NOTE: Image below is $15,000 Cash . . . pretty nice, huh?

If someone came into your home and held you at gunpoint and forced you to fork over $15 thousand dollars in cash (provided, of course, you kept such a large amount at home), you’d call the cops as soon as you could, wouldn’t you? In fact, if you had a gun at home, you might even try and shoot the bastards before they could get away with your money.

But what happens when it is the U.S. government that is about to break into your house and make off with that much money? Whom do you call? Batman?

And yet, that is exactly how much money, thus far, the current round of government bailouts of big financial institutions is costing American households.

When you add up the $700 billion dollars of taxpayers’ money the government wants to spend to buy up all that bad debt out there, with the money already pledged to take over Fannie Mae and Freddie Mac, AIG and to help broker the Bear Stearns/JPMorgan Chase deal, “A $700 billion fund would push the total pledged to combat the crisis to $1.8 trillion, or $15,000 per U.S. household, says a Reuters analysis.

No Help For The Rest Of Us

While the big boys will apparently get their burdens lifted, so far, there is nothing in the proposed plan for those who are about to foreclose on their home, or can’t find a job, or can’t afford health insurance or can’t afford gas for the car or heat for the home or food for the table.

In fact, this past Friday, even after the bailout was announced to a stunned world, the average rate on a 30 year, fixed rate mortgage actually went up to 6.11 percent from 6.07 just the day before, says the Associated Press. We are clearly not out of the woods yet!

Would the alternative be worse? Maybe. Maybe not. But I can tell you this: This entire bailout is happening so fast , in such a crisis atmosphere, red lights should be blinking and alarm bells sounding from sea to shining sea.

Photo Credit: Neville’s Financial Blog

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Tags: bailout, banking, banks, Economy, financial crisis, Henry Paulson, investment bank

Hank Paulson is not done asking for more authority to “rescue” us from the mortgage crisis. In his first round of legislative begging, he got Congress to pass The Housing Economic Recovery Act of 2008 which gave him the right to take over Fannie and Freddie putting taxpayers on the hook for their greed and mismanagement. Most insiders figure that will cost about $300 Billion after all is said and done.

But Hank is not done!

Now after this horrific week of every company under the sun coming to Washington hoping for a bailout, it becomes clear to Hank he must do something “bigger”. He decided to hold a press conference Friday to announce he was working on a comprehensive rescue package that would alleviate the “crisis” at it’s source…in Paulson’s own words,

“The federal government must implement a program to remove these illiquid assets that are weighing down our financial institutions and threatening our economy. This troubled asset relief program must be properly designed and sufficiently large to have maximum impact, while including features that protect the taxpayer to the maximum extent possible.”

Well now some of the specifics are coming out as Hank goes to the Hill laying out his plan. Hank’s plan involves getting Congress to give the Treasury Department open ended power to buy, hold, and then sell any residential or commercial mortgage assets originated before September 17, 2008.

According the American Banker,

“As drafted, Treasury could use its power to buy far more than $700 billion worth of mortgage assets over time. The draft language only restricts Treasury to holding no more than $700 billion of mortgage related assets “at any one time.” If it sold some assets back to the private sector, even at a loss, it could continue to purchase more, observers said. That could continue to drive up the potential cost of the plan to taxpayers.

“The authority is broad and the $700 billion represents the total amount at any one time but there is not a cap on the total amount of assets that can be purchased,” said Scott Talbott, senior vice president for government relations at the Financial Services Roundtable. “It’s a revolving line of credit.”

Yikes!

Paulson wants to buy the all the “bad loans” on the books at every financial institution now…not just Fannie Mae and Freddie Mac. Congress rolled over the first time Paulson came to the Hill, but insiders don’t believe Congress, especially the Democrats, will be as cooperative this second time around.

American Banker reports,

“There are going to be some hiccups of this plan because it’s completely open ended — Wall Street runs this plan and there’s no help for homeowners,” said Howard Glaser, a mortgage consultant. “Congress will find it very troubling that the asset managers running this program will be asset managers hired by Treasury.”

This is getting ridiculous. It reminds me of Naomi Klein’s, “Shock Doctrine” theory of the current Administration to use a “crisis” either real or imagined to pass legislation which “the people” would never stand for without the crisis.

To me it seems Paulson is using the Shock Doctrine to get Congress to pass far reaching legislation which includes no help for home owners or protections for the tax payer.

I truly hope Congress doesn’t fall for it.

Tags: fed, federal reserve, Henry Paulson, paulson, The Fed

Not too long ago, I wrote for this blog that when Congress passed a plan to help Fannie Mae and Freddie Mac, it amounted to a taxpayer bailout of these two mortgage giants. There were those who took issue at the time with my use of the word “bailout.” Sadly, as the events of the past few days clearly show, I was right.

I say sadly because what will likely happen down the not too distant road will be a situation where taxpayers, all of us, will end up paying through the nose to bailout greedy lenders, irresponsible borrowers, and lax regulators.

And here is the real rub: no one can be certain this will really make right, that which is wrong with our economy at this point in time!

The conventional wisdom is that the government’s seizure of Fannie and Freddie will soon lead to lower mortgage rates as banks and other lenders become more confident about extending credit. This, in turn, is supposed to raise the housing market in this country from the dead and, presto, before you know it, all is right with the world again.

Want to buy a bridge I’m selling real cheap?

If there is one thing we should have all learned from the past few months, it is that the so-called conventional wisdom is–excuse my French–a bunch of crap.

Over the past several months, various experts have told us that the credit crisis would soon end once it roared through all those sub-prime loans. Well, that didn’t happen. Credit got so tight that even a blue blood with many silver spoons in his mouth would find it difficult getting a mortgage.

Over and over, “experts” told us that we would soon hit the bottom of how far down home prices will go…only to see home prices continue dropping with no real end in site.

A very short time ago, we were assured that Fannie and Freddie would make it through this crisis just fine, thank you.

Actually, maybe I can sell you two bridges if you still believe in the “conventional wisdom.”

Does anyone know what is going on here?

I’m afraid that is what it all boils down to–does anyone really, truly know what is going on here?

Don’t waste too much of your time thinking it over, I’ll answer my own question: NO! No one really does know what is going on–or, more to the point, perhaps, how to fix the problem. They are throwing darts at the board hoping one might find its target.

At least Treasury Secretary Henry Paulson appeared somewhat honest the other day when he said, according to Reuters, that he “could not estimate how big a burden this (the government’s seizure of Fannie and Freddie) would mean for taxpayers until the extent of declines in the mortgage market were fully known.”

You don’t need any conventional wisdom to tell you what that means–hold tight to your wallet, the government is about to pick it clean!

It doesn’t really do much good, of course, to fret about how we got into this mess to begin with–that Fannie and Freddie were allowed to grow too big, too powerful, too needed!

What is important is what lies ahead. Right now, I will submit to you, the ship of state is drifting in a sea of ice with no radar, no lights and no real captain at the helm.

Maybe this will change in November with the election and maybe not. So many different forces are at play, some the U.S. can do nothing about, though Americans do like to believe we can always do something to fix any situation.

Here’s the bottom line my friends–the next time you hear someone on TV talk about conventional wisdom, turn your set off. The next time you read an article about conventional wisdom, click to a different site.

Anyway, that’s my conventional wisdom. Take it with a grain of devalued salt.

Tags: bailout, fannie mac, freddie mae, Henry Paulson

Will wonders never cease? First, Hillary Clinton proves the media wrong and wins the New Hampshire presidential primary with a comfortable number of votes just 24 hours after some polls said she would lose by as much as 15 percent.

And now, George W. Bush has finally come to recognize what most of the world already knew–the economy is sick and the primary cause is the subprime mortgage debacle.

Bush actually has said that he is watching the U.S. economy carefully now (wasn’t he doing that before?) to help him decide whether the federal government needs to do more before the ship of state takes on too much water.

Of course, Bush is not one to come out and just say, Hey, I was wrong! But, this comes close: “I’m optimistic, as I’ve seen this economy, you know, go through periods of uncertainty,”Bush said. “I like the fundamentals, they look strong, but there are new signals that should cause concern. And, one of the signals is the fact that the housing market is soft.”

Well, yeah! Guess you could say the housing market is soft: the value of homes all across the country has gone down;more and more homeowners find themselves in foreclosure or are about to be;and, the credit market is tighter than a clam shell.

So,yeah,guess you can say the housing market it soft.

And, the President admits this is no short term crisis : ” It’s going to take awhile to work through the downturn,” said Bush.

In another sign that the administration is starting to sweat it, Treasury Secretary Henry Paulson told CNBC the administration is thinking about new ways to help some borrowers who will take a beating from adjustable rate mortgages.

It is, of course, welcome news that the President now understands there is a real problem here. Too bad he didn’t come to that realization months ago.

Tags: Henry Paulson, hillary clinton, president bush, subprime mortgage

Well,it took long enough.

Henry Paulson Jr. — that would be the U.S. Secretary of the Treasury — admitted that the housing/credit/confidence crush (HCCC for short) is a hell of a lot worse that he ever imagined (clearly the Secretary does not exactly have a fertile imagination!) and, . . . now this is the best part . . . ready? . . . he thinks it will get a lot worse before it gets better!

How much worse?

Let’s see. Paulson (or is that Jr.? No, that’s the mob uncle from the Sopranos) says this year alone he thinks we will see something like one million foreclosure proceedings.

ONE MILLION!!!

That means hundreds of thousands who may just end up living in their BMW’s. But you know what they say . . . smoke ‘em if you have ‘em!

“The longer housing prices remain stagnant or fall,” says Paulson, “the greater the penalty to our future economic growth.”

Well, yeah! You don’t have to be Secretary of the Treasury to figure that one out.

Speaking at Georgetown University (he saved travel expenses on this venue), Mr. Secretary said the current housing/credit/confidence crush (HCCC) is “the most significant current risk to the economy.” Gee, I would have thought the biggest risk was rising cable TV rates, but what the heck do I know. He’s the Secretary of the Treasury for God’s sake.

Now, with these strong words, you might expect the recommendation of strong action.

Don’t get your spinal fluid gushing on this one — Paulson says hidden brokerage fees should stay, well, hidden; and, he is all for those nasty prepayment penalties!

So, don’t expect much action from the good Secretary. In fact, don’t expect much action from anyone in Washington aimed at taming banks and mortgage lenders. Ain’t gonna happen.

This isn’t a “meltdown,” this is a lock down, and we are all prisoners of a home mortgage industry run amok.

Tags: Henry Paulson, Housing, housing crisis, mortgage crisis, Secretary of the Treasury