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Bailout Nation: Freddie, Fannie, and more


Subdude

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The good news is that they are being nationalized rather than propping up existing management and owners. The bad news is that they are being nationalized, and all of that debt is now (explicitly, rather than implicitly) ours.

Hooray for deregulation!

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There is speculation that the feds will ultimately prop up the price of preferred shares, because banks (many foreign central banks) and insurance companies are so heavily invested in them.

Sounds like a self-fulfilling prophecy.

Fannie and Freddy should never have existed. Home ownership should never have been, nor should it be subsidized in any way, shape or form. The institution should be allowed to fail. Its assets should be liquidated at an appropriately discounted price.

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Sounds like a self-fulfilling prophecy.

Fannie and Freddy should never have existed. Home ownership should never have been, nor should it be subsidized in any way, shape or form. The institution should be allowed to fail. Its assets should be liquidated at an appropriately discounted price.

But didn't Greenspan himself say they are "too big to fail" ? :huh: No one is too big to fail. You buy your ticket, you take your chances.

The stock's been near-worthless for a while now. It's all those CMOS in Fannie-Freddy paper held by our friends overseas that has everyone in Washington crapping bricks. I'm rather interested in the fallout because my employer's numbers have been in the crapper for some time, we're only just now just beginning to feel the pain of the paper we were holding, and the board meeting in 2 weeks will allegedly include details of bold moves to fix the problem. Whatever.

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If things go south this could be really expensive for taxpayers. Fannie Mae and Freddie Mac insure 5 trillion in loans (about half of all residential loans). Now the government/taxpayers insure 5 trillion in loans. If they go south and a large number of people start defaulting this could be very very expensive.

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Yay, worthless stock!

There is speculation that the feds will ultimately prop up the price of preferred shares, because banks (many foreign central banks) and insurance companies are so heavily invested in them.

No special treatment is being suggested for existing owner classes. It is likely that that Treasury will issue preferred stock to itself. The number being tossed about is $25 billion, which means the real number will end up 3-4 times that. Nobody can guess how large the ultimate losses will be.

One thing I didn't like is that these firms were supposedly private yet they were always treated as having an implicit government guarantee and thus profited from cheaper funding. Now that the guarantee is explicit the long-term benefit should go to the taxpayers who are propping it up now. The "private profit, socialized loss" model that we seem to have slipped into is hard to justify.

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No special treatment is being suggested for existing owner classes. It is likely that that Treasury will issue preferred stock to itself. The number being tossed about is $25 billion, which means the real number will end up 3-4 times that. Nobody can guess how large the ultimate losses will be.

One thing I didn't like is that these firms were supposedly private yet they were always treated as having an implicit government guarantee and thus profited from cheaper funding. Now that the guarantee is explicit the long-term benefit should go to the taxpayers who are propping it up now. The "private profit, socialized loss" model that we seem to have slipped into is hard to justify.

And yet there are those who continue to demand deregulation. These private profiteers have conned the taxpayers that the "free market" must be allowed to grow, knowing full well that it is not free. They've turned socialism into a dirty word when it applies to sick citizens, but they merely renamed corporate socialism "free markets". And we bought it.

At least John McCain will soon be president. He was intimately involved in the last financial bailout, so he'll know exactly how to run this bailout.

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I have read that both these companies pushed forward their losses into the future (Q4 09), thus over estimating/over stating their capital positions. "We're healthy." Uh. No. You're liars. And now it's going to cost the American tax payer, billions and billions.

The opening bell is going to be interesting tomorrow. There is going to be a lot of excitement. Question is... is Fannie and Freddie going to tank as people race for the exits? Or... is this whole govt take-over going to be considered "good news?"

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I have read that both these companies pushed forward their losses into the future (Q4 09), thus over estimating/over stating their capital positions. "We're healthy." Uh. No. You're liars. And now it's going to cost the American tax payer, billions and billions.

The opening bell is going to be interesting tomorrow. There is going to be a lot of excitement. Question is... is Fannie and Freddie going to tank as people race for the exits? Or... is this whole govt take-over going to be considered "good news?"

I predict that the government's full throated endorsement of "private profit, socialized loss" policies will be seen as great news by investors who wish to continue to have their losses guaranteed by the taxpayers, especially in light of the fact that current government policy is not to have the taxpayers pay the losses at all, but rather finance them until some future date during another president's term.

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And yet there are those who continue to demand deregulation. These private profiteers have conned the taxpayers that the "free market" must be allowed to grow, knowing full well that it is not free. They've turned socialism into a dirty word when it applies to sick citizens, but they merely renamed corporate socialism "free markets". And we bought it.

At least John McCain will soon be president. He was intimately involved in the last financial bailout, so he'll know exactly how to run this bailout.

I haven't really determined whether the bailout is good policy at this point. The most important part of a bailout is that existing shareholders get nothing. Beyond that, it just comes down to how is the best way to handle a sunk cost.

I know that you're cheifly aiming your free market comments at me, but I fully recognize the importance of fixing the systems that the socialist policy created and subsequently set up to fail (and anybody that thinks that FNME or FHLMC were ever totally privatized are smoking crack) in a smooth and competent way before backing off from the matter altogether, as opposed to just dropping them like a hot rock. The same reasoning applies to poorly-conceived military invasions/occupations, in my mind.

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I really wasn't aiming the comment at you, as much as buzz word afficionados who throw out "free market" and "socialism" to show their supposed conservative street cred. The size of the two corporations makes it both hard to let them fail and hard to decide how best to deal with them. But, the price for public bailouts of these institutions must be regulation of those who invest with them or use them. Otherwise, these institutions will continue to be abused, and taxpayers will continue to be forced to bail them out. It is no different than laws that regulate the building of dams on your own property that may fail and flood the town below. If reckless financial dealing impacts others, regulation of it is required.

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I really wasn't aiming the comment at you, as much as buzz word afficionados who throw out "free market" and "socialism" to show their supposed conservative street cred.

Sure, not even indirectly... :rolleyes:

The size of the two corporations makes it both hard to let them fail and hard to decide how best to deal with them. But, the price for public bailouts of these institutions must be regulation of those who invest with them or use them. Otherwise, these institutions will continue to be abused, and taxpayers will continue to be forced to bail them out. It is no different than laws that regulate the building of dams on your own property that may fail and flood the town below. If reckless financial dealing impacts others, regulation of it is required.

The faulty assumption everyone was going on was that housing prices would always go up. Everyone was wrong. But if you look at historical bubbles financial markets tend not to make the same mistake twice and even to be excessively cautious going forward. As someone whose compensation is in no small part subject to the commercial mortgage markets, I'd like to think that I'm in a position to suggest that perhaps we're in that excessively cautious pattern just right now. There are lots of good investments out there, but so many investors are sitting on the sidelines, neither quite comfortable with action or inaction.

No doubt the system needs to be tweaked. But it is already regulated and I don't think anybody has suggested that it be totally deregulated, all at once, just to fit some ideological perspective. That isn't to say that we shouldn't move towards partial deregulation over the long term and also modify those regulations that we already have in place to be more effective...without being overbearing. It's about finding the right balance.

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Isn't this socialism? We always hear the right talk about how universal health care coverage is 'socialist' ... well, hell ... aren't we the taxpayers sucking up this debacle?

You don't have enough hope. If you did, you'd hope you never get sick, and hope you get rich enough to be bailed out by poor people. Poor people full of hope.

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Apparently noting that the spigots have been turned on, the three US-based automakers are looking for $50 billion in subsidized loans from the federal government. Gee, think anyone will vote "no" in an election year?

The line from Ford's American president sounds like it has already been focus group tested: "This is not about benefiting Wall Street. This is benefiting Main Street, the working men and women."

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Apparently noting that the spigots have been turned on, the three US-based automakers are looking for $50 billion in subsidized loans from the federal government. Gee, think anyone will vote "no" in an election year?

not sure i'd compare the housing situation with an automaker bailout. the govt will end up with housing stock.

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not sure i'd compare the housing situation with an automaker bailout. the govt will end up with housing stock.

At least the auto bailout is in the form of loans. Fanny and Freddy will cost us from $25 Billion to $100 Billion in bad mortgages that the government will swallow, and that banks will not purchase.

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Not $100b ... $200b.

Holy cow, you're right! There's an article out today that says depending on the number of foreclosures and the amount that housing prices fall, it could even reach $300 billion.

musicman is right! You can't compare the auto loans to this. This is 10 times worse!

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Holy cow, you're right! There's an article out today that says depending on the number of foreclosures and the amount that housing prices fall, it could even reach #00 billion.

musicman is right! You can't compare the auto loans to this. This is 10 times worse!

Disastrous.

Just a finger in the dike, (sorry Ellen)

Cute. :D

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not sure i'd compare the housing situation with an automaker bailout. the govt will end up with housing stock.

At least the GSE bailout is consistent with a long-held goal of promoting home ownership and helping the market as a whole. With the automakers it is pure parochialism. Why should we lend to them if banks won't? It's not like America is in need of auto manufacturers, they are just looking for a handout.

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Add $85 billion for AIG on to the list.

I understand the rationale for all of this, and if done right I don't think it is necessarily a bad thing, but what I find astounding is the lack of uproar from all the ideologues out there who usually like to go on about Free Markets and Socialism etc.

Two weeks ago the government engineered the two largest nationalizations in our history, doubling the national debt (although they're not advertising that one). This is one of the largest credit/financial crises in recent memory, it's costing taxpayers billions, but from a public interest and policy viewpoint the silence is deafening. I suppose it is just much more important for the country to focus on Palin's daughter's morals, or whether Obama may be some sort of crypto-Muslim, and other similar critical issues. :wacko:

Sorry for the editorial, back to the bailouts!

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As well as the house of cards revealed to the market world with the latest refusal to bail out the Lehman Brothers, and then the market going into a free fall over it, so we pony up again with the AIG and the get a little favorable bump in the margins, to pacify the masses, where do we really stand with all of this. We are bailing these people out on paper we don't even have, how sane can this be? Failure, which will end up in certain Chapter 13 protection, and allow them to regroup with something with foundation and be responsible for their losses. Sure it will shut down the paper mill for a little while, but the are still able to collect outstanding paper and apply it towards fixing the self inflicted wound, instead of this balancing act they are doing now, that will ultimately end in failure, under the same way of thinking that put them here in the first place. And allowing these fat cats at the top to leap with their golden parachutes intact, which would not happen until Chapter 13 Title 11. This is one thing that truly bothers me, is I'm involuntarily footing the bill. This house of cards has little promise of nothing more than easing the pain short term, and then dropping a bomb on the market with in a bigger thud than Rosie's post View popularity ratings. Someone take the Fed's checkbook and hide it from itself, the idiots are running the asylum. Now add the AIG to the list of junk stock we all now own a piece of that will never show any return to John Q Public, in the way of profits or at least breaking even. Let the cards fall where they may, 52 pickup is a lot better than a losing game of Russian Roulette. We are so concerned with calming world market at whatever the cost, yet the long term effects seem ultimately terminal. What is the fear of those whose world is built on a transparent financial foundation, that are living on borrowed time? Exposure? Reality? Certainly something else comes to mind, oh yeah, Poverty, the worst fear of all.

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