Foreclosed Homeowners' Rate of Return
Via a post on the Bogleheads forum, I read this piece of news from the WSJ Developments blog:
Study Finds Underwater Borrowers Drowned Themselves with Refinancings
From that WSJ blog post, I read this research paper: » Read more …
IMF Report on US Bailout Costs
Financial Times reported last week that the IMF estimated the total bailout cost for the U.S. in the next five years at $1,900 billion or $6,200 per head.
Efforts to stabilise the financial system could end up costing US taxpayers about 13.3 per cent of annual output, or $1,900bn over the next five years, according to analysis by the International Monetary Fund.
Chrysler Bankruptcy and Government Bailout
I love politicians and their carefully crafted statements. I found this quote in the Financial Times particularly interesting:
Mr Obama said: "As part of their agreement, every dime of new taxpayer money will be repaid before Fiat can take a majority ownership stake in Chrysler."
TARP Overpaid Banks 44%
I continue to follow the work by the Congressional Oversight Panel on the bailout program (TARP). The panel released a new report last Friday, which looked at the then-current market value of the assets TARP received from the banks (preferred stocks, warrants, and whatnot), versus the amount of money TARP paid to the banks. The panel hired international valuation firm Duff & Phelps to evaluate the deals. The investigation concluded:
"In the eight transactions which were made under the investment program for healthy banks, for each $100 spent, Treasury received assets worth approximately $78.
Second Report from Congressional Oversight Panel on TARP
The Congressional Oversight Panel for Economic Stabilization released its second report on the Troubled Asset Relief Program (TARP) today. It asked a bunch of questions in its first report. The Treasury Department responded to some of them. In addition to a detailed list of questions and the Treasury Department's responses in an easy-to-read grid format, this second report highlighted four areas that the panel still needs answers:
- Bank Accountability
- Transparency and Asset Evaluation
- Foreclosures
- Strategy
If you are interested, read the full report in PDF from the horse's mouth:
Automaker Bailout Loan: Secured Or Not?
News came that the federal government is going to give a $17.4 billion loan to GM and Chrysler. It's still not clear what the government receives as security for such loans. The Associated Press article on Yahoo! said,
"Under terms of the loan, GM and Chrysler must provide the government with stock warrants giving it the option to buy GM and Chrysler stock at a specific price."
Book Review: The Greatest-Ever Bank Robbery
What was the greatest ever bank robbery? Try $124 billion. This was the cost to the taxpayers in the savings and loan crisis in the 1980s. If interests are included, the total cost approached $500 billion or $2,000 for every man, woman and child in the United States. In light of the recent subprime mortgage problems and the talk about government assistance to homeowners who cannot pay their mortgages, I find it intriguing in reading what happened back then and the aftermath.
In case you didn't know, here's a nutshell of what happened. Between 1986 and 1995, 1,043 savings and loans (a type of bank) with total assets of over $500 billion failed. It cost the U.S. taxpayers $124 billion to make the depositors whole because the bank deposits were insured by the U.S. government.
The savings and loans crisis is documented well in the book The Greatest-Ever Bank Robbery by Martin Mayer. I read it when I was traveling a couple of weeks ago. It's a great book which I couldn't put down. The book thoroughly analyzed the causes of the crisis, including the economic environment, ill-conceived legislation, poor accounting rules, indecisive regulatory authorities, and massive fraud and self-dealing aided and abetted by Wall Street, accounting and legal professionals and politicians. The tidbits are also fascinating. Well respected people did things which they are probably not too proud of. Former Fed chairman Alan Greenspan worked for Charles Keating whose Lincoln Savings & Loan failure cost the taxpayers over $3 billion. 2008 Presidential candidate Senator John McCain was one of the five senators known as the Keating Five who pressured regulators for favors for Keating. I also learned a lot, for example how the ubiquitous money market fund came about, how some of the institutions we commonly know as banks are really savings and loans, and how the moral hazard created by removing the downside risk can wreak havoc in the economy. More on these topics later.
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