Resolution Trust: Part 2

I'll tell you what, the pigs on Wall St. and in DC have a lot of nerve to try sell the public on another Resolution Trust. I apologize for the rant tonight, but when I see the criminals about to act I get angry.

I am outraged by this. The market zoomed up 400 points as Wall St. cheered the mother(and I mean MOTHER) of all bailouts.

Here is news the that that lit the bulls fuse today a couple hours before the close.

"Schumer advocated a Great Depression-era Reconstruction Finance Corp. model, different from the Resolution Trust Corp.- type plan others have floated. Another RTC, which was a 1990s agency that sold devalued assets in the Savings and Loan Crisis, would ``simply transfer excessive risk to the U.S. government without addressing the plight of homeowners,'' he said."

My Take:

Alrighty folks, lets all jump in a time warp and go back in time to 1990/1991 and see how the taxpayer did with the last Resolution Trust.

Lets use Wikipedia to take a look at this. Here is how the Resolution Trust was setup by the government:

"The Resolution Trust Corporation was a United States Government-owned asset-management company charged with liquidating assets (primarily real estate-related assets, including mortgage loans) that had been assets of savings and loan associations ("S&Ls") declared insolvent by the Office of Thrift Supervision, as a consequence of the Savings and Loan crisis of the 1980s. It also took over the insurance functions of the former Federal Home Loan Bank Board. It was created by the Financial Institutions Reform Recovery and Enforcement Act (FIRREA), adopted in 1989. In 1995, its duties were transferred to the Savings Association Insurance Fund of the Federal Deposit Insurance Corporation.

Between 1989 and mid-1995, the Resolution Trust Corporation closed or otherwise resolved 747 thrifts with total assets of $394 billion. [1]"


So how did this work out for the Taxpayer?

Lets take a look at the savings and loan crisis losses that the Resolution Trust bailed out:

"While not part of the Savings and Loan Crisis, many other banks failed. Between 1980 and 1994 more than 1,600 banks insured by the Federal Deposit Insurance Corporation (FDIC) were closed or received FDIC financial assistance. [13]
From 1986 to 1995, the number of US federally insured savings and loans in the United States declined from 3,234 to 1,645. [8] This was primarily, but not exclusively, due to unsound real estate lending.[14]

The market share of S&Ls for single family mortgage loans went from 53% in 1975 to 30% in 1990.[3] U.S. General Accounting Office estimated cost of the crisis to around USD $160.1 billion, about $124.6 billion of which was directly paid for by the U.S. government from 1986 to 1996. [1] That figure does not include thrift insurance funds used before 1986 or after 1996. It also does not include state run thrift insurance funds or state bailouts.

The concomitant slowdown in the finance industry and the real estate market may have been a contributing cause of the 1990-1991 economic recession. Between 1986 and 1991, the number of new homes constructed dropped from 1.8 to 1 million, the lowest rate since World War II. [3]

A taxpayer funded government bailout related to mortgages during the Savings and Loan crisis may have created a moral hazard and acted as encouragement to lenders to make similar higher risk loans during the 2007 subprime mortgage financial crisis. [15]"

My Take:

If this doesn't sicken your stomach as a taxpayer then you don't have a pulse. We cannot let this happen! This mortgage crisis is 1990 x 20!. This crisis runs into the trillions not billions ladies and gentleman.

The problems with this idea are multiple. First of all, the losses would be over a trillion dollars. Look at the 1990 crisis. The last trust took over roughly $400 billion in assets in 1990. The trust lost roughly $160 billion and that didn't even include state bailouts.

Whats this one gonna cost us? $1-2 trillion? Where in the hell is the money going to come from? Last I knew, Santa didn't give out cash on Christmas.

This has got to stop! Whats the bond market going to say when the government tries to secure a trillion dollars from Congress to buy all of these bad assets? Another issue here is the government will want to buy the assets for .30 on the dollar like they did in 1990. Who says the banks will take a 70% losses on loans? Who says they can afford to take such losses? They are already insolvent. They will be left with pennies int heir pockets.

Remember, the trust took assets from mainly failed banks. This time the banks are technically still "solvent"(HA! What a joke) and open for business

If the government forces the banks to take this deal, will there be any banks left other than BofA and Wells Fargo? Also, who says the bank would agree to such terms? You know the government isn't going buy these assets at bloated prices. Hell, look at what the Treasury did to AIG this week. They took 80% of their capital and gave them a loan at an 11% interest rate. I am sure AIG was just thrilled with those terms(NOT)!

What sickens me even more here is who ends up making money on this trust: Wall St. What will happen if this ever goes through is Wall St. will find capital and buy these houses from the trust and make a fortune turning them around and selling the assets back to us and other private equity.

Meanwhile, the people who bought at the peak get totally screwed because they are stuck in a house that's worth half of what it was. Do you see those empty houses on your block or in your condo building? If this goes through, you will have new neighbors that will buy at half the price you did.

If you bought at the peak I would walk away if this goes through. Why pay for an asset that's worth half of what you paid?

The saddest part about this is guess who pays for the losses incurred from this trust. Take a look in the mirror folks: Its us.

Bottom Line:

The Treasury is in a total panic right now trying to stop this debt bubble from bursting. I don't think they can pull this trust off. The losses are too large and I think the bond market will go bananas with interest rates if they attempt it.

We cannot continue to add more debt onto our balance sheet. This would add trillions more to the trillions we already took on from the Fannie/Freddie disaster.

This bailout would kill the dollar and make our treasuries much less attractive. Mark my words folks: There will be a point where China says "enough" and says no mas to buying more T-bills. Other countries will surely follow. The game is over if this happens because we will have no one to fund our debt. We continue to make this crisis worse with these foolish greedy ideas.

It amazes me how Wall St. will step on anyone in order to make or save $$$. I really don't believe they have a conscious.

Let me finish by repeating Wikipedia's conclusions on the bailout of the savings and loan crisis:

"A taxpayer funded government bailout related to mortgages during the Savings and Loan crisis may have created a moral hazard and acted as encouragement to lenders to make similar higher risk loans during the 2007 subprime mortgage financial crisis. [15]"

If this trust goes through: Will Wall St. have learned a lesson?

I predict a potential crash in equities if this ever gets approved. It looks like they are going to give it a try. Lets hope the taxpayers and bond market rise up and say:

STOP THE BAILOUTS AND NO MORE DEBT.

I have already sent a message to my Congressman. I advise you all to do the same if you want to save your country.