Why Is This Bailout Different From All Other Bailouts?

Implications: I am sure that I am not the only one who thought that the lessons learned from the RTC experience could provide a suitable short cut and timesaving prototype for the requisite documentation to set the stage for this bailout. After reading this article I now realize why I was wrong and I wanted to share my learning curve with GLG News readers.

Analysis: Some of the reasons that this bailout is different from previous bailouts are as follows:

Our government plans to buy these assets instead of just "taking them over" as was the case with the RTC. This means that the taxpayer will benefit from the lowest possible price the government pays for these toxic assets while the higher the price, the more likely the bailout will help the credit crunch. It will be interesting to see how this basic conflict will be resolved.

The article calculates that $700 Billion could buy 2.8 million single-family mortgages. If you know anything about mortgages, you know how much paper that is. You also know that every mortgage company's paper is unique and not compatible with any other company's paper. This creates a paperwork mess that will take years to unravel.

Given the fact that the toxic assets being bought are not simply mortgages---they are actually packages of very small pieces of various types of paper such as MBSs, CMBSs, CDOs and SIVs. No one knows what is in these pools or where the supporting documents are located. This makes it impossible for anyone to modify the mortgages or even to foreclose on bits and pieces of mortgages without original documents.

The Treasury will be unable to buy up all the pieces of mortgages in the various pools and even if they did it would take years to fit them all together to form even one entire mortgage and then control what happens to that mortgage.

It is probable that every firm of every kind that can claim expertise in the area of buying and selling mortgages( and unfortunately this will include many of the firms that created these worthless mortgages), will rush to cash in on the $3 billion a year in fees it will take to make this bailout work.

This will easily surpass the Iraq war in terms of the size of the outside contractors operation and supposedly it is being created in the space of one week with no one having the slightest idea how to make it work!