as a Wall St. bailout. It is. But that doesn't mean it isn't necessary and it doesn't mean it is a give away to Paulson's buddies. My opinion is we do have to do this, with oversight, CEO Pay caps, transparency, and something for Homeowners facing foreclosure. The alternative is a total collapse of the global economy. How did we get here? The mortgage market has been a disaster in the making and Greenspan certainly deserves some blame. But the overall catastrophic mis-management of the US Economy is the real culprit. Deeper and deeper budget deficits, drastically cutting taxes while starting two wars, borrowing like hell to pay for tax cuts and wars, keeping the war expenditures "off the books" of the US Federal Budget. "Deficits don't matter". No National energy plan whatsoever. This kind of completely irresponsible behavior by Bush and his team was certain to come back and bite us in the ass. The silver lining is it happened while he is still in office. The country can no longer afford ideological decision making in the White House. Reality and pragmatism must rule the day. Even conservative icon George Will is suggesting the country needs a change and John McCain is NOT the man for the job. GEORGE WILLEXCERPTS Under the pressure of the financial crisis, one presidential candidate is behaving like a flustered rookie playing in a league too high. It is not Barack Obama.
Channeling his inner Queen of Hearts, John McCain furiously, and apparently without even looking around at facts, said Chris Cox, chairman of the Securities and Exchange Commission, should be decapitated. This childish reflex provoked the Wall Street Journal to editorialize that "McCain untethered" -- disconnected from knowledge and principle -- had made a "false and deeply unfair" attack on Cox that was "unpresidential" and demonstrated that McCain "doesn't understand what's happening on Wall Street any better than Barack Obama does."
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It is arguable that, because of his inexperience, Obama is not ready for the presidency. It is arguable that McCain, because of his boiling moralism and bottomless reservoir of certitudes, is not suited to the presidency. Unreadiness can be corrected, although perhaps at great cost, by experience. Can a dismaying temperament be fixed? |
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TC
Platinum Hoya (over 5000 posts)
Posts: 9,480
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Post by TC on Sept 23, 2008 18:40:26 GMT -5
TC, that's the price you pay to keep the ship afloat. There were alot of mistakes made and certainly some abusers will unfortunately benefit. However, if we don't do anything then we all suffer. We can't go back in time so we might as well try our best to clean up this mess. "We need to do something" and "We need Secretary Paulson's Bailout tomorrow" are two very different ideas. We might need to do something, but what Paulson proposed was an absolute joke. And the idea that this plan will "help" is quite disputable - taking on $2T of new debt devalues the dollar, increases prices of everything, and ensures that even MORE mortgages fail. Look, I don't think this is even a partisan issue - look at Shelby and Bunning and Paul and their positions on this. I think this is a Bush administration vs. America issue. |
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EasyEd
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Post by EasyEd on Sept 23, 2008 18:41:26 GMT -5
"Even conservative icon George Will is suggesting the country needs a change and John McCain is NOT the man for the job."
George Will has despised John McCain since McCain-Feingold which Will regards as the greatest assault on the 1st Amendment ever. Ill bet at least 25% of columns Will has penned since McCain-Feingold have referred to this.
As for placing the blame solely on Bush (with a little for Greenspan), you ignore the role Dodd and company played in helping detour new rules for Ginnie and Freddy, particularly when you consider that Dodd is the largest recipient of "donations" from the two, Obama being second. I'm not claiming Bush's policies were not major contributors but both parties pushed hard to make it easier for people to buy homes, whether they could afford the mortgage or not.
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Post by PushyGuyFanClub on Sept 23, 2008 18:58:35 GMT -5
[ My opinion is we do have to do this, with oversight, CEO Pay caps, transparency, and something for Homeowners facing foreclosure. The alternative is a total collapse of the global economy. How did we get here? The mortgage market has been a disaster in the making and Greenspan certainly deserves some blame. But the overall catastrophic mis-management of the US Economy is the real culprit. Deeper and deeper budget deficits, drastically cutting taxes while starting two wars, borrowing like hell to pay for tax cuts and wars, keeping the war expenditures "off the books" of the US Federal Budget. "Deficits don't matter". No National energy plan whatsoever. This kind of completely irresponsible behavior by Bush and his team was certain to come back and bite us in the ass. The silver lining is it happened while he is still in office. The country can no longer afford ideological decision making in the White House. Reality and pragmatism must rule the day. So, uh, you're making several points here, a few of which are unrelated. To your first point: Oversight: Agree. If the government is kicking in money, they get to call some of the shots. Transparency: Absolutely. Something for Homeowners facing foreclosure: Like what? Need more detail here. If you're facing foreclosure, that means you can't afford your mortgage. We need to ask why can't you afford your mortgage. If it's because you took out an ARM or IO loan and can't afford to make a real payment, well, I would be for refis to an appropriate (highish) fixed rate, but what if they can't afford that? We have to take the house. Otherwise this whole mess begins again. CEO Pay caps: An extremely bad idea. If you put pay caps in one industry, but not in others, there will be an immediate talent drain. That's not what we need right now. As part of that oversight, however, government should be able to cut dividends to shareholders and they should make sure that no options get repriced. The alternative is a total collapse of the global economy: Eh, maybe. I think "total collapse" is a strong term. There are some pretty ingenius people out there. The economy would certainly slow down, but volatility is part of life when it comes to growth. As for your closing diatribe, those are all certainly gripes you can have, but they're not really applicable to this specific issue. If you are blaming the Bush administration for this, you're just another partisan who lacks an understanding of all that happened here. |
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Bando
Golden Hoya (over 1000 posts)
I've got some regrets!
Posts: 2,431
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Post by Bando on Sept 23, 2008 20:00:23 GMT -5
[ My opinion is we do have to do this, with oversight, CEO Pay caps, transparency, and something for Homeowners facing foreclosure. The alternative is a total collapse of the global economy. How did we get here? The mortgage market has been a disaster in the making and Greenspan certainly deserves some blame. But the overall catastrophic mis-management of the US Economy is the real culprit. Deeper and deeper budget deficits, drastically cutting taxes while starting two wars, borrowing like hell to pay for tax cuts and wars, keeping the war expenditures "off the books" of the US Federal Budget. "Deficits don't matter". No National energy plan whatsoever. This kind of completely irresponsible behavior by Bush and his team was certain to come back and bite us in the ass. The silver lining is it happened while he is still in office. The country can no longer afford ideological decision making in the White House. Reality and pragmatism must rule the day. So, uh, you're making several points here, a few of which are unrelated. To your first point: Oversight: Agree. If the government is kicking in money, they get to call some of the shots. Transparency: Absolutely. Something for Homeowners facing foreclosure: Like what? Need more detail here. If you're facing foreclosure, that means you can't afford your mortgage. We need to ask why can't you afford your mortgage. If it's because you took out an ARM or IO loan and can't afford to make a real payment, well, I would be for refis to an appropriate (highish) fixed rate, but what if they can't afford that? We have to take the house. Otherwise this whole mess begins again. CEO Pay caps: An extremely bad idea. If you put pay caps in one industry, but not in others, there will be an immediate talent drain. That's not what we need right now. As part of that oversight, however, government should be able to cut dividends to shareholders and they should make sure that no options get repriced. The alternative is a total collapse of the global economy: Eh, maybe. I think "total collapse" is a strong term. There are some pretty ingenius people out there. The economy would certainly slow down, but volatility is part of life when it comes to growth. As for your closing diatribe, those are all certainly gripes you can have, but they're not really applicable to this specific issue. If you are blaming the Bush administration for this, you're just another partisan who lacks an understanding of all that happened here. Talent drain to where? These are the top paying positions in the entire world. Are they going to go to the NBA or something? Is the UAE hiring junior Emirs? Is there not someone just as smart who will work for $100 million as opposed to $250 million? |
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Filo
Diamond Hoya (over 2500 posts)
Posts: 3,928
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Post by Filo on Sept 23, 2008 20:43:33 GMT -5
I think the bailout plan will eventually pass, but it will need to be modified to make sure that Paulson does not have unfettered decision-making ability and zero accountability. I like the idea of having the details of all of the government purchases placed on a website for full transparency.
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Post by PushyGuyFanClub on Sept 23, 2008 20:58:35 GMT -5
Talent drain to where? These are the top paying positions in the entire world. Are they going to go to the NBA or something? Is the UAE hiring junior Emirs? Is there not someone just as smart who will work for $100 million as opposed to $250 million? |
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Post by PushyGuyFanClub on Sept 23, 2008 21:02:27 GMT -5
Gak. I suck at the Internet.
Anyway, is that a real question? If you cap salaries at all banks, then managers will go work for energy companies, Google, Coca-Cola, China's sovereign wealth fund, etc etc. You can't cap one industry's pay scale. You'll end up with crappy people.
The fact of the matter is that good CEOs -- and I know this from experience -- are extremely hard to find. If you have a good one (see Jamie Dimon at JPMorgan), pay the man. It's worth it. But if you tell Jamie Dimon he can't earn upside for doing good work (this is hypothetical, not sure JPM would participate), he can go work for any number of other companies, taking his people with him, and leaving JPMorgan and its many, many clients to suffer.
And yes, the UAE is hiring quite aggressively, as are most oil-rich countries, for their sovereign wealth funds -- which would very much benefit from savvy financial minds.
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Post by AustinHoya03 on Sept 23, 2008 21:18:35 GMT -5
George Will has despised John McCain since McCain-Feingold which Will regards as the greatest assault on the 1st Amendment ever. Ill bet at least 25% of columns Will has penned since McCain-Feingold have referred to this. I agree Will harbors a serious grudge, but FWIW he was pretty much right -- the Supreme Court of the United States has drastically limited the application of McCain-Feingold. Sorry for the mini-hijack -- I will shut up and let PushyGuy (who deserves a trophy or a ribbon or something for his posts in this thread) get back to economic analysis. |
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TC
Platinum Hoya (over 5000 posts)
Posts: 9,480
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Post by TC on Sept 23, 2008 21:32:34 GMT -5
The fact of the matter is that good CEOs -- and I know this from experience -- are extremely hard to find. If you have a good one (see Jamie Dimon at JPMorgan), pay the man. It's worth it. But if you tell Jamie Dimon he can't earn upside for doing good work (this is hypothetical, not sure JPM would participate), he can go work for any number of other companies, taking his people with him, and leaving JPMorgan and its many, many clients to suffer. Warren Buffett retains top flight managers at his companies without paying them the absurd salaries at the Wall Street firms - and without any stock equity compensation. No offense, but I lost all faith in what PushyGuy is saying when he said that the government could make money off of this. The whole idea is that the government loses its pants in order for the banks to shore up their balance sheets. The thing that Editedes me off the most about all this is Buffett's involvement - he has railed for years about derivatives, and yet he's putting himself into Goldman Sachs, in what must have been a private deal with Paulson (former CEO of Goldman). He is gonna make Berkshire a mint off this I'm sure, but it's going to come at the expense of his reputation because it's going to cost taxpayers. PushyGuy - what is wrong with the idea of system reboot - fund new banks to take on liquidity and make loans with better regulation and oversight, and let the old ones fend for themselves? |
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SFHoya99
Blue & Gray (over 10,000 posts)
Posts: 17,988
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Post by SFHoya99 on Sept 23, 2008 21:35:28 GMT -5
If Boards of Directors were actually doing any kind of marginal value calculation when deciding executive compensation -- instead of awarding massive bonuses even with poor performance to buddies who serve on a board that decides their own equally exorbitant salary -- we might actually have good CEO salaries.
CEO Salaries tend to have tremendous upside -- but like industries likely to be bailed out, there's no downside. No one should make a $60MM salary when their company is going down the tubes or be paid to be fired.
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Post by PushyGuyFanClub on Sept 23, 2008 22:04:06 GMT -5
A couple of points to answer here.
Re: Berkshire. It's an unbelievable company. I'm a shareholder and an admirer. I'd take a pay cut to work there. But it is the exception, not the rule...hence it's unprecedented track record. I also think Ajit Jain, Tony Nicely, et al are pretty well compensated, though I couldn't find the numbers in the most recent 10-K.
I stand by the comment that the government *could* make money off this. I think a similarly equipped hedge fund definitely could. But there was a reason I put asterisks around it and why I came back later and said that after thinking on it some more I thought it was an unlikely scenario. I'm not sure why you'd dismiss my opinions entirely when I'm trying to process lots of rapidly arriving information at once and may have offerred a hedged opinion that I then came back and clarified.
Re: Goldman. This is a company Buffett loves. I won't say too much because I'm trying to process lots of incoming information, but it is his type of business, derivatives aside. It's well managed, strong brand, strong insider corporate culture, and well-run (particularly compared to its peer group). Given his preferred yield and the warrants and the odds that he's seen the books, he'll make money here. I don't think Paulson was involved. Buffett doesn't operate like that. He looks out for shareholders.
Re: System reboot. I'd love that solution. I think it's the optimal solution. But it would cause a crisis of confidence and send homeownership rates plummeting. I'm willing to deal with that cost, but I suspect that many Americans, notably voting Americans, are not. That's democracy, and ultimately its rewards are better than its drawbacks.
Re: CEO compensation. I agree it's out of control. My point is that good CEOs deserve good compensation, so we shouldn't make blanket rules. ut you're absolutely right that BODs have been inept and in the pocket of the CEOs rather than serving shareholders. That, rather than comp rules, is what needs to change, IMO.
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SFHoya99
Blue & Gray (over 10,000 posts)
Posts: 17,988
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Post by SFHoya99 on Sept 23, 2008 22:50:45 GMT -5
No disagreement on CEO compensation, Pushy. The issue is how do you get rid of the cronyism without creating unwanted side effects/distortion of the market? Would a shareholder lawsuit be justified? Is that the way to go about it?
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