…this could go in the tavern, perhaps, but maybe it’s of general interest too – –
WASHINGTON (AP) — Fannie Mae and Freddie Mac are expected to be taken over by the government as soon as this weekend in a bold move designed to protect the mortgage market from the risk the companies could fail, a person briefed on the matter said Friday night….
…Federal Reserve Chairman Ben Bernanke, Treasury Secretary Henry Paulson and James Lockhart, the companies’ chief regulator, met Friday afternoon with the top executives from the mortgage companies and informed them of the government’s plan to take over the troubled companies in a process known as conservatorship. The news, first reported on The Wall Street Journal’s Web site, came after stock markets closed….
http://biz.yahoo.com/ap/080905/mortgage_giants_crisis.html
and here: http://online.wsj.com/article/SB122064650145404781.html?mod=yahoo_hs&ru=yahoo
Replies
The Washington Post, the Wall Street Journal and the New York Times all lead on news that government officials are poised to rescue Fannie Mae and Freddie Mac by placing the flailing mortgage-finance giants under federal control. The plan would see the troubled companies lose their chief executives, but would allow them to continue functioning with the government guaranteeing their debts. It's unclear how much the bailout will cost taxpayers, but it's thought the final bill could run to tens of billions of dollars, making the deal one of the biggest corporate rescue operations in America's history.
Treasury Secretary Henry Paulson Jr met with Fannie Mae and Freddie Mac officials late yesterday to bash out the details of a bailout; the LAT reports that Paulson and Federal Reserve Chair Ben Bernanke were due to continue meeting with Fannie and Freddie executives through the weekend, in the hopes of unveiling a finalized rescue plan before financial markets open on Monday morning. It's thought the deal would see the companies put under conservatorship, leaving them at least temporarily under government control; common stock would likely be heavily devalued if not entirely wiped out. With new figures showing foreclosures on the rise, the WSJ notes that the plan could help homeowners by reducing the impetus for interest rate increases on mortgages
How does federal control save anything? All they do is throw money at things. Thats not really saving anyone anything.
Family.....They're always there when they need you.
I presumably prevents a domino effect collapse of the entire mortgage industry.
In science it often happens that scientists say, "You know that's a really good argument; my position is mistaken," and then they would actually change their minds and you never hear that old view from them again. They really do it. It doesn't happen as often as it should, because scientists are human and change is sometimes painful. But it happens every day. I cannot recall the last time something like that happened in politics or religion. --Carl Sagan
They don't have a choice. If they go under the entire system will fall like a house of cards...which is what it really is. So far, everything that was predicted is happening back when everyone was booming and the warning went out about the housing bust coming. Everyone laughed. I guess the author of the book I read wasn't such an idiot after all.
I disagree. Sometimes the #### just has to hit the fan.
How can you prop up one house of cards with another? Okay, you can, but for how long.
What will we gain by throwing billions of tax dollars (that we dont have and will need to bew borrowed) at the problem? A little time?
People are still in forclosure and billions have been lost through declining values and foreclosure.
That money is not just going to reappear, at least not any time soon.
No one thinks values are gonna come back to previous levels for a long time so that money is essentially lost.
Survival of the fittest, and the fittest will survive.
It sucks but what are you gonna do? The money's gone.
Family.....They're always there when they need you.
I'm pretty sure the entire us banking system would collapse, followed by a worldwide depression/recession or whatever you want to call it.
I said it wouldnt be pretty, but isnt it almost inevidible?
Think about it. Since we came off the gold standard money has been backed by faith in the U.S.. Housing values were artifically inflated and people took out more equity then has been seen in maybe forever.
That means people borrowed against the inflated value of their home. They basically manufactured money on an idea, the idea that their house was worth more than is was.
So now (three years ago) the country has tons liquid all over the place but its backed only by the emotion / inflated value of their house (value of the current market at the time). People are spending money that was never really there. Emotion and inventory created a perceived value for housing and everyone took advantage of it.
Now were (the govt) walking a thin line. The country is big time in debt and bailing out banks will only put the country further in the hole.
Thats okay until U.S. faith is questioned in the form of debtors calling in their notes.
I hope it doesnt happen but it could.
Family.....They're always there when they need you.
Which book are you refering to?
Family.....They're always there when they need you.
I read a real estate book predicting all of this about 4 years ago. It explained why the runup was occurring despite every economic indicator showing that housing should be stagnant. It showed how housing was keeping the economy afloat because of refi's and cash out refis. When I came on here sharing my readings, I was almost laughed out of the business section and everyone called me a chicken little. Oops...I guess the author was right. Everyone is forgiven though because it's hard to understand how property values would fall when they are rising steadily by tens of thousands of dollars each month.
This is another disaster from our socialists in congress. Their legacy goes back quite a while. I wish they had let it fail...but with congress' fingerprints all over it, republicans and democrats, they will never let it die. Disgusting proposition in my mind."The nearest thing to eternal life we will ever see on this earth is a governmental program" -Ronald Reagan
I heard on TV tonight that this bailout could cost U.S. citizens 14k a piece.
Wish the govt would bail me out when i'm in a jamb.
I'd only charge about .25/ person and i'd be fine.
Family.....They're always there when they need you.
agreed."The nearest thing to eternal life we will ever see on this earth is a governmental program" -Ronald Reagan
MSA1
It's real simple..
The Chineese promised to pull all of their loans if the government failed to step up to the plate..
They do that and America's bankrupt.
Can it be true? We agree twice in the same month?! :>)
Family.....They're always there when they need you.
Frenchy, I'm sorry, I don't see it this way.
First the existing loans are already in place with terms. This can be anywhere from 3-30year. The part that a lot of people don't realize is that a faair portion of existing debt is pledged to SS. Yes in a few years they will have to start to draw down these but until then, the excess money is available.
This convoluted system of accounting is compliments of congress. they for years have many off budget items. It is amazing in this day and age, when congress dictates what companies can and cannot do, congress has stuck with this.
Now if you are talking new loans or new money, that seems to be spread out over the world.
frammer52
If we really did owe it to ourselves that would be no problem.. but we don't. We owe it to the Chineese, the Japaneese, and much of the rest of the world.
America is in debt and that's driving the value of our dollar down.. and rather dramatically. That's a sort of good news-bad news. In that cheap dollars make things less expensive for the rest of the world to buy. However since we import so much it means we're spending more of our dollars for what others make..
IF we sold more than we bought that wouldn't be so bad.. we don't. That means we're losing a little more as time goes by.. Bleeding our wealth as it were..
Sooner or later that blood loss will make us weak..
As for your final statement.. you're right when America sneezes the rest of the world gets a cold or worse..
That means they will be in a worse position to spend money on American goods..
Your theory would make better sense if the dollar was going down in value. You must not realize that since July. the dollar has been going up in value.
By the way, the dollar only lost 4.4% of it's value this year, this is another nail in your theory, unless 4.4% is a large devaluation. The dollar has fallen into a spot that our exports have been going up, in fact there is talk that some manufacturing jobs will be coming back to the US. Combo of weak dollar and high oil prices.
likely to be ugly out there monday...long story here: http://news.yahoo.com/s/ap/financial_meltdownNEW YORK - A failed plan to rescue Lehman Brothers was followed Sunday by more seismic shocks from Wall Street, including an apparent government-brokered takeover of Merrill Lynch by the Bank of America.A forced restructuring of the world's largest insurance company, American International Group Inc., also weighed heavily on global markets as the effects of the 14-month-old credit crisis intensified.A global consortium of banks, working with government officials in New York, announced late Sunday a $70 billion pool of funds to lend to troubled financial companies. The aim, according to participants who spoke to The Associated Press, was to prevent a worldwide panic on stock and other financial exchanges.Ten banks — Bank of America, Barclays, Citibank, Credit Suisse, Deutsche Bank, Goldman Sachs, JP Morgan, Merrill Lynch, Morgan Stanley and UBS — each agreed to provide $7 billion "to help enhance liquidity and mitigate the unprecedented volatility and other challenges affecting global equity and debt markets."......Futures pegged to the Dow Jones industrial average fell more than 300 points in electronic trading Sunday evening, pointing to a sharply lower open for the blue chip index Monday morning. Asian stock markets were also falling......Christopher Whalen, managing director of Institutional Risk Analytics, a research firm, predicts that approximately 110 banks with $850 billion in assets could close by next July. That's out of 8,400 federally insured institutions, he said, which together hold $13 trillion in assets.Individual customers are starting to get nervous about the financial health of their banks for the first time in generations, he said. Whalen's firm analyzes the safety and soundness of banks for business clients, but began receiving inquiries from individuals in the past two months for the first time, he said."If we don't get ahead of this, we are going to face a run on the retail banks by election day," he said."there's enough for everyone"
frammer 52
You're looking at too narrow a window.. Since 2000 the dollar has dropped nearly 50% compared to the euro.
However as you point out the good news portion of that equation is some jobs are returning for exactly the reasons you gave.. . They are a tiny fraction of those jobs we've lost. but the trickle is started and maybe also slowed down some of the planned job flight..
You addressed one part of my reply, how about the fact that manufactering jobs have been at 23-24% of the workforce for years?
Maybe a little flexibilty in our workforce is necessary.
frammer52
Is the thrust of your viewpoint that we should simply allow jobs to be exported from America without replacements?
I don't mind trading off low paying harsh working condition jobs for high paying skill oriented jobs. That's not what is happening.
We are losing manufacturing jobs and replacing them with service sector jobs..
That's a net loss to the country..
The poor should be earning a living wage and they aren't. The middle class should be able to pay for an education, health care, a home, retirement and they aren't. The high earners are the only ones currantly benefitting from government policies..
Even that is quickly eroding.
Bottom line.. our future is being poorly taken care of and has been so really for the last several decades.
A relative small handful of people are taking much of what we earn and empting out our previouly strong instututions.. At one point America produced over 90% of the worlds automobles. Instead of investing in improvements to maintain that market share (jobs etc.) that was spent on exceutive salaries and management perks..
Today America makes less than 10% of the worlds automobles.. (and steadily going down) that means millions of well paying jobs are gone with them the potential of all that income..
I can point out endless industries we've given up the lead on..
The fundamental problem is excuetive pay and perks.. It's very hard to have a solid foot on the ground knowing that you reflect the value of your customers when your 35,000 feet aloft in your private jet on your way to some exclusive gathing of those with wealth..
Bottom line.. our future is being poorly taken care of and has been so really for the last several decades.
Frenchy,
you will get a half an "AMEN" out of me for that. I totally agree.
But my extended view is that too many have also given up taking care of their own future. It's a problem on both sides of the coin.
Bowz
Bowz
I think you're overstating the percentage who have given up.
Many have been forced to ceed some of those basic requirements. Job loss, martial problems, illness etc.. force many into situations where they have no health insurance, (47 million out of 300 million in this country) No hope for a better education for themselves and their offspring. (Nearly impossible at minimum wage levels) No realistic hope for home ownership. (I have little sympathy for those who through poor use of credit have lost homes due to their own fault) and any reasonable expectation of retirement..
To Solve those problems we need to invest in our future not in military adventures of dubious value..
We need to stop taking the funds set aside for social security and using them to balance the budget. We need to really invest in great schooling for everyone (including trades).
We need to invest in our infrastructure to ensure that productivity in America is second to no nation.. Our cities need modern freeways to deal with the increase in traffic since the 1950's when many were first built..
We need to control flooding and other disasters through intelligent alternative solutions..
We need to invest in our own resources to stop the hemorage of our dollars to Foriegn nations.
None of those things come cheap!
Frenchy,
You mistook my point. I had a longer post trying to explain, but I deleted it.
My point about people taking care of their future, was about those who have given over to the euphoria of ever increasing home values to fund their "wants". Not those hitting a bump in the road.
While all of your solutions have a socialist ring to them, I would not be opposed to looking at them as options. But what I see first needing to happen is a financial awakening by the masses, and a change in attitude from them. And maybe I am completely wrong. Maybe with all the government "help", we can sail into the port of nirvana. But I'm betting against it.
As I mentioned earlier I raised my Line of credit. not because the business needs it, but because cash offers will soon be the preferred language to speak. And money is available for good deals, through private sources too.
Bowz
Bowz
OK I think we're speaking apples and oranges.
Government policy dictates many things.. History has shown with a lack of regulation many are willing, indeed eager to take whatever oppertunity to advance themselves without regard to the costs to others..
When the government deregulates it's like handing cheese out free to poor people.. a lot of waste and abuse is the result.
It's ironic that the free cheese progerram was a by product of government regulations that supported the price of milk.. (the main benefactors being large dairies and agribusiness).
In other words, to help a few the government spent a lot.
That's exactly what deregulation has done.. Helped a few get really wealthy while the vast majority of Americans will pick up the pieces..
Back to socialism..
We all pay for our government. so we all need to benefit from the government..
That's not socalism, that's fairness.
Again Frenchy you are missing one important point.
23-24 % of all jobs are in manufactoring and have been for decades. This number varies 1-2% at most. Where are all these disapearring jobs you are referring too?
Living wage is a code word for a socialist agenda, always has
been.
Unfortuneatly you are listening to a media source that is not telling the whole story. We are not losing man. jobs, they are being switched around. Car man. employ a great number of people, even with the layoffs recently. I will call out the number you quote, 10%, as not being accurate.
I am not defending executive pay or perks, but I know they fluctuate with how well a company is fairing. What companies pay is not your's or anyone else's business, with the exception being the stockholders or owners.
Are you sure about that number? Are you confusing it with the fact that the US has produced 24% of the worlds manufactured goods for decades now? Thats a much different statement.
Has been quoted in several pieces I have read recently. I will try to find the reference for you.
It is an example of the main street media reporting, less than all the news.
Another example is the editing ABC did on the interview with Palin!
frammer 52
If the rest of the world pays their exceutives a tiny fraction of what our exceutives then either we're being overly generous or foolish.
Toyota for example controls more of the worlds automotive production than GM, Ford Chrysler combined times 4 do..
Yet their chief executive doesn't make a fraction of what a third VP of GM does..
Nobodies business? When they export American jobs for their gain it darn sure is!
They are weakening America's strength.. That means we can't afford to defend ourselves..
Next
When a family makes less than a living wage who do you think makes up the differance? That's right! society thru taxes.. They get sick they go to the emergency room and you pay for that visit.. they don't make enough to feed their kids the tax payer buys the kids a meal or two, They don't earn enough to own a car? they use public transportation you help pay for..
If they make enough for a car then they pay for gas and insurance (hopefully) and the cost to society just went down..
If they have health insurance through work or make enough to pay for their own then that's that many fewer emergency room visits you pay for..
One way or the other the tax payer pays for the amount needed for a living wage.
If not through an employer than thru the tax payer.. now who really should pay the piper?
Finally please don't force me to explain the foolish juggling of numbers involved..
That is an insanely boring subject..
I saw the news and knew right away that this was it, this is what they were talking about, this is the big thing that would be the last thing the government would be able to throw money at in order to prop up our economy.
The ramifications of this move are also pretty big, and coming at just the right time in the lame duck presidents rein so that it can be set in stone before the next administration can change the course.
The stockholders in fannie and freddie are screwed and glued, and now the economy will have to right itself with no more room to rescue bear stearns type institutions by the government without some private intervention ala B of A buying Countrywide (which had to have been orchestrated with govt influence, B of A execs arent that stupid)
This is the beginning of the bottom, we are not there yet, but it won't be long now.
can't imagine that wall street won't be ugly monday - at the bottom of this is where the foreigns holding dollars swoop in and own us?"there's enough for everyone"
Does anyone know where the 50bill they had a month ago went?
I haven't been paying real close attention - I heard an NPR interview with one of the main executives who said 'everything is fine, we won't need any of this...hey! look over there!' -
I don't believe that Fannie or Freddie have actually received any money yet, but I could be wrong - we are talking trillions of dollars invested in these two institutions - "there's enough for everyone"
I'm wondering about how Wall Street is going to react.
We're placing more and more leverage on the "faith" of the U.S. dollar.
If other countries start calling their notes due it'll get real bad.
I still say let them fall.
Family.....They're always there when they need you.
Not to but in, but why do we not call some of the markers we are owed in?
Luke
Who are you talking about? Who owes our government any money?
If China called in our markers right now, we'd all be eating rice for breakfast. Where do you think all those stimulus checks came from and where do think all this bailout money is coming from?
Family.....They're always there when they need you.
I could be wrong.....but as I understand it, we send a fair amount of money around the world in aid and other endeavors. I would think that Germany, France, Italy and several other countries have not paid war debts for WW2. Maybe if we minded our own business and stopped sending money out of this country, took better care of our own house, we would be in better shape economically.
What if china called in their markers? They won't! The Chinese government is as corrupt as ours! What could they do anyway? The likely hood of having a foreign occupation on an American soil (not withstanding the Mexican people that are illegal) is highly unlikely! The use of nukes benefits neither country.
Finally, a lot of people that are crying foul over mortgages and credit cards had no problem spending the money, they never intended to pay the money back anyway. People that have actually lived within their means are the people that are being taken for a ride.
Edited 9/11/2008 9:59 pm ET by luke
Edited 9/11/2008 10:04 pm ET by luke
Ever play monopoly? I'm not talking about an occupation i'm talking about the ceding of assets in lieu of money that we dont have to repay the debt.
Family.....They're always there when they need you.
No.... please explain.
Truth be known, the way the last few years have been going (Enron and friends). We may already be squatters!
When you cant make your house payment the bank takes back the collateral (the house). When a note is due and cant be paid the lander collects the collateral.
Collateral could be anything, nat'l parks. monuments, anything of value that could relieve the debt.
Family.....They're always there when they need you.
"When you cant make your house payment the bank takes back the collateral (the house). When a note is due and cant be paid the lander collects the collateral."Debts between nations are another story. When China buys our Treasury notes, the collateral is the "full faith and credit" of the U.S. government. Similarly, whenever a $100 bill is used in a foreign country, that becomes another $100, interest-free loan to the U.S. government. Holders of our Treasury notes have no claim or deed on any physical assets.If China one day decides the U.S. government is a bad risk and tries to sell those pieces of paper, the government will buy them back with dollars. China can then use those dollars to try and buy stuff (real estate, businesses, etc.) over here. Ben Bernanke has said in 2006 that he's not concerned because we can print as many dollars as needed, and I suspect down the road that is exactly what they'll do to satisfy our creditors. If we print too many dollars, people in other countries will be using those $100 bills in outhouses.A separate issue is the huge pile of dollars China has amassed from our $60 billion dollar a month trade deficit. The Bank of China has over $1 trillion and they are planning to use a big chunk of it for "investments" My guess one of the first places they'll go shopping is Congress. What's the going price for a Senator these days?
I cant believe the chairman of the fed would say something so stupid. Germany printed as much as they needed one time too. It took a wheelbarrow full of money to buy a loaf of bread.
Family.....They're always there when they need you.
I cant believe the chairman of the fed would say something so stupid."
Yes he said it in a speech he gave as a Fed governor:
"But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost."
http://tinyurl.com/4fq2fu
Bernanke also stated several times that as Chairman of the Fed he will never allow a deflationary spiral to take hold in the U.S. economy. From the looks of things he and Paulson have that printing press oiled up and ready to roll.
Typical of those irresponsible Democrats.
There is no absurdity that human beings will not resort to in order to defend another absurdity. -- Cicero
I must agree with TJK, it is highly unlikely that China has much of a strong hold over the US regarding debt collection.
I tried to live within my means. No one could survive on so little.
I don't know why it is such a problem.. The overall repo rate is 2% or less. They don't invest in CDO's. They don't have subprime loans on the books.
The only thig I see, is their management is a mess.
They don't have the reserves covered. They'll have to close their doors.
They can't operate in the red and the government has to cover the debts.I'm sure there are a lot of banks cooking their books if they are only reporting 2%. They might have a lot more non-performing loans that they aren't starting the foreclosure on just to keep that number down.
Last month, they had 50bill in reserves, to be lent.
Remember they don't loan to the credit challenged.
"Last month, they had 50bill in reserves, to be lent"For the second day running, everyone focuses on the government takeover of Fannie Mae and Freddie Mac, which is expected to be announced later today. The New York Times pokes through the two mortgage-finance giants' entrails, revealing that the multibillion-dollar bailout was prompted in part by the discovery that Freddie Mac had overstated its capital cushion, presenting itself as more stable than it in fact was. Fannie Mae was in slightly better shape but would have struggled to remain afloat once the government took action against Freddie Mac....article with embedded links here: http://www.slate.com/id/2199558/"there's enough for everyone"
'$100,000,000,000 each' from the people who brought you the $6 billion dollar Iraq war....The New York Times, Washington Post, and Los Angeles Times lead with the news the papers have been previewing all weekend as the U.S. government officially took control of mortgage giants Fannie Mae and Freddie Mac yesterday. In basic terms this means that the government now has control over the companies that fund around two-thirds of all new home mortgages. Or, as the LAT succinctly summarizes: "Washington's move means the federal government will directly back the great majority of the nation's home mortgages." And if the magnitude of that fact is still not clear, the papers all make sure to emphasize that this is A Big Deal. The NYT calls it "a seismic event" and the Wall Street Journal characterizes it as the "most dramatic market intervention in years."When Treasury Secretary Henry Paulson announced the government's takeover of Fannie and Freddie yesterday, he described it as the only viable option to deal with the current crisis. "Failure of either of them would cause great turmoil in our financial markets here at home and around the globe," Paulson said. The plan put the two companies under the management control of their regulator, the Federal Housing Finance Agency, and their chief executives were summarily fired. The government will receive $1 billion of preferred shares in each company and the Treasury is committed to providing as much as $100 billion to each company to cope with any shortage of capital. In exchange for its help, the government would also get the right to buy up to 80 percent of the companies for a nominal fee.In what the LAT calls "perhaps the most unexpected aspect of its rescue effort," the government also announced that the Treasury would buy at least $5 billion of new mortgage-backed securities issued by the two companies. This could help restore confidence and even bring down the interest rates for some home mortgages. The companies could then expand to ease the pain of the credit crunch until the end of 2009, at which point Paulson said he wants the companies to shrink dramatically by reducing their mortgage holdings by 10 percent a year. Of course, that's all likely to change depending on the makeup of the next administration and Congress, and some were already speaking up against plans to dramatically shrink the mortgage giants.
"There is no guarantee that the takeover will work," declares the WP, "and it comes at a potentially massive cost to taxpayers."So, how much will all this cost? No one knows and estimates are hard to come by (yesterday, the NYT explained that it's unlikely the Treasury will release an estimate on such a huge bailout before the presidential elections). If, as many predict, problems in the mortgage market continue and foreclosures rise it could add up to "an expensive tab," notes USAT. The NYT points out that the Congressional Budget Office said two months ago it might cost $25 billion, but many think the final figure will be significantly higher. And the Post says the $29-billion rescue of Bear Stearns could seem like chump change once this is all over. But, on the upside, if the companies return to profitability, the government would be first in line to get its money back.Existing shareholders are likely to incur huge losses, while the plan protects holders of the companies' debt. These bondholders, which include mutual funds, foreign central banks, and government investment funds, are "the biggest winners" (WP) since their investment has the explicit backing of the U.S. government. Asian investors cheered the news and markets rallied at the opening bell today. The NYT and WSJ both front deeply reported blow-by-blow accounts of how the decision to takeover Fannie and Freddie was made in marathon 18-hour days that led officials to realize they really had no other choice. The NYT emphasizes that when Paulson got the power from Congress to bail out the mortgage giants if necessary, he never intended to use it. "But he quickly learned that getting those powers made their execution inevitable," says the NYT. Paulson began telling his friends that he "felt like a dog who'd caught a bus and didn't know what to do with it." Investors became nervous about putting money in the company without knowing the Treasury's plans and fears began to grow that foreign governments would stop buying the companies' debt.The WSJ highlights that until last month, Treasury officials thought that if they had to intervene it would be through an equity investment. It was only in the middle of August that officials began to realize that wouldn't be enough and, on Friday, Paulson told the companies they either agreed to a takeover or one would be forced on them. The NYT says that Fannie's chief executive pleaded with Paulson to save the company since it was in better shape than Freddie, but Paulson refused. He shouldn't feel too bad though. The NYT reports that the head of Fannie Mae could collect a $9.3 million exit package, while the chief executive of Freddie Mac could get at least $14.1 million. That is, of course, on top of the millions they've already earned while running the companies so spectacularly for a few years.How did we get here? The NYT says that the "downfall of Fannie and Freddie stems from a series of miscalculations and deferred decisions, both by their executives and government officials." First, the companies expanded rapidly and ignored risks, and then they failed to raise enough rainy-day capital while lawmakers just stood by and watched.In a Page One column, the WP's Steven Pearlstein also looks into the events that led to yesterday's takeovers and says that while executives at Fannie and Freddie, along with their regulators, share some of the blame, "a good chunk of the responsibility should be assigned to elected politicians." Lawmakers were so busy arguing about the ideological basis for Fannie and Freddie that they neglected to increase oversight.Several are quick to note that as much as the takeover plan might help reassure investors that the mortgage market isn't going under, it's hardly a panacea. The WSJ points out that "it won't cure the housing market's biggest ailments: falling home prices and rising foreclosures." And investors are also likely to conclude the takeover is a sign that the country's economic problems are far from over. Meanwhile, the NYT notes that the dramatic announcement also highlighted how reliant the U.S. economy is on Asian investors."there's enough for everyone"
The NYT reports that the head of Fannie Mae could collect a $9.3 million exit package, while the chief executive of Freddie Mac could get at least $14.1 million. That is, of course, on top of the millions they've already earned while running the companies so spectacularly for a few years."there's enough for everyone"
ya - you can find the complete article that includes embedded links to each referenced publication here: http://www.slate.com/id/2199562/"there's enough for everyone"
maybe wall street won't look bad today...The Wall Street Journal is calling it the "most dramatic market intervention in years." After weeks of speculation, U.S. government is now in control of Fannie Mae and Freddie Mac. In a deal structured by Treasury Secretary Henry Paulson, the Feds seized the troubled lenders over the weekend, pledging up to $200 billion to cover a feared deluge of mortgage defaults. The Financial Times says the Fannie-Freddie seizure amounts to the "world's biggest financial bailout." It saves, for now, the two chief backers of up to $5.4 trillion in U.S. home mortgages. "While the Bush administration stopped short of using the word 'nationalization,' analysts said the moves amounted to a de facto government control," the FT reports. The New York Times, in its six-story package on the historic deal, reports that Daniel H. Mudd, departing CEO of Fannie Mae, is guaranteed a severance package of $9.3 million, while Freddie Mac chief Richard F. Syron will walk away with at least $14.1 million. And who is on the losing end of this historic bailout? They include: "shareholders, rank-and-file employees and, in the worst case, American taxpayers," the NYT says.The news was greeted with cheers in Asia Monday morning. Japan's Nikkei index and Hong Kong's Hang Seng index surged more than 3 percent in early trading on hopes the Fannie-Freddie "conservatorship" would stabilize the U.S. housing market, the BBC reports. For China, owners of $376 billion in U.S. debt (the majority is Fannie-Freddie debt), the seizure confirms what many have long known: "Beijing's huge U.S. exposure still poses a serious risk," Reuters reports.Kerry Killinger, CEO of Washington Mutual, is the latest scalp claimed by the mortgage crisis, the WSJ reports in a Page One scoop. WaMu's once fiercely loyal board pushed out Killinger after the lender disclosed $19 billion in losses and the share price plummeted 85 percent. According to the WSJ, "succeeding Mr. Killinger will be Alan Fishman, currently chairman of New York commercial mortgage broker Meridian Capital Group." Prior to that, Fishman was head of Philadelphia-based Sovereign Bank, the nation's second-largest thrift. The NYT, citing people briefed on the Killinger ouster, confirmed that WaMu's new chairman Stephen Frank told Killinger on Thursday he ought to retire. According to NYT, thus "ends an 18-year run in which he built the bank into one of the nation's biggest financial institutions through a series of acquisitions. But his failure to properly integrate those deals and manage the growing losses from subprime mortgages and credit card loans proved to be his undoing."And the revolving door didn't shut there. Wachovia's new CEO Robert K. Steel, just weeks into the new job, will be appointing Carlyle Group's David Zwiener as the troubled lender's new CFO, the WSJ reports. He will replace Thomas J. Wurtz. Zwiener will likely have to oversee Wachovia's plan to eliminate 10,750 jobs.http://www.slate.com/id/2199560/"there's enough for everyone"
maybe wall street won't look bad today...
Up about 164 here at lunch.
Heard a quote once that said "the death of democracy will be when the people realize they can open the treasury and vote themselves a raise."
Bowz
Here is another take...
++++++++++++++++++++++++++++++++++++++++++++
September 08, 2008
Fannie and Freddie: GOP Cleaning up Democrat MessesC. Edmund WrightGrown ups are always having to step in and clean up the messes left by the children. Such is the case all too often in our government.
It was announced yesterday that the Treasury is going to take over the two huge quasi-public lending corporations Fannie Mae and Freddie Mac. In short, without doing this the housing markets would have continued to decline and more problems would have been manifest throughout the entire finanical industry. When you calculate the loss of wealth as home prices and stock prices continue to decline, the consequences would have been almost unthinkable. This is wealth counted on by a lot of middle class taxpyers who depend on their home value and their 401K's for retirement.
(For this reason, do not get swayed by the taxpayer protection arguments against this move. As a taxpyer, and a home owner, this is a win on balance. It will help the value of homes and it may or may not cost the taxpayer. The Chrysler take over decades ago actually ended up benefitting the taxpayers.)
As Treasury Secretary Hank Paulson said this morning on CNBC's Squawk Box,
Stock picking guru Jim Cramer, who applauded the move by Paulson, admitted that Fannie and Freddie were in the back pockets of Democrats in Congress. Cramer is normally a big Democrat, though his opinoins today indicate that he would be doing intellectual gymnastics to stay that way. These are the two lenders, by the way, that donated millions to Jesse Jackson's various racial organizations over the years. These are the two organizations that backstopped big liberal Anthony Mozillo as his Countrywide Mortgage Corporation sold "predatory" mortgages to undeserving (and apparently financially illiterate) borrowers over the years so he could hand out sweetheart deals to congressional Democrats like Chris Dodd and others.
Warren Buffet, the billionaire investor, also applauded the move by Paulson as "exactly the right thing" to do and indicated that these problems are decades in the making. Buffet was mum on the fact that these institutions are the Democrat's babies and did not elaborate on just what "decades in the making" meant.
Many of the so-called "creative mortgages" were designed in response to politically correct and racially motivate legislation demanding that lenders have more minorities in their customer portfolio. Again, this was not something that came from the right side of the aisle.
And all of this came crashing down as the oil markets soared and people in the sub prime market had to choose between groceries, gas or mortgage payments. More liberal policies at work when you look at our energy situation over the past 30 years of course. Choosing to pay the former, these defaulting mortgages jump-started the mortgage-housing meltdown. These problems were the worst, of course, in liberal-controlled states like Michigan and California where government has driven businesses away and taxes up. And the result has been a cascading down of home values, bank failures and more deterioration of millions of 401K plans. It's no wonder that Dick Armey says that "economic illiteracy" is required to join the Democrat caucus in congress.
So today, the grown ups had to step in and do what they did. This may or may not be good for the taxpayer in all of us. It is certainly necessary for the stockholder and homeonwer in all of us. Even if you don't own a home, this is good for you since having your landlord go broke will not help anyone.
The conservative philosopher in us is split, of course. This is kind of a quasi-socialist step that was needed to correct what were simply liberal fallacies. (makes you wonder if there was a grand plan afterall?) Free marketeers cannot like this part of it. The worst part could the precedent it might set for the auto industry, ailing of course thanks to the liberal energy policies on top of liberal union power. "The nearest thing to eternal life we will ever see on this earth is a governmental program" -Ronald Reagan
Yeah, right. And who's been hamstringing the regulators for the past eight years?
In science it often happens that scientists say, "You know that's a really good argument; my position is mistaken," and then they would actually change their minds and you never hear that old view from them again. They really do it. It doesn't happen as often as it should, because scientists are human and change is sometimes painful. But it happens every day. I cannot recall the last time something like that happened in politics or religion. --Carl Sagan
barney frank, for one."The nearest thing to eternal life we will ever see on this earth is a governmental program" -Ronald Reagan
He doesn't believe anything untill it shows up in the web sites he loves>G<
I doubt if you can believe what you don't comprehend."The nearest thing to eternal life we will ever see on this earth is a governmental program" -Ronald Reagan
It was reported that Barney Frank's fillibusters had a major impact. Thanks for asking.
you guys that want to politic it, take it to the tavern, there's a thread going there - - this was a nice thread where we could discuss events without assigning blame, at least to political parties - it'd be great if we could keep it this way - "there's enough for everyone"
Um, did you mean to post that to DanH?
I forgot to mention that I had already copied and posted that article in the thread you mentioned. I also agree that it's right to keep this thread clean of political discussions.
The list of "too big to fail" entities with their hands extended gets longer every day:Freddie & Fannie $500B - $1T
Lehman Brothers $250B
Citi $100B+
JPMC $100B+
FDIC insurance fund $1T - $2T
Pension Guarantee Trust Fund $200B
Federal Highway Trust Fund $100B
GM, Ford, Chrysler $250B loans (ya right)
Various U.S. airlines - United, Delta, etc. $100B loans
Amtrack $50B loanWatch our illustrious politicians after the November 4th elections -- I expect a humongous, record-deficit,mother-of-all-bailouts bill from Congress that will be sighned off by the lame-duck administration. Money provided courtesy of Hank Paulson's magic electronic printing press.Got gold, silver?
a billion here and a billion there....oops - this is the 21st century - a trillion here and a trillion there...what port is going to be safe in this storm?"there's enough for everyone"
"I don't know why it is such a problem.. The overall repo rate is 2% or less."from dovetail's link - "The Mortgage Bankers Association said Friday that more than 4 million American homeowners with a mortgage — a record 9 percent — were either behind on their payments or in foreclosure at the end of June....The percentage of loans at least one month past due or in foreclosure was up from 8.1 percent in the January-March quarter, and up from 6.5 percent a year ago, using figures that were not adjusted for seasonal factors....Almost 500,000 homeowners, or about 1 percent, entered the foreclosure process in the second quarter....""there's enough for everyone"
There is only one problem with that. They don't reveal how that stacks up historically. I think that overall, except for subprime, the mort. are not that bad.
Interesting numbers from 3 mths ago.
Market=100% of that 20% are subprime of that20% are in trouble of that 5% are in danger of repo.
2% is a little high historically, but not by much.
"I think that overall, except for subprime, the mort. are not that bad."The problem is that the foreclosures are driving the Fair Market Values down....and the lack of capital is driving it further. So, even though there are a lot of loans still performing, the overall market is diving. Also, the banks cannot make loans if they don't have the proper balance of reserves and performing loans. They are essentially out of business once they fail to meet the minimum requirements. As a result, they are starting to refuse loans to perfectly good borrowers...not because the borrowers are asking for anything wrong but because the bank isn't allowed to loan because their books are out of kilter.
Jim, this is true where there are massive forclosures in progress. The problem is it ignores the rest of the US.
I can speak for upstate NY that price reduction is mild at worst. I guess that is why we can still get mortgages as long as you don't need subprime.>G<
http://www.oregonlive.com/business/oregonian/index.ssf?/base/business/122066251681600.xml&coll=7 It isn't getting any prettier.
They can't get your Goat if you don't tell them where it is hidden.
what's the odds this is going to impact your current job? - IIRC the project is go again?"there's enough for everyone"
I don't know but I can tell you I sat straight up when I caught the headlines as this is THE Bank potentially holding the note. I was stunned to read this about 45 minutes ago. I did note that the article refers to residential mortgages , but that isn't real reassuring to say the least.
I already fired off e-mails to the owners and the bank VP in charge of this loan inquiring as to fall out for the project. I am certain I will hear nothing back until early next week , the news wasn't made public until after close on Friday so the owners aren't going to know anything.
I am Ok $ wise for awhile if it doesn't go at all or is slowed down , but it shook me . Nothing I can do but wait a bit and see what shakes out. SBA is actually backing the loan for the project and that part is all complete signed off, sealed, and delivered so there may be nothing to worry about I simply don't know. I will definitely be floating my favorite river tomorrow, just watching the motion of life and trying to stay focused on being calm, and knowing all things have a reason. It is just a job.
Big concern to me is what reaction will the sub's and suppliers have to this news.
They can't get your Goat if you don't tell them where it is hidden.
Here is another article that I think is pertinent to this discussion. Content is more about commercial loans which is what I am involved with right now but as you can see the problems of credit tightening aren't confined just to the residential side of things.http://www.oregonlive.com/business/index.ssf/2008/09/business_loans_dry_up_for_the.html
The good news for me is that I can be pretty certain that if my client makes it through all the hoops and the loan is secured then the entire operation will have been scrutinized to the "nth" degree.
Right now the last issue is having signed notarized documents returned by all family members who may have partial title to the land (inherited) that they will take second position to the loan.
They can't get your Goat if you don't tell them where it is hidden.
interesting article about the small commercial loans.
I wonder what the business plan said for the coffee shop, as to when she would break even. Maybe she is just way behind on her projections, and the bank realizes this, but she has yet to acknowledge it. Putting supplies on personal credit cards probably showed up when the bank reviewed her loan, and that couldn't have looked good.
In the last week I raised my line of credit from $20K to $50K and had no problem doing it. I haven't used it in over 3 years, but want to be prepared for whatever may come about in the next year or so. The line is secured by equity in my shop.
I also wonder about the credit unions. Do they sell loans to Freddie and Fannie, or do just the banks and mortgage companies?
Bowz
At one point today when I checked the market fannie mae FNM was down to .01 a share.
By the end of the day (I just checked) it was .73
A $10,000 investment at .01 a share would now be worth $730,000.00
I asked my wife if I should pull the trigger and she said no.
I don't think the lead example in the story is really all that great a standard, but it does indicate that where a few years ago money was available now it isn't.
I have been doing some checking with other small business owners here.
Yes money is still available, but it isn't the walk in the door and walk out again with $ in the pocket that it was a few years ago. Just fall out from the residential side of things. Tightening of the limits, better documentation required. On the plus side commercial work here is going pretty strong ( which is historically how it works around here)
Too many lenders are carrying a fairly hefty exposure to the residential market and cannot risk that exposure in the commercial side of things.
They can't get your Goat if you don't tell them where it is hidden.
Too many lenders are carrying a fairly hefty exposure to the residential market and cannot risk that exposure in the commercial side of things.
I thought the idea was to sell that exposure to Freddie and fannie on the secondary market?
About a year ago I had a conversation with a client regarding two different banks in town. Bank A was struggling because they held a lot of mortgages "in house", and were getting beat up by the market. Bank B sold most of their loans and was supposed to be in better shape. I bank at bank B. Wonder if the Feds will come back after the banks that sold the loans?
The places I found real pushy and aggressive were the mortgage brokers. A little store front and push money down people's throats. These were the creeps with radio adds pushing "consolidation loans" and such. Haven't heard one of those recently, now that I think about it.
Bowz
Interesting.
The local S&L here holds all mortgages "In House" and has since it was founded back in 1922.
They have shown no signs of any problems at all. Of course they also didn't buy into the "Let's lower our credit standards" as much as others did either. They took the "We can only do so much and then the potential risk to us of staying in the game isn't worth it"
They lost customers but will weather this storm just like the one in the early 80's.
I see the issue as capitalism at it's best, make money and let the buyer beware, well in this case the country turned into the buyer.
If restraint and reasonable expectations had been adhered to along with some general ethics the problem wouldn't exist today.
They can't get your Goat if you don't tell them where it is hidden.
If restraint and reasonable expectations had been adhered to along with some general ethics the problem wouldn't exist today.
This problem, or most problems. business, financial, personal, marriage, or otherwise.
What bothers me deep down about this, is that I believe many have made the effort to live as your above statement reads. Only to get a red-hot poker up the rectum by the ones who choose not to live that way. And now it is being smoothed over by a government bailout. How is that modeling financial responsibility to our children??? What incentive do they have to live responsibly??? Those same children we are saddling with the debt.
Oh well, the globe keeps spinning anyway.
Bowz
Bowz, True, but one cannot just look at the loan takers or lenders.
The entire economy was driven by this so one has to look at all the people who made $ off the markets in all sectors as well. For example if someone made big bucks off stock in a company selling or manufacturing building supplies they to are part of the problem.
Home furnishing items the same thing.
Those people just want to think they didn't contribute to the problem because their hands aren't dirty form direct contact but if they pushed for greater dividends or higher stock prices they too share the blame.
They can't get your Goat if you don't tell them where it is hidden.
I understand your view, and some parts agree with and parts I don't.
I can't really explain it in a few words on a computer, but I have always had a problem with the "conspicuous consumption" lifestyle of a portion of the population. I think the easy money of home equity loans and re-fi's magnified the problem, and sucked in more people. ( perhaps sheeple is the better term). I think we share the same view on this.
Where we part is in the view that anybody who made money is evil, or somehow grossly negligent in their societal duties. And the people (sheeple) who willingly opened themselves to predatory loan practices, are somehow clean as snow.
I don't agree the entire economy was driven by it, I think the excesses were driven by it. Those excesses were on both business side,(build more houses and more stuff) and on personal choice side.(let's treat the equity like a part-time job and keep spending) We are probably kicking the same pile from different sides.
Bowz
Blame the greedy banks and Govt, not everyone else..
.
"Thank goodness for the Democrats! If you are terminally unemployable, enjoy living off of govt welfare and feel you owe society nothing you're in luck: there is a donkey waiting for you."
Accept personal responsibility for our part.
They can't get your Goat if you don't tell them where it is hidden.
I think 2% is the incidence rate, not the prevalence. That means every month 2% more of the existing mortgages go into default. Which means how long before ALL mortgages are in default? Can you do the math? Not that it will go on that long of course.By comparison the 8th Air Force started with 2% loss rates per mission in their early missions over Europe. That stopped real fast. Having to replace a quarter of your bombing crews every year was not the way to win.
That is not true Brian, it is 2% overall!
This is why it is hard to understand the large problem.
Add these to the list:
http://news.yahoo.com/s/ap/20080905/ap_on_bi_go_ec_fi/economy;_ylt=Aonhtme6cajRFFJtcNCKVSes0NUE
http://news.yahoo.com/s/ap/20080905/ap_on_bi_ge/home_foreclosures;_ylt=AqziJAYtLsSM4DxMTdtVU0Vu24cA
It looks like the New Deal is finally coming around full circle.
Reagan had it right when he said "The nine most terrifying words in the English language are: 'I'm from the government and I'm here to help.'"
Jon Blakemore
RappahannockINC.com Fredericksburg, VA
I'm hearing that, as a result of the Fannie/Freddie bailout, mortgage rates have already dropped significantly, and mortgages are much more readily available for "well qualified" borrowers. This suggests that we may see a significant uptick in buying of existing homes by "bargain hunters" over the next few months, though I'm doubtful that it will result in much new construction.
Well, I'm going to declare my previous statement "inoperative". With the continuing bank crisis and an increasing danger of a real bank run, banks are going to be reluctant to lend -- mortgage rates may remain low but mortgages will be impossible to get. This is hitting just as the damage from Ike is creating a major need for new loans. Bad sign.
There is no absurdity that human beings will not resort to in order to defend another absurdity. -- Cicero