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John Galt?

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#30 : September 30, 2008, 03:18:43 PM

Banks and lending institutions have hard caps on via a formula based on assets versus deposits - this is a federal regulation that is making the current problem worse and forcing banks into insolvency. I think the bailout as written was wrong, I think the timetable to rush a bill through congress was wrong, both the bailout package (crap sandwich) and the timetable were shotdown - that does not mean crisis averted. I am not familiar with what the fed did - but I'll bet you the only thing they did was to allow lending institutions a temporary pass to sidestep the assets to deposits ratio...that did not give them any cash that just allowed them to operate with less cash than before.

Wow, how come you understand this but the majority in the media and Congress don't?  You are almost dead-on.  The almost part being that the cash position really hasn't changed a bit.  The problem is the non-cash MBO assets that were worth 80 cents on the dollar a few months ago can only be sold for 30-35 cents on the dollar.  That screws up their whole balance sheet giving them insufficient asset to deposit ratios.  Only 4% of all mortgages are over 90 days arrears and only a little over 6% are in arrears at all.  Even though 94% of all the mortgages are not in distress and are making payments, the percieved panic/fear has dried up the short term market and the recently changed mark 2 the market rules are effin up the whole system.


The only way the fed can "loan" $600 billion to the troubled lenders is to print more dollars. That devalues our currency even more. Means hyper-inflation is on it's way. Very soon you will find prices for things escalate beyond your belief. Most Americans barely understand what inflation is like. Hyper-inflation means it takes an exponential leap beynd that. Things like gas are traded on the global markets in dollars - each time we print a billioin more we take the value of the dollar down so it looks llike the cost of oil is going up - it isn't - the cost of oil is staying the same, our dollar buys less. The rest of the world is very eager to avoid this too, and regardless that they funded much of the greed, they will quickly make it our fault so as to avoid taking responsibility. Also we have just been strategically weakened financially - no military on earth could do what our freinds all over the world and on wall street just did. We are prime targets for anyone to take over massive parts of our economic engine for the price of needed cash at a desperate time...but no one is buying. They can get it even cheaper if we collapse.

Crisis is not averted.

And joe, I agree with you that a loss of jobs is coming - because non-essential jobs will be eliminated when businesses adjust their forecast and overall outlook for the next 3 months and next year they will determine they will produce less during a poor economy. That means they won't need as much of something.

Positive side? America doesn't make a whole lot of "stuff" IN America anymore, but when the dollar is so very weak and the world is  not investing in your country or buying your company's stocks...then foreign stuff becomes mre expensive. American produced "stuff" is currently more expensive because American companies include health care costs, high taxes, extra equipment due to EPA regulations, extra people to process paper, etc., that the rest of the world doesn't include in the price of it's stuff. Americans will need to eat so they will begin to make stuff on their own, without benefits - just for cash. This scenario will only work if there are still folks willing to lend start-up businesses money to manufacture in America, for American companies.

In the short term the bailout gives normal working class Americans some warning to hang onto some cash in order to prepare for a major economic downturn. It will allow most Americans to buy some food, buy some ammunition, divest of anything that is non-essential and prepare.

Bad things and bad times are looming.

And the American budget will have to be slashed by more than the $500 billion you stated cyber - it will have to be slashed by whatever we dedicate in the bailout AND because there was already a budget shortfall last session. We may be looking at slashing over $1 trillion to stay ahead of this. When jobloss starts there will demands by the population to subsidize unemployment...that will cause the government to spend more on social programs...whoever the next president is he is going to make a lot of people angry across ALL of America.


We don't need to throw cash at the problem.  If you have a fire and you throw cash at it, you just get a bigger fire.  The problem is the fire hose is plugged.  Just unkink the hose and the water will flow and put the fire out.

Instead of valuing MBOs at "market value" as determined by the last sale of similar MBO's, let the banks value them at a real discounted PV of Future Cash flow with the discount based on the current and expected default rates.  If a bank has $100 million in MBOs and only 5% are distressed/arrears, then value it at the PV of $95 million instead of the CMV of $30 million.

This whole crisis is not because of some fundamental change in the economy, it is because the Govt. changed one set of arbitrary rules for another without thinking thru the consequences. 

Just change the damn rules back.  Crisis averted.


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#31 : September 30, 2008, 04:12:10 PM

Well you see if they change the rules and avoid the crisis, then there is no need for government intervention in the market and no need for banks to get hundreds of billions of dollars.

Congress knows this...they arnt stupid. They just want to expand federal power...that's all this is.

Remember....crisis is a friend of the state.

John Galt?

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#32 : September 30, 2008, 04:18:54 PM

Well you see if they change the rules and avoid the crisis, then there is no need for government intervention in the market and no need for banks to get hundreds of billions of dollars.

Congress knows this...they arnt stupid. They just want to expand federal power...that's all this is.

Remember....crisis is a friend of the state.

Is a Reichstag fire next??


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#33 : September 30, 2008, 04:25:28 PM

2 good things likely to happen in the next couple of days:

1) "mark to market" accounting for the "toxic" securities is likely to be lifted by the SEC (MANY folks in and out of financial business are saying this)

2) FDIC insurance level is likely to be raised (first heard Larry Kudlow mention this one)

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#34 : September 30, 2008, 04:36:54 PM

The Dollar gained 2.5% against the Euro today....It is the dollar's biggest single-day gain against the Euro.

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#35 : September 30, 2008, 04:49:54 PM

The Dollar gained 2.5% against the Euro today....It is the dollar's biggest single-day gain against the Euro.

Give the big boys a chance to get out before the collapse.


The White Tiger

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#36 : September 30, 2008, 05:02:30 PM

JG - First I have invested the time to try and find out what is going on - I also listen to Glen Beck, who has been demonstrating quite a bit of consistent, understandable information. I watched him over time and found he was not one of the guys telling you to invest, he was one of the guys telling us to pay off debt. About a week ago he said "can that, start holding on to cash".

I deal with business owners of manufacturing companies over the past 20 years and I have learned how they think. When problems happen, and they always do, I look to see how that will affect my customers business - and how I can help them. Some of my customers are on the ropes because they can't get cash to meet payroll this week. My company is ok for a few more weeks because in January the president of my company helped us understand the importance of helping them improve credit terms and maintaining credit line discipline. I have spent a lot of energy this year discussing cash flow and inventory turns. I have tried to find ways to give better lead times and asked to reduce the amount of days it takes them to pay their bills.

Now JG - you seem to be saying that we just need to raise the ceiling on the regulation to allow lending institutions additional room to operate...my question is this; will this allow lending institutions more confidence to loan cash - or is the credit crisis beginning to show how little faith they have in American business - and they intend to protect their positions by continuing to make credit extremely difficult to attain?

I think Americans are beginning to understand what is at steak, and that there will be more support for a bill on Friday - I think a few well run businesses will close because they can't pay their employees.

If it is presented as something other than "bailout" then perhaps it would be more acceptable - any cash infused by the government will make this worse.

De-regulation did not cause this problem, forcing Fannie and Freddie to raise the amount of bad mortagages these two "companies" could buy at the insistence of Democrats, who were skimming off the top, but also at the blackmail of groups like A.C.O.R.N - who threatened lawsuits if the banks and lenders didn't give preference to "poor" people. They forced the government to put pressure on these lenders to give loans to folks that could not afford them, then after the loans became problematic - Fannie and Freddie were allowed to buy these bad loans.

That PONZI scheme worked out the way all scams do. The democrats started it - but the Republicans allowed it to happen. When other lenders saw that the government would buy bad debt they couldn't do loans to these bad risks fast enough! They tacked on fees and surcharges, anything that could be collected at closing (instant gravy), and then they packaged these bad loans with with other investments and sold them to other banks - who thought the USA was insuring these loans.

Dave Ramsey has a solution that could actually work - he does not take credit for coming up with all these, but he packaged others ideas in such a way as to address and solve the problem with private/market driven solutions from Dave's website:

 Â                                         The Common Sense Fix

Years of bad decisions and stupid mistakes have created an economic nightmare in this country,
but $700 billion in new debt is not the answer. As a tax-paying American citizen, I will not support
any congressperson who votes to implement such a policy. Instead, I submit the following threestep
Common Sense Plan.

I. INSURANCE
 Â          a. Insure the subprime bonds/mortgages with an underlying FHA-type insurance.
 Â             Government-insured and backed loans would have an instant market all over the
 Â             world, creating immediate and needed liquidity.
 Â          b. In order for a company to accept the government-backed insurance, they must do two
 Â              things:

1. Rewrite any mortgage that is more than three months delinquent to a
 Â   6% fixed-rate mortgage.
 Â             a. Roll all back payments with no late fees or legal costs into the
 Â                 balance. This brings homeowners current and allows them a
 Â                 chance to keep their homes.
 Â             b. Cancel all prepayment penalties to encourage refinancing or
 Â                 the sale of the property to pay off the bad loan. In the event of
 Â                 foreclosure or short sale, the borrower will not be held liable
 Â                 for any deficit balance. FHA does this now, and that
 Â                 encourages mortgage companies to go the extra mile while
 Â                 working with the borrower—again limiting foreclosures and
 Â                 ruined lives.
2. Cancel ALL golden parachutes of EXISTING and FUTURE CEOs and
 Â   executive team members as long as the company holds these
 Â   government-insured bonds/mortgages. This keeps underperforming
 Â  executives from being paid when they don’t do their jobs.
 Â               c. This backstop will cost less than $50 billion—a small fraction of the current proposal.

II. MARK TO MARKET

 Â               a. Remove mark to market accounting rules for two years on only subprime Tier III
 Â                   bonds/mortgages. This keeps companies from being forced to artificially mark down
 Â                   bonds/mortgages below the value of the underlying mortgages and real estate.
 Â               b. This move creates patience in the market and has an immediate stabilizing effect on
 Â                   failing and ailing banks—and it costs the taxpayer nothing.

III. CAPITAL GAINS TAX
 Â               a. Remove the capital gains tax completely. Investors will flood the real estate and stock
 Â                   market in search of tax-free profits, creating tremendous—and immediate—liquidity in
 Â                   the markets. Again, this costs the taxpayer nothing.
 Â               b. This move will be seen as a lightning rod politically because many will say it is helping
 Â                   the rich. The truth is the rich will benefit, but it will be their money that stimulates the
 Â                   economy. This will enable all Americans to have more stable jobs and retirement
 Â                   investments that go up instead of down.

This is not a time for envy, and it’s not a time for politics. It’s time for all of us, as Americans, to
stand up, speak out, and fix this mess."


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#37 : September 30, 2008, 05:26:50 PM

I like that plan by Dave Ramsey...


John Galt?

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#38 : September 30, 2008, 05:46:20 PM

Dave Ramsey's plan makes sense. It treats the problem not just the symptoms.

As Paulson said the problem is the Markets are suffering from clogged arteries.  But his bailout doesn't unclog the artery it justs adds more blood.  A transfusion doesn't help a heart attack, a bypass or other unclogging procedure does.


The White Tiger

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#39 : October 01, 2008, 12:02:59 AM

Nicely summed up JG - I didn't understand the mark to market issue.

I also like Ramseys approach - he's not taking credit for it, he's just put together what a lot of smart people thought might work. He then asks that folks copy this program and then forward it to their congressman with a little note:

"If you don't vote for this, but you do vote for a taxpayer funded bailout - then I will vote you out of congress".

Sounds like just the right kind of blackmail to me - I'm tired of being threatened for not doing enough to save whales that have babies nobody wants but don't have opportunities to buy houses they can't even afford to live in....

It's time to threaten congress - not have them threaten us.

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#40 : October 01, 2008, 12:48:19 AM

Did you know that bill expanded from a 3-page bill on Thursday to over 100-pages on Monday?

The socialists in congress will have to try something else.

No worries. Come January 2009, Obama's cabinet will clean up the crap that GWB has left the country - including the economy, the wars, the price of gas, etc etc etc. I knew back in 2000 that GWB's selection as our president was a big mistake.

Wow, you really don't get it do you?  Are you seriously this misinformed on the bailout, Fannie/Freddie, and overlooked what everyone has been finding about how this issue goes beyond Bush's term.  Do you just watch what the MSM offers up, and take to heart what Pelosi says in that this is all Bush's fault?   Oh that's right this is where the whole mantra that "Bush didn't enforce stricter regulation and loosened the slack on it more to get us here..." Eh, not quite.   

As far as Obama is concerned there has been some information that has been linking him to this just as much as Raines, Frank, etc.  His ACORN is nothing more then a fraudulent firm known for intimidation tactics that also THREATENED lawsuits to the banking firms IF they did not lend money to subprime lenders, then all in turn get gigged for "predatory lending"  Obama GAINED his community organizer experience at this said firm, so NO I don't think that your boy Obama is going to fix anything.  Need we continue, because I still have yet to cover his "blueprint," doubletalk about the war, universal healthcare, and doubletalk about energy as well.  It is documented that Obama was clearly against drilling for new oil in the interim time until renewables were more marketable, back in July with his statement of "keeping the tires properly inflated"  To the debate this past Fiday in where he actually says we need to drill.... LMAO, just more change that you can see in the way he changes his mind. 

In other words, undo the mess GWB brought us over the last 8 yrs.

Yeah, GWB got us into this mess, heck he only tried and suceeded in getting the GSE's investigated, and oh that's right he also authored up in the war bill legislation all the huge amounts of pork spending that only continue to grow an overgrown gov't.  Pay no attention to the lawmakers of this country who have done this as part of their own special interests....

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#41 : October 01, 2008, 03:12:31 AM

I sent this to my rep and senators, thanks for posting.  It seems very commonsense to me.  Bill Nelson had this on his website:

U.S. Sen. Bill Nelson's statement on the administration's bailout plan:

"This is not the time for political rancor, but for casting aside partisanship. When Congress does that, I think most will see we shouldn’t be bailing out banks that caused the problem in the first place - without guaranteeing that taxpayers don’t get the short end of the stick. If we hand the administration seven-hundred billion dollars, then we also must assure there’s tough oversight, profit-sharing for taxpayers, fair refinancing for homeowners facing foreclosure; and, we must make sure none of the money ends up back in the CEOs’ pockets."
Sen. Nelson's detailed plan for dealing with the economic crisis:

The Honorable Christopher J. Dodd

Chairman

Senate Committee on Banking, Housing, and Urban Affairs

534 Dirksen Senate Office Building

Washington, D.S. 20510

Dear Chairman Dodd:

I fully understand and appreciate the gravity of your responsibility as chief author of legislation that will hopefully stabilize our financial markets. I share your desire to make sure that any relief we provide will protect taxpayers and does not reward those who profited while pushing us toward this crisis.

Accordingly, I strongly believe that any legislation authorizing the Treasury Department to purchase mortgage-related assets must contain the following provisions:

 

1.      Initiate a special investigative unit within the FBI to probe the business practices of major ratings agencies. While many stakeholders share the blame for today's financial crisis, bond rating agencies helped facilitate the enormous growth of the mortgage-backed securities industry, and gave securities consisting of subprime-related mortgages "AAA" ratings. Investors relied on these credit ratings to make purchases. The public deserves to know how these rating agencies concluded that such risky investments could receive such high credit ratings.

 

2.      Do not allow foreign-owned financial institutions to participate in the Treasury's purchase of mortgage-related assets. While I understand that we face a potentially global crisis, I cannot support a bill that forces American taxpayers to bailout foreign-owned financial institutions.

 

3.      Authorize the Treasury to purchase only mortgage-related assets, not other troubled assets. The current crisis resulted from a massive housing bubble that ended with millions of homeowners defaulting on their mortgages. I cannot support a bill that expands relief to include other troubled assets that had little to do with causing this crisis.

 

4.      Require the Treasury to pay fair market value for any mortgage-related assets. I cannot support a bill that overpays banks for troubled assets, giving financial institutions and Wall Street bankers a taxpayer-funded windfall. We should inject necessary liquidity into the market, but we should not reward those responsible for our current circumstances.

 

5.      Instruct the Treasury to require an equity interest or option, e.g. warrants, from any financial institution that chooses to participate in the program. In the case of the AIG bailout, the government required warrants in exchange for assistance. If we are going to buy bad debts from banks, helping them to avert bankruptcy, then the taxpayers must share in any potential rewards.

 

6.      Establish multi-tiered and independent oversight of all government purchases of mortgage backed securities. I strongly support your vision for oversight by an internal board at Treasury that includes congressional appointees, an independent inspector general, and the relevant committees of Congress.

 

7.      Create and fund more efficient government-sponsored refinancing mechanisms for homeowners facing foreclosure. Financial institutions seeking to participate in the program should be required to refinance or modify any mortgages they or related companies hold for homeowners in danger of foreclosure. Consider using Fannie Mae and Freddie Mac to refinance mortgages. If we are going to bailout Wall Street executives, we should provide real foreclosure relief to ordinary families. I cannot support a bill that fails to do so.

 

8.      Authorize funds based on performance. Provide $250 billion initially but set targets for success that, if met, trigger authorization of additional funds. We must be good stewards of taxpayer money, and I cannot support a bill that provides a blank check that is not based on performance.

 

9.      Develop clear and strong regulations for other securitized debt obligations, such as securitized credit card and auto loan debt. As we commit massive amounts of taxpayer money to resolve one crisis, we cannot allow another to brew.

 

10.    Develop a second economic stimulus package that focuses on long-term investments, and make adoption of that stimulus package a condition for passage. This package should be focused on investment in infrastructure to help create jobs and spur local economies.

 

11.    Set reasonable limits on compensation--including incentives and severance pay--for executives of financial institutions that seek to sell mortgage-related assets through the Treasury's program. Taxpayers should fund neither golden parachutes nor large bonuses for individuals whose behavior precipitated this crisis. If financial institutions wish to participate in the Treasury's program, they must accept reasonable limits on executive compensation.

 

I know that these uncertain times place us all under significant pressure to act, but I want to make sure that we act sensibly. We absolutely cannot put a quick solution ahead of the right solution. I appreciate your consideration of these crucial issues. As we move forward, I stand ready to offer any assistance that you may need.

 

Bill Nelson

U.S. Senator

 




John Galt?

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#42 : October 01, 2008, 01:37:04 PM

Nicely summed up JG - I didn't understand the mark to market issue.

I also like Ramseys approach - he's not taking credit for it, he's just put together what a lot of smart people thought might work. He then asks that folks copy this program and then forward it to their congressman with a little note:

"If you don't vote for this, but you do vote for a taxpayer funded bailout - then I will vote you out of congress".

Sounds like just the right kind of blackmail to me - I'm tired of being threatened for not doing enough to save whales that have babies nobody wants but don't have opportunities to buy houses they can't even afford to live in....

It's time to threaten congress - not have them threaten us.

The Mark to the Market problem is that Banks were forced to abid by a rule that is based on a rule for Securities firms. And the SEC rule was changed.

It used to be that Securities firms had to maintain a minimum Net Capital ratio (investor deposits to Net Capital) with Stocks and Bonds Marked to the Market.
But Holdings in Mortgages could not be used to meet Net Cap
Banks had similar Net Cap rules but mortgages were valued based on current year expected cash flow (deducting arrears projections).  But this was changed to allow banks to use the entire market value (thus giving them more cap to lend) based on a secondary market for Mortgages and MBOs.

The problem is marking stocks and bonds, which trade on very large, broad, and efficient markets with millions of buyers and sellers, to the market is not the same as marking MBOs, which trade on a very narrow market in which only a few firms and Fannie/Freddie trade, to a inefficient market price.

If thousands of investors decided to "not buy any stocks" the effect on one stock would be pennies. But if just a dozen firms decide to "not buy MBOs" the market price could drop in half, regardless of the value and quality of the mortgages. Even Bill Gates mortgage is probably selling at 50 cents on the dollar!

WaMu had plenty of cash to operate and had a positive cash flow, more money was coming in than going out.  But because they mismanaged/miscalculated their asset to deposit ratio, they were forced into failure by FDIC.  Notice how quick Morgan Stanley Chase was to snap up all those "bad" accounts.  Their accounts (deposits and loans) were fine, it was their "accounting" that FDIC didn't like.  If WaMu could have valued their mortgage portfolio based on expected cash flow, they'd still be in business.  The arrears on their loans was well under 3%, it was the false "market value" of loans they had no desire to sell that killed them.

Misguided ideas to increase low-income and minority Home ownership led to changes in Bank regs that caused this whole problem.

Any solution that doesn't fix the cause i.e. the regs, will just lead to a repeat of this.


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#43 : October 01, 2008, 03:24:30 PM

It could be why there are many folks living in homes in Florida - but have not paid a house payment in months - we cannot figure out why 1) banks are NOT foreclosing 2) banks refuse reasonable short sale offers for some of the homes the sellers want to sell. Sometimes the banks rejected a shortsale offer that was within $2000.00 of the asking price...

It's beginning to make sense - 1) banks didn't foreclose because as long as the mortgage is shown to be "open" - it must have be able to be counted as an asset 2) banks smelled a bailout and did not want a reasonable offer on a shortsale - when they finally write down this debt they will be taking a full price charge off, or they will be assured the mortgage will be assumed at full price and the bank won't have to take a loss.

Do have that right?

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The White Tiger

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#44 : October 01, 2008, 03:56:52 PM

I know many, many, folks in Florida that have not paid a house payment in several months, in many cases these unscrupulous "home owners" are renting their homes to other people and pocketing the money. No one is foreclosing, no one is being evicted!!??

It appears that when you look at the problem this financial crisis is not being completely driven by those "Wall Street phat cats", it also can blamed on regular folks who bet their retirement account on flipping a house. Many of these folks LIED to lenders - they were asked if this was going to be a primary residence. Many lied and said "yes" in order to escape the 20% downpayment that real estate investors are required to pay (in order to have more "skin" in the game, and share the risk of this venture more evenly). Instead the investors "little white lie" allowed them to put 5% down on their properties. The lenders were not able to spread the risk in a more healthy manner - when they were exposed for the lie the lender was caught with too much risk and too much exposure of assets. They are trying to find a way to be seen as solvent by holding these loans open - and not foreclosing. Now they are paying the full price.

The banks aren't foreclosing because in many cases there is no reason to - no one is living in these properties. Many citizens are facing foreclosure - but many were simply trying to get rich quick. They wanted to cash in on the real estate pricing bubble...and they got caught. Many of these folks have never lived in Florida.

Some homeowners don't like the fact that their mortgage payments are too high, and that they paid too much for their homes (in light of the price drop forced down by short sales) so they WANT the bank to foreclose. They are hoping the legislation has a "forgiveness" clause in it so their stupidity/greed won't affect their personal credit rating.

Unfortunately there was a lot of cheating going on - but it wasn't all because of those phat cats on Wall Street. There are just as many cheaters next door to each of us as there were on Wall Street.

I wasn't a cheater - heck I've lived in the same house for several years - but any "bailout" or "Rescue" (or whatever they're calling it now) is targeting me. Something just not right about that. I am trying to live the right way, I am not trying to beat anyone out of anything. I pay my taxes (sales, property & income). I give of my time and money to charities. I don't want to pull someone elses weight, bear yet more burden, for something I refused to participate in. I want a fair plan that places the weight of bailout on those that created the problem and allow free markets to fix the rest of it. Let people make money on this and they will be happy to fix it - force people to rob their retirement and future - and you will create tired folks that stop pullilng the wagon. You will create more folks that decide to ride the governments (American people) wagon...

hmmm....


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