RTC - good or bad thing?

[Vog46_1999]

Here's one view:


http://www.guardian.co.uk/world/usel....marketturmoil


What was the Resolution Trust Corporation?
The US election has been interrupted by a major financial crisis. Markets have rallied after proposals for a new Resolution Trust Corp. What does it mean?

I've had financial news channel CNBC on most of the day, and it reminds of watching the Weather Channel covering a monster hurricane. CNBC was the first to report plans by the US government to create a Resolution Trust Corporation (RTC) type organisation to help end the current crisis. Stocks rallied.

Former Fed secretary Paul Volcker, former Treasury Secretary Nicholas Brady and former comptroller of the currency Eugene Ludwig made the call for a new RTC two days ago in the Wall Street Journal. They said that bold action was needed to head off the 'mother of all credit contractions'.

There is something we can do to resolve the problem. We should move decisively to create a new, temporary resolution mechanism. There are precedents -- such as the Resolution Trust Corporation of the late 1980s and early 1990s, as well as the Home Owners Loan Corporation of the 1930s. This new governmental body would be able to buy up the troubled paper at fair market values, where possible keeping people in their homes and businesses operating. Like the RTC, this mechanism should have a limited life and be run by nonpartisan professional management.

But you're probably wondering what the RTC was. During the 1980s, more than 1,000 savings and loan institutions in the United States failed.

The ultimate cost of the crisis is estimated to have totaled around USD$150 billion, about $125 billion of which was consequently and directly subsidized by the U.S. government, which contributed to the large budget deficits of the early 1990s.

The RTC sold assets that it inherited from failed savings and loans.

A new RTC isn't the only plan floating around. Senator Charles Schumer is proposing a slightly different solution saying that the RTC took over failed institutions and that the government needs to prevent banks from failing. The stock markets are rallying because the US government seems serious about dealing with the market crisis.

I promise I'll stop banging on about the economy, but this is a real crisis. It will have a huge impact on the elections, and the next president will still be wrestling with these issues. This plan will take time, and it will require action from Congress. It's an election year, and it's usually difficult to get major bills through Congress. However, inaction is not an option this time.

************************************************** ****

I'll repeat this one section:

The ultimate cost of the crisis is estimated to have totaled around USD$150 billion, about $125 billion of which was consequently and directly subsidized by the U.S. government, which contributed to the large budget deficits of the early 1990s.

The RTC sold assets that it inherited from failed savings and loans.

I'm no financial guru here - but in my simple mind:
Cost of the 80s - 90s RTC was $150B with $125B subsidized by the U.S. government.
Am I correct in understanding that this number of $125B was AFTER THE SALE OF THE ASSETS???????
So $25B of asset sales were realized in 1980-1990 dollars????
About 18% was recovered???????
And this is a good thing????

Ren/Ramius/FD anyone-- can you help an old guy out here? Can anyone?
Why the market euphoria over THIS??????

Who wants to buy bad loans that are already identified as bad loans??????

Best Regards
Vog

[DoubleD]

The market is happy because the businesses being invested in will be "saved" - we should not be happy because we are the ones that will be paying for that stick save.

Having said that, if it truly can avert a complete credit seize up - then it may very well be worth it despite the high cost to each of us - but honestly I am not optimistic this really is going to ultimately do the trick and if it does not work and it costs me huge amounts anyways... well it will really tick me off. Like anyone cares... but there you have it.

[Fiddlerdave]

I'm no financial guru here - but in my simple mind:
Cost of the 80s - 90s RTC was $150B with $125B subsidized by the U.S. government.
Am I correct in understanding that this number of $125B was AFTER THE SALE OF THE ASSETS???????
So $25B of asset sales were realized in 1980-1990 dollars????
About 18% was recovered???????
And this is a good thing????

Ren/Ramius/FD anyone-- can you help an old guy out here? Can anyone?
Why the market euphoria over THIS??????

Who wants to buy bad loans that are already identified as bad loans??????

Yes, 18% was about right. Understand that under Reagan, the S&Ls made loans to any business on any excuse, often groups that were made up of well connected political insiders (children of politicos, Neil Bush, etc.) and simply had sham companies that paid huge salaries for shows of developments, etc that never went anywhere at all - simply drained by salaries and commissions etc. Just like now.

However, that was a trivial situation compared to our current one. Its not just worthless RE loans, those loans (and many other things like credit card debt, etc.) have been LEVERAGED many times their original amounts into the CDO's etc., then sold traded, mixed, swapped, insured, used as collateral, reserves, god knows what.

This time, we must somehow clear the books of many, many TRILLIONS of dollars of worthless entries in almost every business class. I have heard in the last few days some businessmen bitterly complain that having to mark to market soom of these products is totally unfair - they should be allowed to value them at the face value they shows to have at maturity to contimue to shiw these compaies have some "value". Well, the market value is worthless NOW because the maturity value will be equally worthless THEN.

I think an RTC is orobably the best of a bad situation, but I do not think the sustem is capable of the pain that will be revealed and the rot that would be exposed if operated with integrity. It will start with secrecy (we can't divulge business secrets!) and turn into a whitewash bailout giveaway, until enough collapses make it clear there is no fix and the big gullywasher cleanout begins for real (we are still in the overture).

I can't see 18% of ALL CLAIMED ASSETS of these financial (and many other) companies holding up in this crisis, no way. Maybe 6%, but I doubt it. That's what is so funny when some claim that the Fed will make money on the paper they are taking. There is nothing there. At all.

[MomCares]

I may be wrong, but I suspect the debts incurred by the RTC will be used as an excuse to completely disassemble the remaining tatters of our social safety net.

Our once-envied government has now been made poor enough to drown in the bathtub, and while the US taxpayer will be much worse off I'm guessing the world won't miss this former super-power much.

Welcome to the reign of the Plundering Class. We have been robbed.


MomCares

[Johnny]

Originally Posted by MomCares

I may be wrong, but I suspect the debts incurred by the RTC will be used as an excuse to completely disassemble the remaining tatters of our social safety net.

Our once-envied government has now been made poor enough to drown in the bathtub, and while the US taxpayer will be much worse off I'm guessing the world won't miss this former super-power much.

Welcome to the reign of the Plundering Class. We have been robbed.


MomCares

We are witnessing a coup d'etat pulled off by the banking industry and enslaving the American people for generations.

[Johnny]

The more I read about this the madder I get.

Who is going to buy the bonds? The chinese? They are already making statements about needing a new world currency. The russians? Ha! The saudis? Ha! The British are in the same boat we are.

If they put a trillion dollars into this monster how will there even be any money left to pay the bills? They will either default or print us into hyperinflation! That's one way of making a trillion seem like not such a big number...