Speechless

I know I won't see any direct benefit from this. Too bad the gov't doesn't just give everyone a check for $2,666 (assuming 300 million people in the US). :)

Even if I don't see a direct benefit I expect to see indirect benefits.... a stronger economy, etc.

See I disagree there. There is no obvious mechanism for how it is going to lead to a stronger economy. How many people are looking to take on more debt? Most people either live debt free or they are already drowning in it. When it comes to mortgages, there are a lot of local/regional places that always have and always will keep loans on their books, and they are still lending quite readily. Same for credit unions when it comes to autos.

The only thing that this will help are the large megabanks that are trying to maintain insane amounts of leverage, and people that are bad credit risks and will be (or most likely already are) completely in over their head.

Please read this post by Yves Smith, who is quite frankly amazing.

Hey, Mikkel -- for someone on the young side, you're doing a good job directing your attention on the most important thing, not on politics-related celebrity-excess gossip matter.

1. Yes, they did it -- changing course once more, while spending yet more public money on the financial industry (not more broadly, the "sector"). While they were probably smart not to announce their intervention before they did it (that is market manipulation, "insider trading on steroids" insofar as its effect, don't forget, if they make an announcement beforehand, particularly to influence market behavior), they also appear confusing to people given their changes of approach, plus the cynicism and suspicion that it's favoritism toward Paulson's Pals on Wall Street remains there! I also wonder if they're not just trying to play the government-program-related "use it before you lose it" game of spending money any way they can, because the money won't remain in their hands next year (specifically, here, Obama's people will get whatever money is left and direct it as _they_ see fit).

2. Is this a buyout of bad loans, or on "the securities" based on those loans (the derivatives and other financial instruments concocted using the bad loans as the original source)? If the latter, that benefits only the banks directly, probably not the borrowers at all.

3. Don't overlook the fact that "the banks" got themselves in trouble by making bad loans and there is no moral obligation for them to resume lending, especially not to poor credit risks. (The bubble in housing and debt was due to greed, by the banks and by so many borrowers wanting what they could never afford; they are not innocent victims!) There is no "requirement" that banks resume lending or that people resume borrowing.

4. Yes, giving people a check, while indefensible, would have been better -- and what Treasury has been doing has been weaking the nation morally, leading to increased willingness to bail out not only the Detroit Three but homeowners, still primarily those who made bad choices; the responsible borrowers and lenders continue to be left out of the picture, except that we who have been responsible are being "asked" to "contribute" our "fair share" in taxes to bail out deadbeats, which is sickening, though not surprising, and if anything, with Dems in charge is more likely now.

5. I've been rereading the 1942 NBER report on wartime finance (what to do to implement a vast public finance and spending effort directed toward war production and economic control to win the war) and the actual amounts involved to date and by the Obama people are not out of line if we are to look at the worst case (not including hype and idiocy by the sensationalists). I still prefer we not intervene but let things work themselves out, but most want intervention and now we must observe what happens and hopefully, learn lessons from what "we" try.

6. Yes, Stockster -- as with this debt issue, with other things, too. Why not reduce everyone's debt load (not only the deadbeats)? Why not reduce debt payments by the deadbeats, though requiring conversion to 40-50 year mortgages in exchange for lower payments, of course? Why not, instead of a parasitic bailout of a failed Detroit, just have the federal government replace its current fleet of vehicles over the next few years with a new fleet of Detroit vehicles, or replace Americans' older vehicles or larger vehicles with new, smaller (Detroit?) vehicles, which is cheaper and more effective than a lot of emissions control programs? And so on...

Please consider something else, which may _not_ be unintentional.

What are we seeing not only with these bailouts, where some institutions are bailed out (the favored ones, note) while others are allowed to fail?

We are seeing consolidation, which may _not_ be unintentional.

Now, I've lived all over the USA and I appreciate having Bank of America wherever I live or travel, and I consider someplace backward if there's no B of A nearby (in Upstate, the closest branch was 40 miles away; in Iowa where I was, it was 130 miles), and it's nice to have nation-wide availability, but the consolidation means less, not more, future consumer clout if experience is any teacher.

The financial blogs that I read that are really on top of this (and the authors have actual connections to the industry) suspect that consolidation is intentional because it will be "easier to manage." They point out that this is wrong and just makes the total government commitment larger.

As for whether it is loans or derivatives: "Under the new mortgage program, the Fed will buy up to $100 billion of debt issued by government-sponsored mortgage enterprises Fannie Mae, Freddie Mac and the Federal Home Loan Banks. It will also buy up to $500 billion of mortgage securities backed by Fannie Mae, Freddie Mac, and Ginnie Mae." and

"The central bank also launched a $200 billion facility to support consumer finance, including student, auto, and credit card loans and loans backed by the federal Small Business Administration. This will lend to investors who hold securities backed by this debt"

So it's mostly securities. Which begs the question of how the securities are structured. It is very possible that all $800 billion will disappear in a flash if there is a mere 10% default rate.

So yeah, it's about giving money to banks.

It's not $800B - that's only the first part of the plan. The $800 Billion will be used to buy MBA (mortgage backed assets) from Fannie Mae and Freddie Mac ($600B of the $800). The other $200B will be used to buy ABS (asset backed securities) which are supported by car loans, credit card loans, student loans, and SBA guaranteed loans.

However, the Fed also announced that they would buy up to $100 B in debt directly from Fannie and Freddie, and up to $500 B in mortgage backed securities. So tack another possible $600 B onto that $800. I got my info out of the NYT.

You know, the more I'm reading the NYT article, the more I think they've gotten the program mixed up. I think it's $800 B total - I can't find anyone else who's reporting on $800 B plus the possibility of another $600 B. But who knows...I'd say at this point, anything is possible.

Yes I believe it is $800 total. By my count it is $100 of mortgage debt, $500 MBS and $200 ABS. I am going to have a post describing the difference between buying the loans directly and buying the securities because I don't think most people know.

mikkel, thanks for the link to Yves Smith's post.

My comment about me not expecting to see a direct benefit of the various bailout proposals was in general. I don't know enough about the latest bailout proposal, the $800 bn in debt that this post of yours is about to be able to determine whether or not it would be of any benefit. But nonetheless I stand by my original comment that I don't expect to see direct benefit, only an indirect benefit. I do expect the bailouts to have some positive effects on the economy. For instance, just keeping Citi afloat is better than having them go belly up and then even more of their employees are laid off as acquiring firms cherry-pick the remnants. Though to be honest I would have been happy if Citi had been forced into bankruptcy.

One last note... concerning the SMith's column in the link. At the very end there was mention that Barney Frank was angry that banks used the bailout money for acquisitions. While Smith did not say that Frank was referring to WFC that section was talking about WFC's purchase of Wachovia. I'd like to point out that WFC announced its purchase of WB several weeks before it received any bailout money. I'd also like to mention that Wells was upset that it was actually forced to take the $25 bn in bailout money from the government. That leaves me speechless. Why force a healthy bank (and I think that JPMorgan did not really want the money, either) to take the bailout money? Wells Fargo was and has been lending money to clients all along. So Smith's characterization (or perhaps more accurately, Barney Frank's) that Wells Fargo turned around and used the bailout money to buy Wachovia is not correct.