UncleNasty
Posts: 1108
Joined: 3/20/2004
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Term,
That is an interesting question.
Clearly bailouts of various and sundry have been a part of taxpayers burden for quite some time. G. Edward Griffin, in his 1994 work "The Creature From Jekyll Island, a Second Look at the Federal Reserve," includes a section in Chapter 1 that is subtitled "The Name of the Game is Bailout." He goes into some detail in re the "how's and who's."
To my knowledge there is no form of constitutional authority for the federal government to bail out any private entity. In fact there is the exact opposite.
After the S&L crisis of the 80's congress passed USC Title 12, Chapter 16, Section 1831o, the "Prompt Corrective Action" law (http://www.law.cornell.edu/uscode/12/usc_sec_12_00001831---o000-.html) which clearly mandates that when private financial institutions, er, um, get into trouble they don't have money thrown at them, instead they are to be put into receivership. I have been debating, in cooperation with other knowledgeable folks, filing suit in Federal District Court against a host of parties (Bush, Obama, Bernanke, Paulson, Geithner, each and every member of the House and Senate that voted "yea" for TRAP, er, um TARP) that flagrantly disregarded this law, took action in direct conflict with this law, and gave trillions of dollars of my money to private institutions.
The 96 year history of the Federal Reserve System shows that consistently the US taxpayer is the "lender of last resort" and is relied upon to solve whatever problems the knuckleheads running the "creature" get themselves into. Rarely, if ever, do the bigger players come out on the loosing end of the game.
To answer your question directly Term, no. I don't believe they thought that far down the road.
Through the research I've done I'm more inclined to believe they set up a business model in which they would profit greatly by the failure of the paper they were creating, and then went out and created paper specifically designed to fail. There is profit by numerous parties, and at many levels, when there is failure and/or nonperformance. In addition to loans that fail to perform on their own there are a substantial number of "manufactured foreclosures" occurring. The latter has received virtually no coverage in the media but it happens more often than average Joe and Jane would believe.
Among the reasons "loan modifications" are not happening in significant numbers is that there is more profit from default and foreclosure than through modifications. Loan servicers and Trustees profit more from default and foreclosure. Neither Bush's HOPE nor Obama's HAMP are doing anything to solve the foundational problems. Until the underlying issues of housing, mortgages and foreclosures is effectively dealt with there will be no significant or lasting improvement.
For years mortgage insurance was a pretty safe bet. Mostly they collected premium payments and had to pay out little in claims. Fairly profitable it was. In the next 12-24 months I look for the mortgage insurance companies to seek BK protection - Radian, PMI, MGIC, etc. They can't keep up with the current load. Some puts on these companies may render some tidy profits in the near future.
Uncle Nasty
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RE: Banks Bundled Bad Debt, Bet Against It and Won - 
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