Paulson says buying bad loans is a bad idea

November 12th, 2008, 11:46 am · 10 Comments · posted by Mathew Padilla

The government is officially abandoning the original idea behind the $700 billion bailout and will not buy toxic mortgage loans and related assets, reports the Associated Press. Here’s more from AP:

Treasury Secretary Henry Paulson said Wednesday that the administration will continue to use $250 billion of the program to purchase stock in banks as a way to bolster their balance sheets and encourage them to resume more normal lending. He also announced that the administration was looking at a major expansion of the program into the markets that provide support for credit card debt, auto loans and student loans.

Paulson said 40 percent of U.S. consumer credit is provided through selling securities that are backed by pools of auto loans and other such debt. He said these markets need support.

“This market, which is vital for lending and growth, has for all practical purposes ground to a halt,” Paulson said.

Read the full story HERE. (AP Photo of Paulson taken today by Susan Walsh.)

And in other mortgage news…

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not buying it says:

November 12, 2008 at 12:24 pm

Now I am very much relieved that they recognized the futility in buying bad paper - paper that is only going down in value daily. That effort would not have helped anyone.

Supporting other markets that translate directly to jobs and future jobs is more like it.

BRAVO to the Fed on this one!!!

Post Reply

Louis says:

November 12, 2008 at 1:01 pm

Hank, da! do you think?

Peter Samuel Cugno says:

November 12, 2008 at 2:39 pm

The short version, I said in my own Blog back on the 6th Matt is “… We need those buckets of CDOs, MBS’s etc. emptied (by the Treasurys’ purchases) so the natural course of events can transpire … > empty buckets mean instiutional investors need to fill them (with new sensible type loans this time of course) > and as night follows day - their desire for product will naturally move Lenders to begin lending activities (again with sensible type loans this time of course) > which in turn will spur applicants to want to become borrowers > BINGO! Mortgage Lending & Housing unclogged.”

My todays actions of Hank, NOT doing what TARP was designed for will significantly HALT the reversal (and the bottom) of Housing troubles and Residential Mortgage Lending, those purchases would have accomplished SLAM DUNK …. all these other pieces Hank spoke about doing today instead, are merely easier to accomplish. The TOXIC troubled mortgage asset purchases would have been a lot of work, and I guess they’re looking at their wrist watch to ‘hit the ground (in the private sector) running’ in 6 weeks!

rants says:

November 12, 2008 at 3:52 pm

peter samuel cugno- what are you a comedian?

what we need are large quantities of cyanide pills

remember this the more the government gets involved
with their hair-brained schemes the worse the outcome
will be…. that dear readers is a guarantee

check out this article- then ponder what hes saying

http://www.reuters.com/article/Finance08/idUSTRE4AB7HT20081112

mav says:

November 12, 2008 at 4:00 pm

rants lllooolll
cyanide or napalm

http://www.bloomberg.com/apps/news?pid=20601103&sid=aCIytV1_Ii7M&refer=us

“The economy fell off a cliff in October,” said Richard Berner, co-head of global economics at Morgan Stanley in New York. “We had a huge financial shock that intensified the credit crunch and triggered a sharp downturn.”

Declines in household spending will extend into next year as the worst financial crisis in seven decades forces employers to keep cutting payrolls on top of the 1.2 million jobs already lost this year.

“All of these adverse feedback loops are working to reinforce the downturn”

Jason says:

November 12, 2008 at 5:14 pm

Hank read, “If you give a mouse a cookie”

It’s a children’s book and it might help!

http://nomedals.blogspot.com

Ranter says:

November 12, 2008 at 5:16 pm

It’s obvious to me that Henry Paulsen doesn’t know what to do with his $700 billion and ultimately this is going to leave the American public paying twice - once for the money he’s spent and again to fix the problems he’s created. Add to that the market turmoil that he’s creating by showing so much indecision and it’s likely that we won’t see anywhere near the promise this money originally promised.

Ranter

jenny says:

November 12, 2008 at 8:00 pm

Have you guys heard about the following: “credit card debt forgiveness program?” http://money.cnn.com/2008/11/12/pf/bc.meltdown.creditcards.ap/index.htm

I have a feeling somehow these banks is gonna make Congress pass this.

Frank O says:

November 13, 2008 at 12:42 pm

Padilla - your idea still warrants thoughts or at least consideration for one of the only viable ways to get out of this whole mess our economy is in… so let me put my spin on your IDEA spelled out a while back (maybe you said it elsewhere too, BUT anyway)

MP’s idea to give each homeowner $100,000 in the U.S. as a “bail out” or “stimulous package”
My spin on it is this-
One check equal to 20% of each city’s median average home sale value to each home owner, maximum of 100k. So if you are in a town where 200k is the median avg home value is 200k, then you would only get a check of 40k. ALSO this would be a LOAN (arbitrary rate of 5%) and not an outright gift. A new tax form would be created… this would be to track the LOAN, where the remainder would be forgiven if 80% or more was used on the homeowner’s principle residence. This would help each homeowner (in trouble or not) plus the companies in big trouble plus the other troubled industries….

tried to make it simple, but viable. Not that this would ever happen… especially now that the gov’t has spen 1 trillion dollars in trying to bail out companies… which it should have never done. Plus if a homeowner does NOT use it for their primary residence, then they need to pay it back… and the IRS is pretty good at getting what is Uncle Sam’s.

November 13, 2008 at 1:11 pm

I do not dispute the Government involved to this degree (and more to come) makes a mess of Capitalism, I also am in total and complete agreement that Hank and his Goldman Sachs croneys all have A.D.D. as they move from one thought to the next, then on to the next, etc.

My point is/was aimed narrowly at the HOUSING & RESIDENTIAL MORTGAGE LENDING Industries (where I have spent the last four decades), both of which I’m sure you all will agree are both “Dead as Kelsey’s Nuts” (Google that phrase).

Getting those TOXIC Troubles Mortgage Assets out of the way of our secondary market, would revive it IMMEDIATELY - letting them fester in a hard deep black hole once they’re owned by the Govebnment for a long time, is just fine with me (my 5 Grandkids will have the $$$$ to take care of them later - since that would help and not destroy homeownership in America for them).

As it so happens, Hank told us yesterday, he’s decided not to do that … so the recovery of residential mortgage lending and housiong prices are now both pushed WAY WAY WAY off into the dfuture … IF any of you are employed in these industries, ‘take a big deep breath and hold it’, ’cause there’s nothing coming along anytime soon to turn things around in those sectors, as I see it.

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