Fannie & Freddie Bailout

[runningman]

I'm afraid this is the first government promise of many to come in regards to bailouts. The FDIC has vamped up getting ready for the blow back from all the new bank failures and Jim Rogers hit the nail on the head with what these Bush/McCain tax breaks and Bush/McCain bailouts are doing and will do in the future. It is Socialism for the rich not tax breaks for the middle class.

http://www.youtube.com/watch?v=6gZuG-52js0&eurl=http://www.infowars.com/?p=4405

http://www.youtube.com/watch?v=V2MAFMiUURI&feature=related

This is a good one.

http://www.youtube.com/watch?v=vWa9AfkjwoY&feature=related

53 Trillion dollar debt!!!!

http://money.cnn.com/video/#/video/news/2008/08/29/news.walker.082908.cnnmoney

[Lorn]

Re: Fannie & Freddie Bailout

This goes down in the history books of records on dumb things Government does with taxpayer money.

As one guy aptly called this Fraudie & Phoney

[Lorn]

Re: Fannie & Freddie Bailout

http://www.bloomberg.com/apps/news?pid=20601087&sid=alpUsTv3.upI&refer=home

Whole heartily agree. Both should not only step down but be put in prison for fraud.

[BabyMatty4Block]

Re: Fannie & Freddie Bailout

social welfare is like a pea, sitting on top of the mountain that is corporate welfare.

[FM]

Re: Fannie & Freddie Bailout

Most of this from accounting write outs will get added to the federal debt.

So it isn't 100, 200 billion as the laughable estimates first said...it'll easily be a few hundred to a couple trillion when all is said and done.

Of course, Joe Homeowner isn't getting any help out of this...investors might with the apparent drop of rates a little bit...other then that, as the shit continues to hit the fan lending restriction I bet will get tighter.

Next up on the block: Lehman Brothers

[88Mariner]

Re: Fannie & Freddie Bailout

^ which i hate to say it, but ron paul predicted lehman brothers going under way way back earlier this year

[Lorn]

Re: Fannie & Freddie Bailout

Of course, Joe Homeowner isn't getting any help out of this...investors might with the apparent drop of rates a little bit...other then that, as the shit continues to hit the fan lending restriction I bet will get tighter.

Funny how our public servants name all this 'protecting the homeowner'.

[Miroslav]

Re: Fannie & Freddie Bailout

Well, in some sense...Joe Homeowner does get a lot of help out of this. And it was an unfortunate but necessary move.

Estimates suggest that Fannie Mae and Freddie Mac own or guarantee somewhere in thei neighborhood of 50-75% of the entire US mortgage market. That's HUGE. Do you guys have any idea of the disasterous consequences we would face if these entities had just been allowed to completely fail? There would essentially be no more mortgages anymore - overnight. Home value would be obliterated. Banks would have failed left and right. The amount of people then forced out of their homes would be unprecedented. You're literally talking about a new Great Depression, felt around the world.

Joe Homeowner, who took on a $500k house with a high school education and a low income job, will of course not suddenly be "saved" by all of this. People will still suffer until this crisis subsides. But these actions are more in his interest than sitting back and allowing Fannie and Freddie to just die.

[Lorn]

Re: Fannie & Freddie Bailout

Estimates suggest that Fannie Mae and Freddie Mac own or guarantee somewhere in thei neighborhood of 50-75% of the entire US mortgage market. That's HUGE. Do you guys have any idea of the disasterous consequences we would face if these entities had just been allowed to completely fail? There would essentially be no more mortgages anymore - overnight. Home value would be obliterated. Banks would have failed left and right. The amount of people then forced out of their homes would be unprecedented. You're literally talking about a new Great Depression, felt around the world.

Sry but explain to me how there would be no more mortgages? These entities didn't originate 50-75% of the mortgages out there, what they did was act like hedge funds and purchase those mortgages. All that did was impair their balance sheets and create the mess they are in. I for one don't find that worthy of bailing out.

If they failed, then those mortgages would still exist. Someone would buy them and the mortgagee would continue to service them.

The credit binge of the last decade has been so massive and so delusional that all semblance of risk control was thrown out the window. Now that the cronies running these big corporations are realizing the risk is coming home to roost they are crying to big brother for a meal ticket.

As for Joe Homeowner. Yes, he bought a $500k home when in reality his income can only support $150K. The credit binge suckered in everyone and everyone must go through the pains of detox.

[runningman]

Re: Fannie & Freddie Bailout

Well, in some sense...Joe Homeowner does get a lot of help out of this. And it was an unfortunate but necessary move.

Estimates suggest that Fannie Mae and Freddie Mac own or guarantee somewhere in thei neighborhood of 50-75% of the entire US mortgage market. That's HUGE. Do you guys have any idea of the disasterous consequences we would face if these entities had just been allowed to completely fail? There would essentially be no more mortgages anymore - overnight. Home value would be obliterated. Banks would have failed left and right. The amount of people then forced out of their homes would be unprecedented. You're literally talking about a new Great Depression, felt around the world.
.

These actions won't help out the people already kicked out of their house. This helps the shareholders and that is it. They should have let them go under and then you would have had other firms come in and buy some of the leftovers. Now the US taxpayer is on the hook for $5 TRILLION if these were to fail completely and it isn't over with yet. They say it is to protect the financial market. It has nothing to do with protecting the homeowner.

[Lorn]

Re: Fannie & Freddie Bailout

^Good way to put it.

[Miroslav]

Re: Fannie & Freddie Bailout

These actions won't help out the people already kicked out of their house. This helps the shareholders and that is it.

^Good way to put it.

No, it's not a good way to put it. I'm sorry to say, but you both are simply flat-out wrong. This isn't a matter of my opinion; it's a matter of basic financial fact. It appears to me that you are both very much in need of a Finance & Investments 101 course.

First of all, the point of the bailout is not to somehow help homeowners or shareholders; the point is to avert a financial market melt-down due to the massive size of these organizations (they hold or guarantee 75% of mortgage loans!). The homeowners who can't afford their homes will continue to suffer, and there are other public and private programs that attempt to address that iss. And let me assure you, this government takeover is extremely bad for the shareholders.

Let me put it to you graphically:

Fannie Mae recent stock price performance


Freddie Mac recent stock price performance


Does this this look like a good return on shareholder investment to you? If you're a shareholder of Fannie Mae or Freddie Mac, are you jumping up and down now shouting "Yippie! The company failed and now the government is taking it over"? NO. You're pissed because you just lost your fricken lunch.

Stock prices reflect a perpetuity of expected future cash flow of the underlying entity. When that future cash flow plummets the way it has here, stock prices reflect that. Furthermore, equity holders are residual claimants. That means they are the last in line after all of the debtholders to get their money when things go to the shitter and businesses liquidate. And as a rule of thumb, there is basically nothing left for the equity holder when the business flops.

And there is even less of a chance of recovering your losses if the government is the one stepping in to pick up the pieces, because the government does not bail out shareholders as a matter of policy. The governnment could have completely invalidated public shares of Fannie Mae and Freddie Mac. Instead, they did three things: (1) stripped all dividends and voting rights, (2) took over 80% of the company, and (3) reaffirmed that shareholders are first in line for losses and last in line.

Moral of the story: When the government steps in to bail out your failing business at taxpayers' expense, it is a very bad thing for you. The government is acting to avert a financial crisis, not to enrich you at taxpayers' expense.

[Lorn]

Re: Fannie & Freddie Bailout

^Hey you can disagree man. No problem with that.

My observation. The stock price collapsed even further after the bail out was announced. Hmmmmm, obviously the market doesn't think the bail out is very good.


Of course this is very bad for shareholders. That wasn't/isn't the argument, at least not mine. The argument is this is a bailout of the fuckers who bought Fannie/Freddie bonds/debt. Buying such rubbish entails huge risk. Unless of course the US Government has your back. Which is what I am against and am saying will hurt us even more.

....looking at what you quoted I see why you wrote what you wrote. Yes, its not the shareholders who the government is bailing out. For sure.

[runningman]

Re: Fannie & Freddie Bailout

that's the risk you pay for investing in bad investments though. If I invest in Yahoo and yahoo goes under then nobody is going to bail me out. Those spikes were from the media propaganda over the last 2 months. Why would you invest in something that has been dying over the last year. I think the government bit off more then they can chew right now. The unemployment rate is skyrocketing [(is at 6.1% and rising) which I'm sure the government is lying about probably closer to 14%] which leads me to believe the worst is yet to come. Everything else has been a lie with this administration I wouldn't doubt if they are lying now. Also the high paying jobs (over $100,000/year are leaving as well)

http://calculatedrisk.blogspot.com/2008/09/unemployment-rate-jumps-to-61.html

The hires rate has been dropping since 2006 as well.. The worst is yet to come.

http://www.bls.gov/opub/ted/

Oh ya and by the way Freddie and Fannie aren't on the list as TBTF (To-big-to-fail) according to the USA government. The only time when something is TBTF is when you are talking about systemic crisis not that it's not good for the country because it will lead to a banking crisis.

[Miroslav]

Re: Fannie & Freddie Bailout

My observation. The stock price collapsed even further after the bail out was announced. Hmmmmm, obviously the market doesn't think the bail out is very good.

Whoa...careful there. It's not quite so simple as that. It depends which "market" you are referring to, and even which sub-group within that market.

If you are referring to the broader equities market, it actually thought the bail-out is very good. Go back and look at the broader equities market indicies - they all took off on the day of the takeover announcement (I think the Dow picked up over 200 points). The reason is because the broader equities market did see FNM and FRE as a systemic risk, and therefore saw the government's intervention as a promising sign for future stability.

If you are referring to FNM and FRE equity holders, they obviously didn't see the situation as good - for the reasons we just discussed. But even there, I think you may be confusing the effect with the cause. The government takeover of FNM and FRE is for the most part the effect; the underlying shitty performance and burgeoning losses of the entities is really the cause. In other worse, the stock performance of FNM and FRE would likely have ended up in the same place even if the government not intervened, because the companies would very likely have ended up flat-out bankrupt anyways, at which point your equity is worth $0. It would simply have been a different entity (or entities) picking at the remaining assets of the companies. Not much difference to the shareholders. So I think the stock price mainly just reflect the fact that the companies just basically died financially, not necessarily that the government took them over.

If you look at the debt markets and FNM and FRE bondholders, they thought it was a good thing - to your point. I think FNM and FRE yield spreads soared that day. The fact that bondholders end up being at least somewhat protected is a direct correlary to the fact that the government wants to avert the complete collapse of FNM and FRE. But I wouldn't be surprised if the government ends up brokering some kinds of exceptions so that all debtholders do not walk off completely free in this.

Oh ya and by the way Freddie and Fannie aren't on the list as TBTF (To-big-to-fail) according to the USA government. The only time when something is TBTF is when you are talking about systemic crisis not that it's not good for the country because it will lead to a banking crisis.

I don't know about any official "too big to fail" list that the US government keeps - but if they have one, I suspect they would never publicly disclose what is on it for obvious reasons. I think "too big to fail" is basically a case-by-case matter of opinion. But the fact that the government stepped in and took the companies over suggests pretty clearly to me that the government did think they were too big to fail. Most financial experts agree.

The only time when something is TBTF is when you are talking about systemic crisis not that it's not good for the country because it will lead to a banking crisis.

The banking crisis that would result from the collapse of Fannie Mae and Freddie Mac is a systemic crisis.

That's the whole point of all this.