Where is the Money Going, Part 2

September 26, 2008

I do not think that anyone knows where the money is going.  The Democrats do not seem ready to undertake that analysis, bending to the administration’s cries of urgency.  I myself am not prepared to surrender reason to threats of disaster just yet.  The Washington Mutual takeover after was conducted by the administration the moment it unexplained plan bogged down.  The timing is not above suspicion, but unquestionably WaMu was in serious trouble.

Congress has put restraints on this massive corporate welfare program by insisting that the money be paid in installments (almost entirely to corporations who claim they are in trouble because home loans are not being paid, so why not help with those payments instead?) and with Congressional oversight.  Still nobody knows where the money is going which seems to have become a theme of this administration since the Iraq invasion.

Marie Cantwell and Joe Lieberman issued this press release quoted below.

WASHINGTON, DC – Today, U.S. Senators Maria Cantwell (D-WA) and Joe Lieberman (ID-CT) sent the following letter to Senator Reid, Senator McConnell, Speaker Pelosi, Representative Boehner, Senator Dodd, Senator Shelby, Representative Frank, and Representative Bachus, asking them to ensure there are clear mechanisms for long-term transparency, accountability, and reform in the current financial recovery package.
“Any financial recovery package that Congress enacts must put transparency and tough rules in place to make sure consumers are protected,”said Cantwell. “While the financial markets need emergency surgery today their long-term health is dependent on prevention. We need to establish a robust regulatory regime capable of overseeing today’s complex global marketplace.  We also need to determine what went wrong, hold bad actors accountable and apply the lessons learned to prevent future financial market meltdowns.
In addition to protecting homeowners and taxpayers and holding Wall Street executives accountable, it is critical that the financial rescue package jumpstart the process of fundamental reform of our financial markets so that we never again find ourselves in this position.  Under our proposal, in four months, the National Commission for Financial Regulatory Reform will provide Congress with a specific plan for comprehensive reform of the financial system that will strengthen the stability of our financial infrastructure and protect the long-term interests of American taxpayers, investors, and businesses.  With the Commission recommendations in hand, the next Congress will be able to immediately begin moving forward with the fundamental reforms we desperately need,” said Lieberman.
This does nothing to explain where the money is going and admits that we do not know how we got here.  There being no explanation of where “here” is it appears that Congress may be almost as much in the dark as we are.
It remains unclear why just paying off the $112 billion of troubled home mortgages, or loaning enough to keep them current, would not solve the problem.

Where is the Money Going?

September 26, 2008

I’m having trouble understanding this bailout business and I cannot find an explanation anywhere. Apparently a lot of other people are having trouble understanding this as well.  My confusion relates to the claim that the problem is due to the foreclosure crisis and that at least $700 billion dollars is needed to fix it.

The total amount of troubled home loans is $112 billion. This at least was the number bandied around over the last year. It was that portion of Washington Mutual’s portfolio that brought it down. The Wall Street Journal this morning reports that Washington Mutual has $30 billion in bad loans that will be written down with the purchase. What are these loans? Are they not home loans?

From published reports just paying off the home loans would have rendered Washington Mutual highly solvent. If the government stepped in and paid them all off, what would we use the remaining $588 billion for?

Furthermore that does not take into account the collateral for the loans. If we were able to recover just one quarter of the amount for which the collateral had been orginally valued, that would reduce the cost by an absolute minimum of $28 billion, leaving a cost to the tax payers of $84 billion. It is likely that more would be recovered so that the actual cost would be around $50 billion.

Either the total amount of troubled home loans is more than six times greater than previously reported or there is a lot going on that I have not been able to find explained.