Should the government (aka taxpayers) bail out Fannie and Freddie?

[kallend 2,184]

Looks like they both teeter on the brink. Is a taxpayer bailout appropriate, or just the govt. saving their wealthy Wall St. friends?
ap.google.com/article/ALeqM5gPfdSGL82ufTASVrfgCbKslcCYPgD91TLPG01

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The only sure way to survive a canopy collision is not to have one.

[Andrewwhyte 1]

If they do they should demand unescrowed equity in return. This will allow them to apply a stabilizing influence upon the market while holding the prospect of recouping at least some of the taxpayers' dollars. It also maintains to some degree the very necessary penalties on the investors that the market inflicts upon bad decision making.

[diablopilot 2]

Sure, the responsible people should be punished to bail out the irresponsible.

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You're not as good as you think you are. Seriously.

[Rookie120 0]

In a short reply, HELL NO!

If you find yourself in a fair fight, your tactics suck!

[rehmwa 2]

Sure, rich guys like you pay your mortgage. Likely on time.

Therefore, you can afford to also pay the mortgages for a couple other people too. AND help out GWB's rich friends while you are at it.

Why do you hate the poor?

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Driving is a one dimensional activity - a monkey can do it - being proud of your driving abilities is like being proud of being able to put on pants

[ChasingBlueSky 0]

This generation's S&L? Everything old is new again.

The ramifications of either one of them falling under would be dramatic for this country and most of the world. The real issue started when they allowed both to go public, something that should have never been allowed to happen.

I vote yes to bailing them out because that will cost less in the end run. As it stands getting credit in this country is becoming a tough thing, even for companies. Now banks are running into credit line issues and we could see over 300 of them collapse starting by December; of course those that dealt with sub-prime loans will go under first. But the inability of the US to make its own line of credit will disrupt our ability to play in the world market.

From what I have read, defaulted loans are not the biggest reason behind this, but the entire sub prime market. You should look up collateralized debt obligation and see an area that doesn't get enough blame. One of the biggest players in this market is ABN Amro/LaSalle which is now Bank of America.

Over simplified, plain english explanation
http://opinion.inquirer.net/inquireropinion/talkofthetown/view/20080330-127263/How-the-subprime-crisis-began

edit: And this is the problem I have with the financial world these days. Everything is about perception. The perception of slow or no growth, the perception that the debt may be risky and down the line it could cause issues, perception that we will have another 70s oil crisis over the summer, etc

We are in a financial crunch in the US because of a bunch of bean counters making random guesses over what may or may not happen. They are not doing this to protect anyone but themselves. And since Fannie and Freddie felt they needed to beat out those perceptions, they became more aggressive in the marketplace when the perception of bad mortgage debt came around. Damn vicious circle, and it's all because of these so called financial leaders.

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you can burn the land and boil the sea, but you can't take the sky from me....
I WILL fly again.....

[kallend 2,184]

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Sure, rich guys like you pay your mortgage. Likely on time.

Nope - all paid off well ahead of time

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The only sure way to survive a canopy collision is not to have one.

[nerdgirl 0]

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If they do they should demand unescrowed equity in return. This will allow them to apply a stabilizing influence upon the market while holding the prospect of recouping at least some of the taxpayers' dollars. It also maintains to some degree the very necessary penalties on the investors that the market inflicts upon bad decision making.

That's interesting proposal, particurlarly the recognition and action to address market accountability. If it can even be done?

Re-instatement of the Glass-Steagall Act, as a starting point, perhaps.

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It’s my understanding that the Federal Reserve Board’s Sunday evening announcement was that they would make funds available if FM/FM needed them – something intended as a confidence building measure – rather than a formal bailout a la Bear Stearns, yes?

If the Fed does do a formal ‘bailout’, does anyone have citable figures on how much that is estimated to cost versus the cost of collapse of the two US mortgage backers (~50% of all US mortgage debt, iirc) on the overall US economy? Again, it’s my understanding that in the last 12-18 months the default loan rate has increased from 1% to <2% at Fannie May. So that *if* a bailout occurred, it would be *much* smaller than the estimated impact of the notional loss on the 98% other mortgages across the US backed by FM/FM that are not in default and the impact of that on the overall economy.

From my unauthorized armchair economist perspective, the slide in FM/FM stock price reflects not only the choices that led to the subprime mptgage crisis, shady home loan operations, speculation, a supply-demand cycle pushing ‘McMansions’, and people living beyond their means (or re-mortgaging to live beyond their means) but reflects just as much overall lack of confidence in the US economy.

VR/Marg

Act as if everything you do matters, while laughing at yourself for thinking anything you do matters.
Tibetan Buddhist saying

[StreetScooby 5]

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The ramifications of either one of them falling under would be dramatic for this country and most of the world.

Yep.

But, they won't go under. FNMA, FHLMC, GNMA simply guarantee principal and interest payments for mortgages they back. Their underwriting standards are high, and the mortgages they're backing are still performing paper.

If you own agency corporate bonds, you'll be fine. If you own agency stock, you're hurting as already shown in the market place.

Do I agree with bailing out subprime home owners? Absolutely not. Unfortunately, the situation is much more complicated than that due to securitization of what is basically insurance policies. These insurance policies (e.g., CDOs) now need to be honored, and it's not working out very well for the people who bought the policies.

This will be going on for some time to come.

We are all engines of karma

[StreetScooby 5]

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If the Fed does do a formal ‘bailout’, does anyone have citable figures on how much that is estimated to cost versus the cost of collapse of the two US mortgage backers (~50% of all US mortgage debt, iirc) on the overall US economy?

The agencies P&I guarantees are still going to happen, mainly because the mortgage paper they've guaranteed is, and will continue to be, performing paper (i.e., the home owners are paying their mortgage).

Right now, FNMA and FHLMC "balance sheets" are precipitous using mark-to-market accounting techniques (i.e., they don't have enough "cash" in the company account according to generally accepted accounting principles).

If the fed "takes them over", FNMA and FHLMC stock will become worthless. The corporate bonds they have issued will be honored. Likewise, the P&I guarantee that MBS bond holders are expecting will be honored by the US govt (...that will only happen if people stop paying their mortgages, not an issue since it's mainly high quality paper).

We are all engines of karma

[mr2mk1g 10]

The big issue is that for the past 40 years, successive US Govts. have let it be known that these two firms had state backing. This allowed the firms to obtain credit at rates much lower than they would ordinarily have been able to. This drove cheaper mortgages which drove the economy.

So the question is not whether you use tax payer's money to bail out private companies... but whether you want to tell financial institutions across the world that you've been lying to them for the past 40 years.

The economy has reaped the benefits of having these companies considered to be state backed. There's no such thing as a free lunch – is it now time for the economy to pick up the tab on all those lunches?

[shropshire 0]

Nope. Nothing to do with our government

(.)Y(.)
Chivalry is not dead; it only sleeps for want of work to do. - Jerome K Jerome

[happythoughts 0]

During the old S&L scandal, people went to jail.
Sounds like a good time to reinforce that idea.

The S&L buyout was estimated to add $20,000 to the national debt for each American. That money was stolen and put into peoples pockets.

You steal, you go to jail.

The companies will use the money to bail out the loans with the worst repayment histories.

Then, the people who tried to keep current will have a good balance and are targets for foreclosure because the company makes the makes the most money there.

Therefore, companies are rewarded for knowingly giving bad loans.

People forget that the govt doesn't have any money.
It is using your money.

[tbrown 26]

If nobody gives a crap about the entire housing market and every other related job in America going belly up, then hell no.

Otherwise, like it or not, it's got to be done. For sure there will be a handful of sacrificial scapegoats who will get their fat asses thrown under the bus.

Your humble servant.....Professor Gravity !

[StreetScooby 5]

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If nobody gives a crap about the entire housing market

If homeowners had actually paid their mortgages (like I do), this would never have been an issue. If you took an ARM out, and didn't pay, you lose your home. End of story. Likewise, if an investor actually bought that piece of white paper, they lose, too. Caveat emptor.

Unfortunately, Moody's (et. al.) decided to rate Countrywide (et. al.) originated paper as AAA. Then, the wizards on Wall Street wrapped that paper into insurance policies, and then pension funds, et. al., bought the insurance paper. That's a gross simplification, but as soon as the paper was no longer AAA, the pension funds had to sell it. "Balance sheet" issues, as defined by generally accepted accounting principles, kicked in, then margin calls kicked in, then people had to start selling paper that wasn't worth anything in the current market, and it's turned into a fire storm.

We are all engines of karma

[kallend 2,184]

They both seem to be heading down the tubes. More insights:
www.nytimes.com/2008/08/24/business/24gret.html?_r=1&pagewanted=2&ref=business&oref=slogin

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The only sure way to survive a canopy collision is not to have one.