Among the potential sources of tension is the Treasury’s ultimate
decision on whether it will buy troubled mortgage-backed securities
from non-American banks. European banks, like UBS, invested heavily in such securities.“If
Paribas has bought a mortgage-backed security, why can’t they present
it to Treasury?” Mr. Truman said. “If the government is going to do it
for the American banks, they should do it for everyone.”But that
could provoke a strongly negative reaction from lawmakers on Capitol
Hill, who already protested that other countries should chip in for the
$85 billion rescue of the insurance giant American International Group, because it has operations in those countries or has insured their banks.“Are
the taxpayers in the United States going to bail out all the banks in
the world?” said Allan H. Meltzer, a historian of the Federal Reserve.
“I just don’t know how this works out.”
Here is the story.
If the Treasury won’t buy these securities from foreign banks, what’s stopping someone like Goldman Sachs from buying from UBS and then dumping them on the Treasury ?
I’ve always wondered what it’s like to live in a Banana republic.
Once local governments run out of money, we’ll be able to retain local sheriffs for personal use, just like in Central America! Boy, it’s going to be fun.
Like, I guess, many of the MR readers, I’m on a pretty good but not stellar salary and don’t have a huge mortgage.
Why do I have the nasty feeling that I’ll end up paying large amounts of money to people who borrowed more than they could pay (helpfully squeezing up property prices for the rest of us considering buying) and to the wealthy retirees whose money was lent to the borrowers.
According to Section 2 (a) of the legislative proposal for Treasury authority to purchase mortgage-related assets, “The Secretary is authorized to purchase, and to make and fund commitments to purchase, on such terms and conditions as determined by the Secretary, mortgage-related assets from any financial institution having its headquarters in the United States”.
Although it is clear that only institutions with headquarters in the US will be able to sell assets to the Treasury, by far the most important point of the proposal is the delegation of authority to the Secretary to establish the terms and conditions of the purchases. To discuss the proposal we should know about these terms and conditions. To start this discussion, I suggest that the law establishes some minimum terms and conditions, delegating to the Secretary a limited power to establish other terms and conditions. The minimum terms and conditions should include at least a reference price for the purchase as well as the seller’s obligation to repurchase the asset with the prohibition of distributing profits until the asset is repurchased.
So what do you call the apathy, bitterness, hatred, and general ill-will felt by those who followed the rules, were careful with debt, were forced by circumstance to overpay for inflated assets, and are about to get screwed again? Moral hazard doesn’t cover it.
I was thinking maybe “Cynical Hazard.”
Is it realistic?
we can learn from him
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