Sunday, September 28, 2008

And we have a deal. Probably

WE'VE MOVED! Democratic Convention Watch is now at http://www.DemocraticConventionWatch.com

The news sources are reporting that there is a budget deal. Then again, the devil is always in the details. It's a verbal deal, and we'll see later today whether pen can be put to paper.

As you all know, since yesterday was Saturday, I was out doing voter registration. Yesterday, I had people at a table, people walking the shopping center, plus a comrade and I worked a large rental complex, and went back and forth to help at the table. And yesterday was different, not only because we are approximately one week out from the close of registration for Pennsylvania this cycle, but because people wanted to talk about the debates, and the bailout.

Now, I'm used to people coming up and asking election questions and political questions. And I would have expected people to be talking about the debate -- but the bailout? People had questions that related to why neither Obama nor McCain could actually explain it during the debate, they were interested if I knew where they stood on it.

We'll see how that goes today, now that there's ostensibly a deal.

My questions for you:



Comments (7)

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"People had questions that related to why neither Obama nor McCain could actually explain it during the debate,"

Obama DID explain the provisions he wants in the bailout. When asked whether he would vote for it, he explained that it has not yet been written. McCain, on the other hand, when pressed, said he would vote for it. Sounds to me like buying a pig in a poke. We should not sign a contract we have not read, and legislators should not vote for a bill that does not exist.

Even today, it appears that the deal has not been finalized. Remember, the initial proposal was three pages long. As of last night, it was reported to be 100 pages. And it is still evolving. I would suggest we reinforce with folks the provisions Obama wants and how those would give us far more protections than the original proposal.
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The one thing that makes the bailout difficult to describe is that we are dealing with mortgages and "mortgage-backed" securities. No one has clearly explained the relationship between the two or which might be purchased by the bailout.

The other difficulty in explaining the bailout is that the terms of it are still in flux.
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2 replies · active less than 1 minute ago
Karen Anne's avatar

Karen Anne · 859 weeks ago

I'm not sure, but one thing I've heard several times is that a number of mortgages are bundled up and sold as a bunch, and may also be fragmented among bunches. That's apparently why it is difficult sometimes for a homeowner in trouble to negotiate new terms, they are dealing with smoke. My guess is a bunch is a mortgage backed security.

I have no idea what the bailout is actually going to do. Buy part of the firms in trouble? Buy their junk mortgage bundles? ??
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You've got mortgage-backed securities right. But it gets worse. As I understand it, "credit default swaps" are some kind of thing that separates the risk of someone failing to pay their mortgage from the entities that hold the mortgage. So now you're mortgage is broken up into a thousand pieces, bundled with pieces of other people's mortgages, sold to someone else, and then the risk that you default is sold to yet another person.

That means, as I understand it, that your mortgage is held by a thousand different parties, and those parties don't care if you go under, because they're not at risk. There's some other party which is at risk if you go under, but they can't renegotiate, because they don't own the mortgage.

You can see how this is a problem once people start to go under. The people who hold the mortgages don't care, but other parts of the financial system get hurt. Add in the typical over-leveraging of all this stuff, and we're in trouble.

I may have gotten some details wrong, but that's my understanding.

I'm not even going to try to explain the bailout. It's where my limited understanding ends.
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Here's how I understand it:

It used to be you got a mortgage from a bank, and then you repaid the bank. The bank generally lent money for mortgages at a higher interest rate than the rate they paid depositors. The system worked.

After the latest GOP legislation, a bank no longer held a mortgage -- they sold it to a "bundler" who took all the mortgages, assessed the risks of each, and bundled them together. The bank would get 97% of the money back (current money being worth less than future money) with the 3% (percentages somewhat variable) would go to the bundler out of the front end.

Then, the bundled mortgages would be sold as derivatives, mortgage bonds, or mortgage backed securities by the investment banks, who would make their money on the front end. Investors would be 'assured' of higher rates of return predicated on the degree of risk they were willing to accept.

When house prices starting falling, the bonds and derivatives were worth less and less, interest could not be paid on them, and the investment banks didn't care because they took their end out of the front.

Ergo "bad paper"

There have been several court cases where homeowners facing foreclosure said that they couldn't be foreclosed upon, as their mortgages were no longer "held" by anyone. And they won the cases, because no one could find the physical signed "I'll pay this mortgage" paperwork, and their mortgages had been sliced and diced, and were now in pieces amoungst all sorts of bad paper.

I just stopped home to walk the dog -- back to canvassing and voter drive......hope this is now clear as mud.
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For the sake of completion, any reason the poll left out the option of McCain voting and Obama and Biden not showing up?
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1 reply · active less than 1 minute ago
Because in the darkest region of my heart, I cannot believe that John would show up and our guys wouldn't. It's not that I didn't understand that this was a potential choice, as written, I just couldn't get my mind around the idea that it COULD POSSIBLY HAPPEN!
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