Bailout Nation: Freddie, Fannie, and more

[musicman]

How is this gonna help to keep all those E-class Mercedes in the drives of mortgage brokers?

the one i know drives a toyota.

[TheNiche]

You can't make me believe with any amount of economic mental masturbation, that deregulation is a good thing here. Can someone explain where in any case the consumer benefited from deregulation at some point in time.

Again, look at Scandinavia. Lots of parallels.

You give the big conglomerates free reign, and they figure out a way to screw the consumer.

Consumers made bad decisions too. The bad decisions made by consumers come back to haunt wealthy investors, pension funds, insurance companies, banks, and any other holder of mortgage securities...not to mention themselves.

Regulating something doesn't kill either, it just makes you accountable and forces you to play by the rules.

The devil is in the details. Again, Scandinavia...

Also, I think you may be confusing regulation with enforcement. There are a lot of gun control laws on the books that supposedly regulate the ownership of firearms. So you have regulation...but it is not enforced.

[houstonmacbro]

the one i know drives a toyota.

That sux.

[musicman]

That sux.

there's that mindset again...buying things you can't afford.

[houstonmacbro]

there's that mindset again...buying things you can't afford.

I drive a VERY modest Honda.

[TheNiche]

I think you are missing the whole point Mac. It's not the BUYERS fault at all. other than the default on their promissory notes. But it is the LENDERS fault for loaning people who are in over their head. POOR LENDING PRACTICES. Not requiring a person to be liquid enough to put down 20% is a poor lending practice IMHO. Get my point?

If you get HIV/AIDS following consensual relations with someone that was OK with not wearing a condom, do you blame your partner?

[houstonmacbro]

Let me posit this. Who's really stupid and responsible in all of this. The banks and investment bankers.

They are the ones that GAVE out BILLIONS in loans with nothing to secure it. I mean, they not only gave it away, they encouraged each other to give out more and more of it. It was like, "Let's see who can give away the most loans without having anything in return."

Insanity.

Now they are mad and panicked because... DAH DAH ... their investments suck and they cant pay their bills.

So, in my opinion, the homeowners that got these loans finally got one over on vaulted Wall Street because they were able to leverage ZERO into fabulous homes. Now IF they can hang on to them all is fine. And if they can't, well ... so bad... they aren't losing anything in the process except seven years of bad luck (errr ... credit).

[RedScare]

You can't make me believe with any amount of economic mental masturbation, that deregulation is a good thing here. Can someone explain where in any case the consumer benefited from deregulation at some point in time. You give the big conglomerates free reign, and they figure out a way to screw the consumer. Demanding accountability is never a bad thing. Free Market, free enterprise, yada yada yada. Regulating something doesn't kill either, it just makes you accountable and forces you to play by the rules. The finance market is the worst of all, when it comes to being completely legit. Too much smoke and mirrors in the business of finance. we are just seeing the tip of the iceberg right now, if people think this thing is going to be quickly fixed, they are drunk. We will be working this issue out for years.

Exactly. Niche, like the others, is attempting to suggest that regulation shuts down free trade. It does nothing of the sort. It only brings order to the market. What everyone seems to be forgetting in this meltdown is the underpinnings of the scandal. Deregulation of the banks allowed mixing of highly risky financial dealings with more structured banking. That is a bad move, in that when the risky investments go bad it takes the bank down with it. But, that is not the biggest problem, it just shows that without a firewall, the whole building burns down.

The bigger problem was the de facto deregulation by the Bush Administration, by cutting the number of regulators and investigators, making it impossible to investigate wrongdoing. Therefore, even the regulations in place were ignored. Lenders, if a borrower did not have the income, just made up numbers. They committed outright fraud. Then the loan investigators responsible for verifying the documents are true ignored the falsified documents. The people in charge of certifying the investments labeled them non-risky, knowing they were based on false documents. Everyone knew this stuff was illegal, but their greed and belief that the housing would continue to go up made them ignore it. The entire system was ignoring the few regulations in place, knowing that there were no regulators to investigate and enforce the rules. THIS is why the system collapsed. It was anarchy in the markets.

And, THIS is why regulation is needed, as well as be enforced. If people are left to their own devices, they inevitably turn to fraud to pump up their profits. That is what greed does. Some want to call regulation and enforcement 'class warfare', but it is the ONLY thing that separates western financial systems from 3rd world ones. Those flying the free market banner the highest are really just those who want an unregulated market in which to rip off unsuspecting or naive investers. Just as communism is doomed by human nature corrupting the theoretical system, theoretical free market capitalism ignores the fact that transactions are not equal unless regulations require honesty in dealings. This is what his theoretical economic tirades always leave out...that fraud and deceipt will warp the free market in reality. It always does.

[N Judah]

The problem was when they changed the laws regarding what pension funds could and couldn't invest in. It started a giant bubble which only now just burst. Banking should not be our industrial policy.

Someone asked what the $700 billion was. If I am understanding this correctly, that should end up being the difference between the actual value of the houses (materials, labor) at repossession and the perceived value of the houses (location, location, location) as indicated through their mortgages.

[Mark F. Barnes]

What is the HORSECRAP that Dodd is trying to pull, a percentage of all profits from the bailout into the Housing Trust Fund aka ACORN.

TITLE I - Authorizing the Treasury Department to Buy Mortgage-Related Assets

Sec. 5. Rights; management; sale of troubled assets.

EXERCISE OF RIGHTS.The Secretary may, at any time, exercise any rights received in connection with troubled assets purchased under this Act.

MANAGEMENT OF TROUBLED ASSETS.

IN GENERAL.Except as provided in paragraph (2), the Secretary shall have authority to manage troubled assets purchased under this Act, including revenues and portfolio risks there from.

CORPORATION AUTHORITY.

IN GENERAL.The Corporation, shall manage all residential mortgages and residential mortgage-backed securities purchased by the Secretary under this Act.

REIMBURSEMENT OF COSTS.All costs and expenses of the Corporation in carrying out this paragraph shall be reimbursed to the Corporation by the Secretary.

SYSTEMATIC APPROACH.In carrying out this paragraph, the Corporation shall utilize a systematic approach for preventing foreclosures and ensuring long-term, sustainable homeownership through loan modifications and use of the HOPE for Homeowners Program established under section 257 of the National Housing Act and any other programs that may be available for such purposes.

REPORTS TO CONGRESS.The Corporation shall provide to Congress a monthly report on its activities under this paragraph during the reporting period, including specific information on the number and types of loan modifications made and the number of actual foreclosures occurring with respect to such loans during the reporting period.

SALE OF TROUBLED ASSETS.The Corporation may, at any time, upon terms and conditions and at prices determined by the Secretary, sell, or enter into securities loans, repurchase transactions, or other financial transactions in regard to any troubled asset managed by the Corporation under this paragraph.

ACQUISITION OF SECURITIZATION POOLS AND MORTGAGELOANS.The Secretary shall, to the extent practicable, acquire

sufficient ownership or control of pooled residential mortgage loans, or a securitization vehicle for such loans so that the Corporation has authority to modify the underlying residential mortgage loans, either directly or through a designee; and

whole residential mortgage loans, so that the Corporation may use its authority to modify the underlying residential mortgage loans, either directly or through a designee.

SALE OF TROUBLED ASSETS.The Secretary may, at any time, upon terms and conditions and at prices determined by the Secretary, sell, or enter into securities loans, repurchase transactions, or other financial transactions in regard to any troubled asset purchased under this Act.

TRANSFER OF A PERCENTAGE OF PROFITS.

DEPOSITS.Not less than 20 percent of any profit realized on the sale of each troubled asset purchased under this Act shall be deposited as provided in paragraph (2).

USE OF DEPOSITS.Of the amount referred to in paragraph (1)

65 percent shall be deposited into the Housing Trust Fund established under section 1338 of the Federal Housing Enterprises Regulatory Reform Act of 1992 (12 U.S.C. 4568); and

35 percent shall be deposited into the Capital Magnet Fund established under section 1339 of that Act (12 U.S.C. 4569).

REMAINDER DEPOSITED IN THE TREASURY. All amounts remaining after payments under paragraph (1) shall be paid into the General Fund of the Treasury for reduction of the public debt.

Profits? We

[BryanS]

What is the HORSECRAP that Dodd is trying to pull, a percentage of all profits from the bailout into the Housing Trust Fund aka ACORN.

Remember... at the end of the day, this will be a bi-partisan solution. Democrats will not be walking into the furnace alone on this one... You can't really blame Dodd.

Also... How many middle income DINKS/midtown/inner loopers have taken advantage of special ACORN type programs - designed for the lower class - to finance nice houses, and expensive townhomes in Idlywood (surrounded by lower income living), East End purchases (surrounded by lower income living), Riverside Terrace (surrounded by lower income living), etc, etc? It's happened - right here in Houston.

[N Judah]

Oh that's just the tip of the iceberg as far as homeowner subsidies are concerned.

[Mark F. Barnes]

Remember... at the end of the day, this will be a bi-partisan solution. Democrats will not be walking into the furnace alone on this one... You can't really blame Dodd.

Also... How many middle income DINKS/midtown/inner loopers have taken advantage of special ACORN type programs - designed for the lower class - to finance nice houses, and expensive townhomes in Idlywood (surrounded by lower income living), East End purchases (surrounded by lower income living), Riverside Terrace (surrounded by lower income living), etc, etc? It's happened - right here in Houston.

I beg to Differ, Dodd is the architect of this bill.

Also, ACORN is part and parcel of the housing crisis. Their agreements with banks like Bank of America and Citigroup forced these banks to make mortgage loans that were quite often not documented. They were often approved for people with starter teaser interest rates of 3%. As the interest rates rose these people could no longer afford their mortgages, creating many of the foreclosures. Many of these loans were made on recommendation of ACORN and even went to illegal immigrants! ACORN can't be allowed to have one hand in this bailout. Read ACORN AHC Report at www.consumerrightsleague.org. It spells out ACORN's part in the housing collapse! Read it, People don't understand these things because the main stream media won't talk about it. Did you read the wording in this Bill? You see THE key word in the 20% of profits language is "each". This means "each" troubled asset stands on its own so that any profits are not used to offset the losses of the entire portfolio of troubled assets prior to determining how much goes to the Housing Fund (ACORN)? So when an individual troubled asset makes money, 20% of that goes straight away to other government programs, and if a troubled asset loses money, well too bad taxpayers, that's all your loss! Taxpayers get 80% of the good and 100% of the bad. How do they come up with this stuff? Can you not see this? Both of these god dam candidates are talking no more pork barrel spending and this is exactly what this is. They both better walk the walk, we've heard enough friggin' talk for a lifetime. Now they are talking about getting this thing done before mid night, because the damn Asisn markets open Sunday???!!! Are the Asians going to help us out with this deal???, yeah right!

[N Judah]

Well that's exactly what the investment bankers were doing, except their cut went directly to themselves instead of to some random government program.

[crunchtastic]

Now they are talking about getting this thing done before mid night, because the damn Asisn markets open Sunday???!!! Are the Asians going to help us out with this deal???, yeah right!

Nope, don't think we can expect much help from the asian markets....

http://www.reuters.com/article/marketsNews...K16693720080925

BEIJING, Sept 25 (Reuters) - Chinese regulators have told domestic banks to stop interbank lending to U.S. financial institutions to prevent possible losses during the financial crisis, the South China Morning Post reported on Thursday

[BryanS]

I beg to Differ, Dodd is the architect of this bill.

Also, ACORN is part and parcel of the housing crisis. Their agreements with banks like Bank of America and Citigroup forced these banks to make mortgage loans that were quite often not documented. They were often approved for people with starter teaser interest rates of 3%. As the interest rates rose these people could no longer afford their mortgages, creating many of the foreclosures. Many of these loans were made on recommendation of ACORN and even went to illegal immigrants! ACORN can't be allowed to have one hand in this bailout. Read ACORN AHC Report at www.consumerrightsleague.org. It spells out ACORN's part in the housing collapse! Read it, People don't understand these things because the main stream media won't talk about it. Did you read the wording in this Bill? You see THE key word in the 20% of profits language is "each". This means "each" troubled asset stands on its own so that any profits are not used to offset the losses of the entire portfolio of troubled assets prior to determining how much goes to the Housing Fund (ACORN)? So when an individual troubled asset makes money, 20% of that goes straight away to other government programs, and if a troubled asset loses money, well too bad taxpayers, that's all your loss! Taxpayers get 80% of the good and 100% of the bad. How do they come up with this stuff? Can you not see this? Both of these god dam candidates are talking no more pork barrel spending and this is exactly what this is. They both better walk the walk, we've heard enough friggin' talk for a lifetime. Now they are talking about getting this thing done before mid night, because the damn Asisn markets open Sunday???!!! Are the Asians going to help us out with this deal???, yeah right!

I don't necessarily disagree with you. Reform and effective oversight (i.e. proper regulation) is needed. To keep the middle class from taking advantage of "special deals" designed for the lower class; ensuring responsible, sane lending is available to everyone. And that doesn't mean putting the disadvantaged into houses they cannot afford...

[RedScare]

While I do not disagree with either of you, special programs for the poor are the gnat on the rhino's ass in this meltdown. NO government program forced loan brokers to falsify documents to inflate their fees. NO government program demanded that document verifiers ignore falsified docs prepared by greedy loan brokers. NO government program demanded that bond rating groups intentionally rate junk level bonds as A+. And NO ONE forced anyone to buy these bonds! All of these things occurred because no one wanted to be left out of the feeding frenzy at the subprime trough. And now, prime loans are going bad as well.

Blaming the Blacks and the working poor, as Fox News is doing, is a red herring. The only time the banks lend to the poor is when they see big bucks to be made in it. Quit sticking up for the rich. They are big boys, they can handle it. And, I agree we should kill the bailout and take our chances. If I am going to get screwed either way, I'd rather get screwed by doing nothing.

[N Judah]

Banks lend irresponsibly because they know they will be bailed out. However, the idea of banks being bailed out only occurred as a result of irresponsible lending by banks.

[Subdude]

I have to admit I was a bit baffled by the alternative bailout plan that was suggested. It was described as federally-backed insurance on mortgage backed securities. That may or may not be a good thing on its own merits, but it really doesn't do anything to address the core problem of lack of bank liquidity and drying up of credit markets. Not to mention that a big part of the losses on those mortgage backs have already been recognized, so offering insurance on them now seems a bit late in the day.

[musicman]

Remember... at the end of the day, this will be a bi-partisan solution.

someone has been listening to nancy pelosi/barney frank again. with the dems being the majority, they should have no problem passing this.....unless they want to push blame somewhere else.

[N Judah]

I have to admit I was a bit baffled by the alternative bailout plan that was suggested. It was described as federally-backed insurance on mortgage backed securities. That may or may not be a good thing on its own merits, but it really doesn't do anything to address the core problem of lack of bank liquidity and drying up of credit markets. Not to mention that a big part of the losses on those mortgage backs have already been recognized, so offering insurance on them now seems a bit late in the day.

My understanding is that that, more than any other plan, would amount to simply giving them free money. At least by buying up the mortgages themselves the taxpayer would have something to show for it.

I don't think it's too late to cash in on an insurance claim. This is what AIG was supposed to be backing. Federally backed insurance clears AIG of its obligations (I think) and saves the banks. Everybody wins, except for the guy whose house these now-saved banks are repossessing.

Alternatively, if the government takes over the mortgages there is always the possibility that they can set it up to work something out with the mortgage owners themselves. It is to the government's advantage to own these mortgages, even if they convert them to public housing in the short-term (as an example). Real estate is still a sure bet in the long-term, as population growth in the US is still very real. That's why the banks still want to hold onto these mortgages, right?

It's early in the morning so what I say might not be very realistic

[Subdude]

My understanding is that that, more than any other plan, would amount to simply giving them free money. At least by buying up the mortgages themselves the taxpayer would have something to show for it.

I don't think it's too late to cash in on an insurance claim. This is what AIG was supposed to be backing. Federally backed insurance clears AIG of its obligations (I think) and saves the banks. Everybody wins, except for the guy whose house these now-saved banks are repossessing.

Alternatively, if the government takes over the mortgages there is always the possibility that they can set it up to work something out with the mortgage owners themselves. It is to the government's advantage to own these mortgages, even if they convert them to public housing in the short-term (as an example). Real estate is still a sure bet in the long-term, as population growth in the US is still very real. That's why the banks still want to hold onto these mortgages, right?

It's early in the morning so what I say might not be very realistic

So as I understand you the government would hold the underlying mortgage and make whole the losses to the banks etc that hold the securities based on the mortgages? Interesting idea. I suppose the big difference from the Paulson plan is that the banks would get their money over time, instead of cash up front.

You are correct in saying that it amounts to giving banks free money. That is a big part of the idea - to flood the system with liquidity in order to kick-start credit markets.

[Subdude]

Sounds like the deal is close to being agreed. It is expected to be announced this weekend before Monday Asian markets open.

[N Judah]

So as I understand you the government would hold the underlying mortgage and make whole the losses to the banks etc that hold the securities based on the mortgages? Interesting idea. I suppose the big difference from the Paulson plan is that the banks would get their money over time, instead of cash up front.

The government would buy the mortgages from the banks for an amount (a small amount...it doesn't really matter how much). The government would hold the mortgages. It would sell them off in the future for a profit. In the meantime it cuts deals with people so that they don't get kicked out of their houses.

You are correct in saying that it amounts to giving banks free money. That is a big part of the idea - to flood the system with liquidity in order to kick-start credit markets.

Under my plan, the $700B would go into something else -- say a sovereign wealth fund or a venture capital fund intended to spur development in a certain industry. This money would need to be stored somewhere, the act of which would get things rolling.

[RedScare]

I agree that if we do indeed need to relieve the banks of non-performing loans, it would likely be better to buy the mortgages at a discount than to just give the banks money. The banks lose some money, but are freed of the value draining loans. The government gets discounted loans that it might salvage by working with borrowers. It could lower interest rates or add months to the end of the loan...actions the banks could have done themselves, but refused, for a variety of reasons. If the loans are salvaged, they could be sold off profitably. If not, the government forecloses and sells the home. There may be losses, but probably less than $700 billion, and the financial markets are salvaged by the confidence instilled by the government takeover of bad loans.

This would have the effect of helping the banks from the consumer end, as opposed to the investment end...far more palatable to taxpayers.

But, like everyone else, I'll just wait to see what Congress comes up with.

[N Judah]

Yeah, I guess that sums up my plan pretty well. I want the government to absolutely do everything it can to avoid throwing people out of their homes. Even if the government forecloses the home, it should still let people live there cheaply in the short term (like public housing).

When the government takes the bad securities it should get them at the lowest price possible, so that it has the largest amount possible available for its sovereign wealth fund. Any taxpayer money that goes to the banks should result in the transfer of the mortgages to the government. This ensures that people's tax dollars aren't going towards their own foreclosures or towards the foreclosures of their fellow citizens.

[Subdude]

It appears that the bailout plan will include some government effort to minimize foreclosures in line with what you are saying, although they won't hold the mortgages directly. Still, the plan has never envisioned buying the debt as cheaply as possible. The government has no interest in taking over loans directly or working with borrowers. This is a liquidity injection, so scrimping or helping homeowners simply aren't the primary goals. Picture government helicopters hovering over bank headquarters, tossing out bags of cash..

Nothing against sovereign wealth funds in theory, but those are for countries with excess funds to invest. The US is a debtor nation (now more than ever) so would it really make sense to have one?

I haven't heard if it is part of the plan, but it seems a sensible idea would be to forbid any banks receiving aid to pay any dividends for a few years. Not only would that preserve capital, but there are certainly issues with giving banks cash and then having them turn around and distribute part of it to shareholders.

[N Judah]

The original Paulson plan seemed like a SWF to me. He would have gotten billions of dollars to spend as he wished with no oversight. That's why Sen. Dodd said that "After reading this proposal I can only conclude it is not just our economy that is at risk but our Constitution as well."

The Repubs had provisions letting judges renegotiate the mortgages of people about to lose their homes, but the Democrats did not like that idea.

The government is now taking over AIG's role (80% of which it already owns) and the role of the hedge funds who were lazily "insuring" holders of these mortgage-backed securities so it's effectively bailing out the insurance industry (whom I know we all love) and the absolute greediest of the greedy hedge fund managers. Wall St. will not actually have to pay any consequences save for some limits on CEO pay which will probably take them about 10 minutes to get around via a loophole.

Putting any money anywhere will inject liquidity. But they chose insurance, which is now our de facto industrial policy. A SWF could buy up distressed assets to make money. However, now, instead of an American SWF doing this and cashing in it will be other countries' SWFs making a killing here.

[Mark F. Barnes]

Yeah Paulson plan looked like something they threw together in about 10 minutes, basically give us $700 mil and we'll take care of it. Then the Dems counter with Cobb's proposal that I posted above, The House Repubs baulked at it because of the redistribution of the profits deal. The Repubs then countered with their provisions (which were actually just revisions to Cobb's) that they would agree to basically doing away with the profits going back to paying down the debt and being given back to the taxpayer by funding another stimulus package of by way of more rebates directly back to taxpayers. The dems through a fit over that, and now they are trying to come to some kind of agreement. This thing IMHO will not make the Asian Market opening in a few hours.

[memebag]

The House Repubs baulked at it because of the redistribution of the profits deal. The Repubs then countered with their provisions (which were actually just revisions to Cobb's) that they would agree to basically doing away with the profits going back to paying down the debt and being given back to the taxpayer by funding another stimulus package of by way of more rebates directly back to taxpayers.

Eh? I haven't seen that anywhere. What I've seen says some of the House Republicans wanted to set up federally backed insurance instead of buying the toxic debt.