I'd bet "WITH."

Congress and the President are looking to bolster consumer
confidence in the wake of an overextension of credit and
hence evaporation of "wealth." They will use approaches
which will have a direct effect on those facing foreclosure.
But also this President (and Republicans) could be said to
be not as interested in welfare as they are averting a
recession or minimizing the effects of same. Proposals
includes, for example, providing federal mortgage insurance
to back borrowers and so giving lenders more confidence;
ordering lenders to refinance in manners favorable to
borrowers; continuing the federal income tax deduction of
mortgage insurance premiums (when certain conditions are
met). These acts, among others, are hoped to have a trickle
down (or more) effect to the economy as a whole, which
should help bank stocks.

sandybeth wrote:

- quote -

When this issue was first raised, I recall we discussed how FEW people
it would actually help. I suspect that the impact will be minimal on
banking and/or mortgage company stocks due to this.
If it were more widespread, impacting a much higher percentage of
subprime loans, I'd think it would be a positive. One might claim a
zero-sum game where such a bailout simply transfers wealth from the
bondholders/banks to the borrowers, and to a degree, that may be true,
but a continued drop in housing is not zero sum, the drop is value lost
and the impact has something of a domino effect. That may be slowed down
a bit by this proposal, but the real effect remains to be seen.

As a holder of a CMO*, I'd prefer to get a lower rate than I expected
rather than find the value of my bond collapsed altogether.

(*I am not a holder of CMOs, I am speaking hypothetically)
JOE

sandybeth <sandyhb6[at]yahoo.com> wrote:

- quote -

What kind of bailout are we discussing? The devil is in the details.
-- Doug

I appreciate all the great information. However, my main questions
is: are my bank/mortgage company stocks going to be in better shape
WITH a bailout or WITHOUT a bailout?
SandyBeth

"sandybeth" <sandyhb6[at]yahoo.com> wrote
- quote -

Some mortgage companies (not necessarily publicly owned and
so traded on the market) have already gone belly up. The
smaller the publicly traded ones are, the riskier, IMO,
based on general and not specific reading on credit
problems. Subject to less scrutiny and so the power of
market interaction, they could get away with more, and they
did for awhile. Now they pay the piper.

Generally I agree with Skip on the larger banks.

Washington Mutual is the worst hit. The fact that it is
taking drastic measures (cutting the dividend 70%; laying
off people) to try to rein in costs bodes well, in general.
Going back some 17 years, neither WM, C, BAC has ever cut
its dividend before this year. So far, C's board of
directors has said it will not, while its CEO has qualified
this to say a cut will remain an option. BAC's dividend
appears secure, based on chatter by analysts. I mention this
because one 'advantage' for the long term investor of this
dip in stock prices is that dividend reinvestment can
purchase more shares than usual. A compounding effect then
kicks in when the share price recovers. Granted, this is if
it recovers, but I think they will in five years or less.
There is chatter (of course?) about many of these large bank
stocks being available at bargain prices.

Tighter regulation via the Fed and Congress will help
confidence in these large banks. I note that there have been
a few blips for each of BAC, C, WM in the last dozen years
or so, where stock prices dove on the order of what we are
seeing today. And each recovered, if that's any reassurance.

Seriously undertaken investigations of WaMu by the NY
Attorney General and by the SEC is bad for it yet they sound
warranted. WaMu also faces a shareholder class action
lawsuit. It's not likely to bring a cent to shareholders,
but I think (at first blush) it will be a deterrent to bad
business management in the future.

Large banks trade at low P/Es because they are risky.
Arguably they pay a large dividend partly for the same
reason.

Specifics on each company's financials are often brought
into online media reports. Except for WaMu, I feel pretty
good about my own three large bank positions. I knew going
in they could be volatile, so that helps. Being diversified
has buffered the short-term blow. I look to the long term.

It is said that the worst (for the banking and lending
industry) has not hit yet. I think we are looking at a few
rough years for the middle and lower classes in particular.
When they're hit hard, the whole economy suffers. Government
intervention is a good thing, insofar as lending standards
are tightened to something rational.

Whenever credit is too freely available, things get out of
control, people (the educated and less educated alike) get
stupid. I remember acquaintances talking about the property
they bought and planned to "flip," and how they thought
stocks were way too risky. Like weren't they so clever. I
just nodded, "We'll see." Sgt. Sausage is right that these
folks could only learn the hard way, with the dollar signs
in their eyes blinding them to all reason about rational
markets, growth, how wealth is built, etc.

On Sun, 30 Dec 2007 08:28:15 -0600, sandybeth <sandyhb6[at]yahoo.comwrote:

- quote -

IMO it depends on your time frame. If you are interested in the
short-medium term (less than 10 years), nobody knows. At any rate
this type of situation is why many advisors ask individual stock
investors to limit their holdings in any one business sector (i.e.,
banks) to 10% of overall holding.

Long-term (10+ years) and assuming the good ole USA remains
capitalist, I can't imagine well-run banks being a bad investment -
again, subject to 10% limit.


-HW "Skip" Weldon
Columbia, SC

I know this plan has been discussed in previous posts, but I am
wondering what effects this relief plan will have on you and I,
stockholders who own mortgage company & bank stocks in our
portfolios. I hold stocks in several of these companies and some of
them have tanked. So, bottom line, will the relief plan be good for
me as a stockholder, or bad?
SandyBeth