Federal Government planning to seize Fannie and Freddie (this is bigger news than all the political stuff put together)

[w¡n9Nµ7 §£@¥€r 123]

Senior officials from the Bush administration and the Federal Reserve on Friday informed top executives of Fannie Mae and Freddie Mac, the mortgage finance giants, that the government was preparing to seize the two companies and place them in a conservatorship, officials and company executives briefed on the discussions said.

...

The executives were told that, under the plan, they and their boards would be replaced, shareholders would be virtually wiped out, but the companies would be able to continue functioning with the government generally standing behind their debt, people briefed on the discussions said.

...

Under a conservatorship, the remaining common and preferred shares of Fannie and Freddie would be worth little, and any losses on mortgages they own or guarantee could be paid by taxpayers.

http://www.nytimes.com/2008/09/06/business/06fannie.html

[Ban Hammer 13,692]

:blink: :blink: you're right, this is big news!

[Dan J 277]

Senior officials from the Bush administration and the Federal Reserve on Friday informed top executives of Fannie Mae and Freddie Mac, the mortgage finance giants, that the government was preparing to seize the two companies and place them in a conservatorship, officials and company executives briefed on the discussions said.

...

The executives were told that, under the plan, they and their boards would be replaced, shareholders would be virtually wiped out, but the companies would be able to continue functioning with the government generally standing behind their debt, people briefed on the discussions said.

...

Under a conservatorship, the remaining common and preferred shares of Fannie and Freddie would be worth little, and any losses on mortgages they own or guarantee could be paid by taxpayers.

http://www.nytimes.com/2008/09/06/business/06fannie.html

These companies should be owned completely by the government. As it is right now, shareholders get the profit, while taxpayers take the risk.

I'm wondering what the market fallout will be with this.

[w¡n9Nµ7 §£@¥€r 123]

These companies should be owned completely by the government. As it is right now, shareholders get the profit, while taxpayers take the risk.

When the stock suffers, shareholders suffer. How are they not subjected to the risk?

[IAMX 3,055]

Why not let them die?

If this is not proof of corporate socialism, I don't know what is.

This goes contrary to the free market I keep hearing about.

Edited September 6, 2008 by SRVT

[Dan J 277]

These companies should be owned completely by the government. As it is right now, shareholders get the profit, while taxpayers take the risk.

When the stock suffers, shareholders suffer. How are they not subjected to the risk?

But the government won't let the company fail. It will pump taxpayer money into the company to keep it afloat.

I suppose shareholders have some risk, but it isn't a tradtional corporation.

[Dan J 277]

Why not let them die?

If this is not proof of corporate socialism, I don't know what is.

This goes contrary to the free market I keep hearing about.

It started as a government organization, but has since been privatized. Well sort of.

The government still maintains some control over the company, and backs it financially, but at the same time it works as a regular corporation. Making money for its shareholders.

[IAMX 3,055]

Why not let them die?

If this is not proof of corporate socialism, I don't know what is.

This goes contrary to the free market I keep hearing about.

It started as a government organization, but has since been privatized. Well sort of.

The government still maintains some control over the company, and backs it financially, but at the same time it works as a regular corporation. Making money for its shareholders.

I'm well aware of this, but that doesn't answer the question -- why not let them die?

I want the conservative explanation for why the government is essentially using our tax money to provide services to save a company. We're told about how the government should de-regulate and let the free market play out without government intervention, but not only is this government intervention, but the very definition of corporate socialism that's already prevalent in this government, but no bigger example than this.

So either government intervention is necessary into the market after all, or the housing industry should be allowed to finish it's nice collapse, along with the economy.

[rebeccajo 14]

Why not let them die?

If this is not proof of corporate socialism, I don't know what is.

This goes contrary to the free market I keep hearing about.

It started as a government organization, but has since been privatized. Well sort of.

The government still maintains some control over the company, and backs it financially, but at the same time it works as a regular corporation. Making money for its shareholders.

I'm well aware of this, but that doesn't answer the question -- why not let them die?

I want the conservative explanation for why the government is essentially using our tax money to provide services to save a company. We're told about how the government should de-regulate and let the free market play out without government intervention, but not only is this government intervention, but the very definition of corporate socialism that's already prevalent in this government, but no bigger example than this.

So either government intervention is necessary into the market after all, or the housing industry should be allowed to finish it's nice collapse, along with the economy.

Why not let them die?

Try a total collapse of the banking system for a reason. Is that good enough for you?

Fannie and Freddie buy most of the mortgages in the marketplace. If your banker has nobody to sell your loan to, he won't be making loans. Asset to liability ratios will start to tilt. Regulators will be on the doorsteps of every bank in the nation shutting them down.

This isn't about socialism or underpinning a corporation. When Chrysler was bailed out - that was socialism. This is put up or shut up time.

Edited September 6, 2008 by rebeccajo

[Dr. A ♥ O 203]

And if the banks start closing we go into a Depression. This doesn't just affect the United States this would affect the world economy as well.

Large numbers of people will live in poverty, desperately in need of more food, clothing, and shelter. Yet the resources that could produce that food, clothing, and shelter will sit idle, producing nothing.

1 in 4 Americans who want to work won't be able to find a job.

There was one segment of business that was unusually hard hit during the Depression, the banking industry.

Numbers of Banks and Bank Suspensions Year Number as of 12-31 Suspensions 1929 24,633 659 1930 22,773 1350 1931 19,970 2293 1932 18,397 1453 1933 15,015 4000 1934 16,096 57 Data are from Table V 20-30 in Historical Statistics of The United States: Colonial Times to 1970, 1975, p. 912.

As you see the percentages of bank failure grew. If the government doesn't intervene and banks begin to fail because of the collapse of the housing market then we would start going into the depression, no longer being in a recession, and people would blame our government for not doing something to prevent it.

Source: http://ingrimayne.com/econ/EconomicCatastr...Depression.html

[IAMX 3,055]

Why not let them die?

If this is not proof of corporate socialism, I don't know what is.

This goes contrary to the free market I keep hearing about.

It started as a government organization, but has since been privatized. Well sort of.

The government still maintains some control over the company, and backs it financially, but at the same time it works as a regular corporation. Making money for its shareholders.

I'm well aware of this, but that doesn't answer the question -- why not let them die?

I want the conservative explanation for why the government is essentially using our tax money to provide services to save a company. We're told about how the government should de-regulate and let the free market play out without government intervention, but not only is this government intervention, but the very definition of corporate socialism that's already prevalent in this government, but no bigger example than this.

So either government intervention is necessary into the market after all, or the housing industry should be allowed to finish it's nice collapse, along with the economy.

Why not let them die?

Try a total collapse of the banking system for a reason. Is that good enough for you?

Fannie and Freddie buy most of the mortgages in the marketplace. If your banker has nobody to sell your loan to, he won't be making loans. Asset to liability ratios will start to tilt. Regulators will be on the doorsteps of every bank in the nation shutting them down.

This isn't about socialism or underpinning a corporation. When Chrysler was bailed out - that was socialism. This is put up or shut up time.

Thanks. You gave a great explanation as to why Universal Health Care is necessary. Total collapse of America's health, with millions uninsured and who's life is at risk due to not being able to get health care. I'm sure if we can justify saving Fannie May and Freddie Mac, who really are in the position they are in from stupidity in how they give loans (given it ultimately comes from international investments, it took a while to trickle into the country's local economy itself), we can justify giving health care to all Americans.

[Dr. A ♥ O 203]

Health Care is a basic human right. All people should be allowed health care. Without us there wouldn't be them. They think we're a mass supply though and dehumanize us by making us work with little vacations, and paying us poorly, and shipping our jobs over seas, and forcing us to wear the same clothes, with name tags like cows and sheep, and tell us to keep natural hair color and non-painted nails. Ya know I think John McCain got it wrong. Education isn't the civil crisis of the century it's going to be health care.

Edited September 6, 2008 by Olivia*

[Dr. A ♥ O 203]

There needs to be a reform of the educational system regardless and I think one of the smart ways to do it is for education to partner with health care networks and their communities.

[rebeccajo 14]

Why not let them die?

If this is not proof of corporate socialism, I don't know what is.

This goes contrary to the free market I keep hearing about.

It started as a government organization, but has since been privatized. Well sort of.

The government still maintains some control over the company, and backs it financially, but at the same time it works as a regular corporation. Making money for its shareholders.

I'm well aware of this, but that doesn't answer the question -- why not let them die?

I want the conservative explanation for why the government is essentially using our tax money to provide services to save a company. We're told about how the government should de-regulate and let the free market play out without government intervention, but not only is this government intervention, but the very definition of corporate socialism that's already prevalent in this government, but no bigger example than this.

So either government intervention is necessary into the market after all, or the housing industry should be allowed to finish it's nice collapse, along with the economy.

Why not let them die?

Try a total collapse of the banking system for a reason. Is that good enough for you?

Fannie and Freddie buy most of the mortgages in the marketplace. If your banker has nobody to sell your loan to, he won't be making loans. Asset to liability ratios will start to tilt. Regulators will be on the doorsteps of every bank in the nation shutting them down.

This isn't about socialism or underpinning a corporation. When Chrysler was bailed out - that was socialism. This is put up or shut up time.

Thanks. You gave a great explanation as to why Universal Health Care is necessary. Total collapse of America's health, with millions uninsured and who's life is at risk due to not being able to get health care. I'm sure if we can justify saving Fannie May and Freddie Mac, who really are in the position they are in from stupidity in how they give loans (given it ultimately comes from international investments, it took a while to trickle into the country's local economy itself), we can justify giving health care to all Americans.

While I agree with you that Universal Health Care is necessary, you don't have apples to apples here. Our health care system isn't in any danger of 'collapse' - there's plenty of money to run it both privately or nationally.

If you want to draw an analogy to public health, a better one would be a plague set upon the american people. If such a scenario occurred, it's questionable whether or not private or public health care could handle it - but in such a case government resources would have to be applied. As will be with Fannie and Freddie.

Fannie and Freddie don't make loans. They buy them and issue bonds backed by them. Bonds that are sold to investors and frequently form the foundation for pension funds. An unattended collapse of Fannie and Freddie doesn't just crash the housing market - it might wipe out your retirement.

It's true Fannie and Freddie relaxed the criteria for mortgage lending during the boom years. But they aren't the demons in this scenario - predatory lenders are. Underwriting guidelines were loosened to allow for 'low doc' and 'no doc' loans, a Fannnie/Freddie product which was intended to make it easier for deserving borrowers to get a loan quicker and faster. Predatory lenders took these products to the furthest of edge of lending criteria with max caps ARMS and buydowns. More borrowers could qualify at the lower initial interest rate - predatory lenders soaked these borrowers with points, closing fees, doc prep fees, courier fees, underwriting fees, flood certification fees - if they could think of a new name for a closing service they named it and piled it on. Instant profit and loads of it led to mortgage lenders springing up on every corner and making the big bucks while the game was on. And it wasn't Fannie Mae and Freddie Mac who knowingly wrote mortgages with forged documentation - it was the predatory lendors.

Fannie and Freddie accepted these loans into their pools - there's always loans that will go belly up and they calculate their margins to allow for that.

What wasn't allowed for in their thinking were multiple black economic factors turning all at once, pushing the american consumer to the edge of their paycheck. Job losses due to a tax base which continually rewards business for taking jobs overseas as opposed to the creation of new domestic jobs; a war eroding the value of the dollar worldwide and a steady unchecked rise in the cost of oil. All ARM's are tied to some economic index - the Treasury bill or Fed Funds for example. As the economy headed southward, the indexes rose. When it came time for the first rise in those adjustable rate loans, instead of the interest rate slowly moving upward, they leapt to their maximum.

So it's not socialism - it's free enterprise run amuck aided by public policy unattended to in Washington. The tax code; the war; a devalued dollar; the cost of oil - all these things attributed to the housing crisis. The blind eye of the Bush Administration now has it's own finger poked in it. One of the legacies of this Administration is an congressionally unauthorized war. I wonder if it were not for a fledging Democratic congress still feeling for it's legs if the Bush Administration would not also have left Washington in January having thumbed it's bloody nose at Freddie and Fannie.

Edited September 6, 2008 by rebeccajo

[w¡n9Nµ7 §£@¥€r 123]

Fannie and Freddie accepted these loans into their pools - there's always loans that will go belly up and they calculate their margins to allow for that.

What wasn't allowed for in their thinking were multiple black economic factors turning all at once, pushing the american consumer to the edge of their paycheck. Job losses due to a tax base which continually rewards business for taking jobs overseas as opposed to the creation of new domestic jobs; a war eroding the value of the dollar worldwide and a steady unchecked rise in the cost of oil. All ARM's are tied to some economic index - the Treasury bill or Fed Funds for example. As the economy headed southward, the indexes rose. When it came time for the first rise in those adjustable rate loans, instead of the interest rate slowly moving upward, they leapt to their maximum.

One more 'black' factor not taken into account here is the rise of new quant models that basically "took in" risk analyses from various tranches and "output" aggregate risk ratings. These models were assumed to be correct, the product of the hard work of autistic wall street math geniuses. They were widely adopted. Everyone used them.

They were all wrong.

Edited September 7, 2008 by A.J.